Premium hotel rooms to cost 20% more soon

MUMBAI: Premium segment hotels are raking in the moolah this year following an upbeat occupancy level and fewer expansions in the industry. A huge demand-supply gap may see hotels hiking room rates by 20% in the next few months, industry sources said.

While most of the premium category hotels such as Indian hotels (Taj), Intercontinental, East India (Oberoi, Trident Hilton) and Asian Hotels (Hyaat) have expansion plans for the next five years, none of the capacity expansion is expected this year.

Currently, ARR (average room rates) of five-star premium hotels is around Rs 6,550 per day with occupancy levels ranging between 74-78% in most of the prime business destinations.

In April ’06, ARRs of premium segment hotels in Delhi was around Rs 8,200 per night, up by 38%. Similarly, in the north Mumbai region, ARR was Rs 7,150 per night in April ’06, also up by 38%; while in Kolkata, ARR was Rs 4,800, up by 32%.

While Indian Hotels is planning to add 1,500 rooms across 12 cities in the next five years, Intercontinental is adding 1,100 rooms, East India Hotels is planning to add 1,200 rooms, Asian Hotels is adding 500 rooms and the Leela group is adding 1,000 rooms in the next five years.

“There is huge demand-supply mismatch among the premium hotels. With gestation period ranging between three and four years, most of the capacity expansion for the premium category is expected in ‘07-08 and ‘08-09,” according to an official from CRISIL research.

Analysts also indicate that room additions, compounded with strong tourist inflow, would ensure better margins and profitability for the industry as a whole.

The hospitality industry is witnessing unprecedented growth and the increase in revenue and profitability of most of the premium hotels across cities is an indication of this, said an official of a premium hotel based in Mumbai.

With summer occupancies in most of the hotels touching peak levels, most of the hotels have had to postpone their renovation plans. This, despite summer traditionally being a lean period.

According to latest statistics, tourist inflow has risen by 12% and stands at 4.01m this year. The current trend of mixing both business as well as leisure and the upbeat economy have fuelled a strong demand for hotel rooms, said Alok Agarwal of Motilal Oswal Securities.