Rooms With Few Visitors

There are over 13,000 branded hotel rooms within a 60-square-kilometer radius of the National Capital Region. A figure that puts all other Indian cities to shame. Except, not really. The average occupancy of these hotels is not over 55-60 per cent. This indicates a perpetual crisis in the hotel industry in the nation’s capital. The situation is virtually similar across other metros too.

In fact, Delhi will have more hotel rooms very soon. The Delhi Aerocity, a 43-acre hotel district set up by Delhi International Airport (DIAL), which was envisaged to offer over 5,000 rooms and was hailed as the future central business district of the capital, has opened up half of the promised numbers for business. More are coming — some hotels plans are on hold, and some are close to finishing. But experts feel that business in Aerocity will be different.

What Figures Tell
According to a report by rating agency ICRA, the hospitality industry in India grew 7.6 per cent (against a projection of 8 per cent) during the October-December 2015 quarter. A decent rise, however, “after 20 consecutive months of year-on-year occupancy increase, lack of traction in average room rate (ARR) is a worrying feature now,” the report said. The reason behind sluggish ARRs is oversupply as shows studies by ICICI Home Finance. In its outlook for the Hyderabad market, it recently observed that due to doubling of inventory in the organised segment to over 5,000 rooms in the past five years, the ARR and occupancy have both declined sharply in Hyderabad.

Reports from UK-based data and analytics specialist STR tell the same story. According to it while the occupancy improved by 2-6 per cent across metros, the average room rates declined in Bangalore (by 1 per cent), Delhi-NCR (4 per cent), Noida/Greater Noida (5.4 per cent), and Chennai (2.3 per cent) in 2015.

In a television interview last December, Vivek Nair, chairman and managing director of the Leela Group of Hotels, had conceded that since the Lehman Brothers crisis, Indian hotels were seeing the lowest ARRs. “We have barely been able to meet our operating costs. One must keep in mind that ARRs are purely determined by the demand-supply equation, and the huge supply in Mumbai and Delhi remains a constraint,” he had said.

To counter stagnant ARRs and low single-digit growth in occupancy, large branded hotels are hosting events, exhibitions, seminars, workshops, and weddings to keep their heads above water. But those with limited capacities are drowning. Take for example, the hotels operating in Aerocity such Pullman, Novotel (both from the Accor Group) and JW Marriott (the luxury hotel and resort brand of Marriott International) are all happily promoting their infrastructure to attract more MICE (meetings, incentives, conferences and exhibitions) business.

Adding More
According to an HVS study, New Delhi has the largest number of branded hotel rooms (13,277), closely followed by Mumbai (including Navi Mumbai) and Bangalore as on March 31, 2015. A few hundred more have been added since. The study shows that Delhi market is expected to see an addition in supply of over 2,200 rooms across the upscale, mid-market and budget segments in the next three years.

And so would cities in south India. Property consultant JLL India say cities such as Bangalore and Chennai may see an addition of over 5,000 rooms in the next 24-36 months. Real estate builders such as Brigade Group, Prestige Group and Embassy see value in building hotels.

The Problem Of More
It is predicted that the premium hotel category will add around 29,000 rooms to the supply side of the equation over the next five years. The demand side, however, may not keep up pace.

A senior official at the India Tourism Development Corporation terms the new hotels and over supply of rooms a “threat” to older hotels such as Ashok and Janpath. “We are aware that new hotels with ultra-modern facilities are coming up fast. There will be an overall decrease in demand due to excess room supply in Delhi and other cities. This is a reality,” the official says requesting anonymity. Other hotel groups chose not to answer our questions on one pretext or the other.

“Between 2000 and 2010, the occupancy of branded hotels used to be 70-75 per cent. Today, it is 10-15 percentage points down and stagnant. Oversupply is certainly impacting the business,” says a senior executive of a leading hotel chain.

Commenting on the crisis, the Leela Group in its annual report said, “The overall occupancy rates in the country increased marginally in 2014 fiscal year over the previous year. However, the average room rates remained almost flat due to lack of sustained demand and oversupply of guest rooms in major destinations.”

The recent announcement of merger between Starwood and Marriott is not helping the fortunes of the business either. The proposed merger takes the value of Starwood to $13 billion, and will create the largest hotel company in the world with more than 1.1 million rooms. “This would undoubtedly have an impact on rates and re-balance occupancy levels in highly consolidated markets,” said P.R.S. Oberoi, executive chairman of EIH, in its latest annual report.

According to the HVS report, Taj Resorts and Palaces (including Ginger) is the market leader in India with over 13,000 rooms. ITC Hotels (including Fortune) have over 9,000 rooms. But now, Marriott and Starwood together would have over 15,000 rooms. With the proposed merger, the Marriott-Starwood entity will overtake Taj. Presently, Starwood has 47 operating hotels in India and 37 in the pipeline, while Marriott has 30 operating and 45 in the pipeline, the report said.

The MICE Play
Despite the slump, the Bird Group is confident that the expected rise in foreign tourist arrivals will boost hotel occupancy and average room rates. “Delhi currently has a capacity of 38,000 rooms. With rise in corporate and leisure travel, we strongly believe the city will require additional rooms to meet demand,” says Ankur Bhatia, executive director, Bird Group. Bird Hospitality’s dusitD2 at Aerocity is expected to launch later this year. It will offer 216 rooms. “We believe that Aerocity will soon be the preferred hospitality hub,” adds Bhatia.

For Khurshed Gandhi, managing director, Consulting, Cushman & Wakefield, Aerocity has been doing decent business. “Even though the ARRs are not as high as some of the other Delhi hotels, occupancy levels are higher. More hotels are approaching DIAL as they have land parcels.”

For brands that are already operational in Aerocity such as Pullman, Novotel, JW Marriott, Holiday Inn and Lemon Tree among others, the business is picking up, especially due to MICE, the officials admit. Tristan Beau de Lomenie, general manager delegate - Pullman & Novotel Delhi Airport at Accor India, says his hotels are well positioned to attain a large segment of the MICE market. “Our convention space is spread over a vast expanse of more than 40,000 sqft with a pillar-less ballroom measuring 12,719 sqft. We also have state-of-the-art meeting and convention spaces with 13 fully-equipped meeting rooms, three boardrooms with flexible room layouts and one of the largest pillar-less ballroom spaces in Delhi NCR measuring over 1,181 sqm.”

Together Pullman and Novotel have over 600 rooms to offer to business travellers and large guest contingents, along with 16,000 sqft of spa at Pullman. “Because of Aerocity hotels, there is a definite impact on the rates of some of the other hotels in NCR. Our focus is on promoting Aerocity as a MICE destination both for Indian and overseas clients,” Lomenie says, adding that most of their guests are from India with a majority of them from the corporate MICE segment.

Antony Page, general manager of JW Marriott, Aerocity, which is located right across the street from Novotel and Pullman says once Aerocity sees its commercial space and malls fully operational, it will be a prized destination for all categories of travellers. “We are away from the chaos of Gurgaon and Delhi. Many offices are moving to Aerocity too. And Airport Metro makes it easier for our guests to go to the heart of Delhi for shopping and appointments,” says Page. JW Marriott also claim to offer the largest room size (42 sqmt) and ample meeting space through its 10 meeting rooms spread across 24,000 sqft, including a 12,000 sqft banquet hall. Altogether Marriott, which was the first hotel to open in October 2013, offers 500 rooms. When asked about its guest profile, Page says they are middle- and high-class elite category with 85 per cent being business travelers. “So far our guest profile data shows 42 per cent are from India, 32 per cent from the US and 4 per cent from the UK,” says Page.

ashish.sinha@businessworld.in; @ashish_bw