Business travel to boost hotel industry revenue by 23% in FY23 over the pre-Covid period: Report

The Indian hotel industry is likely to witness 23 per cent growth in revenue this fiscal over the pre-pandemic level, driven by a strong recovery in business travel and continued traction in leisure travel, according to a report.

Higher average room rates (ARRs) and occupancy will help the hotel industry log a strong improvement in profitability to around 34 per cent this fiscal compared to 24 per cent in the pre-pandemic period (fiscal 2020), Crisil Ratings said in a report.

Revenue, on its part, will increase 23 per cent over the pre-pandemic level, riding on a strong recovery in business travel and continued traction in leisure travel, it added. "Leisure travel had gained traction post the Delta wave last fiscal, while business travel has started picking up steadily after a much milder Omicron wave in January 2022. This has fuelled demand in the MICE (meetings, incentives, conventions, and events) segment," Crisil Ratings Senior Director Mohit Makhija said.

Crisil Ratings believes that improvement in international business travel in the second half of this fiscal will strengthen the industry's performance, he said. "Occupancy will rise to 73 per cent this fiscal (68 per cent in fiscal 2020), while average room rate (ARR) should increase 8-10 per cent," he added. The report further said that the gap between demand and supply will aid the improvement in ARR.
Developers had held back on Capex amid the pandemic-induced uncertainties, and while the sharp rebound in demand may spur an increase in capex, supply will take a while to catch up because of the long gestation period for setting up a greenfield hotel that will favour existing hotels, it added.

Meanwhile, organized players are increasing their footprint in an asset-light way, the report said. They are increasing capacity by entering into hotel management contracts for existing standalone properties, which will limit their upfront capital costs and keep leverage in control.