An analyst presentation, shows that the room rates grew across India's major cities, except Bangalore and Hyderabad, while aggregate demand per day was flat at the industry level. Supply of rooms per day also grew a marginal 2 percent.
Increasing costs
Developers have been rushing to build hotels in India to fill the shortfall of rooms but rising land, financing and construction costs could dent profits for them.
The rise in interest costs would escalate the project cost by 10-12%, according to Vivek Nair, vice chairman of Hotel Leela group. "To finance projects at these high rates of interest, you have to charge high room rates."
India's inflation jumped to 11.42 percent in mid-June after the government raised petrol and diesel prices by about 10 percent earlier this month. With international prices shooting through the barrel, worse is yet to come.
Decreasing demand
The growth rate in the number of foreign tourist arrivals has reduced slightly from 12% to 11.5 % at about 2.3 million between January and May 2008 according to the provisional data released by the ministry of tourism.
Foreign and local visitors at hotels were lower and the industry occupancy was about 10 % less in the first quarter over last year's, says Sushil Gupta, M.D. (west) of Asian Hotels.
"It is ahead of last year but slightly below expectations so it is soft I'd say, but it's a soft period as well," admits Raymond Bickson, managing director of the Taj group, referring to the occupancy in the first quarter.
The industry expects a demand for 100,000 more rooms to accommodate an estimated 10 million foreign visitors by 2010. But estimates could taper if the situation continues, Nair added.
The number of millionaires in India grew by 22.7 % to 123,000 people in 2007, the fastest in the world, according to a survey by Cap Gemini and Merrill Lynch, suggesting an increase in demand for higher priced rooms. Of course, the survey is meaningless now because of an erosion of a third of the market capitalisation in the current stock market meltdown since the beginning of this year.
Reality Check
New players would have second thoughts about entering the market, Chender Baljee, chairman of Royal Orchid Hotels Ltd. "I think this was a correction badly needed in the hotel industry.
"The country as a whole has over 70 percent occupancies. The market, compared with other global markets is still strong," says Bickson.
'The month of June saw a dip of about 3% in the occupancy of our hotel,' says the Hyatt Regency, New Delhi's EAM, Prasanjit Singh. But it is interesting that our APR was close to Rs. 12,000, even higher than Oberoi.' With the renovation going on they do not have many rooms to offer and so there example of holding the steady prices may not be not universal. For example the rates in the Taj group of hotels have taken a nose dive in Delhi, according to him.
'But this is a phenomenon that happens every year. There is nothing to worry about.' The problem is expected to arise after the games in 2010 when the rooms availability is going to take a quantum jump.
The last couple of years have seen a flurry of foreign hotel companies. Even non-hoteliers started making a foray into the booming hotel industry in India. It may not yet be the time for gloom but with the rising costs and slowing of economy and difficulty in raising finances, breaks seem to have been put on the boom-at least for now.
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