Indian hospitality sector: Headed towards a high season
A PROMISING surge in 2023 led the Indian hospitality sector to a robust revival despite global challenges. With strong domestic demand and anticipated international travel rebounds, 2023 witnessed a significant recovery in foreign tourist arrivals with over 100 per cent surge in international flyers in Jan-Jun 2023 compared to 2022. Global events such as the G20 Presidency further fuelled this positive trajectory across cities in India. According to industry estimates, this momentum is projected to elevate the travel and tourism industry’s GDP contribution to an impressive US$ 512 billion by 2028. India’s hospitality landscape is clearly set for resilience and growth on the global stage.
Amid the evolving tapestry of the hospitality industry, steady growth of the hospitality sector and supply would continue for the next few years. While demand patterns stabilise in 2023, with revenge travel declining, the demand for leisure travel remains strong. Also, with business as usual, the corporate travel segment has continued to grow despite high airfares and high average room rate (ARRs).
Investment flows in the hospitality space
We expect this steady growth in supply to continue for the next few years. By the end of 2023, ~12,000 rooms are likely to be added, with the CAGR expected to rise to ~3.3 per cent by 2025. Recovery in demand is anticipated to outpace supply additions during this period, leading to positive performance metrics in the hotel sector. The demand over the next few years is not expected to remain concentrated across select pockets or cities but is likely to be more equilateral and broad-based. Over US$ 2.3 billion in investments are expected over the next two-five years, and more than US$ 0.4 billion of investment is expected during 2020-2023.
Investment flows in the hospitality space have been substantial, with the Indian Government permitting 100 per cent FDI in the hotel and tourism industry. Estimates show the tourism and hospitality sectors are projected to generate US$ 50.9 billion through visitor exports by 2028. The growth is further fuelled by international hotel chains making significant investments in India, alongside substantial contributions from Indian companies. The international presence and recognition of Indian chains such as The Leela, ITC, The Oberoi and Taj have established the service level and visibility of these brands. The entry of premium Waldorf Astoria hotels in collaboration with an Indian company is expected to enhance the global presence of Indian hospitality further.
As the fervour of tourism regains momentum, the ever-evolving hospitality industry unveils novel trends in 2023 that are set to shape the path forward into 2024 and beyond. Post-Covid19, the rise of flexible and remote work has reshaped business travel trends. A notable shift is the growing popularity of combining business with leisure travel, known as ‘bleisure’.
Bleisure and wellness: the new travel mantra!
Blurring the lines between business and leisure, the rise of ‘bleisure’ travel and ‘workcations’ is reshaping the landscape. Flexible/ hybrid working snowballed the bleisure travel theme – but with the debate around flexible working being not completely settled, we expect ‘bleisure’ travel and ‘workcations’ as concepts to remain relevant. In fact, as international business travel picks pace, we expect the bleisure trend only to strengthen. We expect hotels to continue expanding their array of services by including tour packages and pre-planned itineraries for the partners or families of the business traveller.
The shift is extending to homestays too, traditionally the domain of leisure travellers, is now doubling up with business-friendly amenities such as workspace furniture, wi-fi and play areas for children. In this evolving narrative, the fusion of work and leisure is transforming the very essence of travel.
Over the recent years, tourism in the country has undergone significant transformation, particularly in terms of the motivations driving travel. Notably, it has emerged as a substantial economic force, constituting nearly seven percent of the GDP. Further, this sector promises a year-on-year positive trajectory, which is a huge employment generator and a key sector that carries the development narrative forward, especially localised development. From what has been seen as leisure or holiday travel, things have now moved to wellness and spiritual travel. Since Indian tourism is synonymous with warm hospitality, diversity of cultures, great architecture, heritage, yoga, Ayurveda, and a variety of cuisines – there has been a phenomenal uptake in what is emerging as religious as well as wellness tourism.
To encourage and bolster this sector, the Indian Government too has implemented a national strategy and roadmap for medical and wellness tourism. The National Strategy is designed to establish an institutional framework, enhance the ecosystem for medical and wellness tourism, cultivate a distinctive brand identity, and ensure rigorous quality assurance measures.
Moving on with wellness. India is also hugely attracting hordes of people for its rich religious/ mythological history, leading to an increased interest in religious tourism. Acknowledging this trend, the government launched the PRASHAD, recognising the evolving preferences of religious tourists – now seeking clean, hygienic, and family friendly accommodations – leading hotel chains are seizing the opportunity. There’s a lucrative space for hotel brands to explore budget, mid-range and even luxury options, tapping into a demand predominantly met by local establishments such as dharmshalas and guesthouses managed by temple trusts.
India’s hotel supply growth is charting a trajectory that extends far beyond traditional urban hubs. A surge in new hotel signings is expected from tier-II and III markets, primarily driven by conversions and rebranding initiatives in the mid-scale segment. This strategic shift aligns with the rising prominence of cities as focal points for infrastructural development and improved connectivity, establishing them as increasingly attractive destinations for business travelers.
Looking ahead, several trends are anticipated to shape the hospitality landscape. At present, ownership and management contracts are a popular business model in India. The Indian hotel business model is on the cusp of a transformative phase. However, as the country’s hospitality market matures, brands are considering deploying India’s franchising business model.
Beyond the realm of business models, ESG (Environmental, Social, and Governance) has emerged as a ubiquitous term globally, influencing diverse industries. In the hospitality sector, sustainable tourism is gaining momentum as tourists exhibit a heightened consciousness of the climate crisis. This growing awareness is propelling hospitality players into ESG journeys, aligning their practices with the changing values of environmentally conscious travellers.
Author Bio: Anshuman Magazine is Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE
