Out of the woods

India’s hotel industry has bounced back and surpassed pre-pandemic performances in several markets. The aftermath of each wave was met with faster, stronger recovery across hotel occupancy levels in key markets, especially across metro cities.

While the pan-India RevPAR for Q1, 2022 was lower by more than 15 per cent in comparison to the previous quarter, occupancy levels in YTD April 2022 increased by over 35 pp as compared to the same period last year. Post-third wave, key metro markets have welcomed stronger recovery with the return of business travel this summer alongside the unwavering domestic-leisure demand.

With the easing of travel restrictions, the radius of domestic travel has now extended beyond peripheral feeder markets and destinations and has revived tourism across the country. Pent-up demand for off-sites and MICE events is now being realised in large numbers and will likely continue till the onset of intense monsoons. 

This ebb and flow of recovery over the last two years is gradually re-instilling confidence across stakeholders in the industry. This can be noted in the number of brand signings that have been recorded in 2021 as well as in Q1 2022. While Q4 2021 recorded the highest number of signings over the last two years, both in number of hotels and inventory, Q1 2022 signings were up by over 80 per cent in comparison to Q1 2021. While over 40 per cent of the signings in 2021 were brownfield, the remaining were almost equally distributed between conversions and Greenfield developments. This has been one of the key signs of smart and sustainable developments.

As the world gets more conscious about its consumption and output, the repurposing of assets in this fashion marks a significant shift in the hotel industry’s contribution to carbon generation and towards building environmentally and financially sustainable businesses. While the pattern may have been driven by the desire to achieve a swift turnaround, the outcome will not only facilitate a faster infusion of ‘new’ inventory into the supply pool but will also rationalise developments and streamline the quality of operational assets in the market.  

Since the revival of travel in the latter half of 2020, branded hotel operators have benefitted from a strong vote of confidence from travellers as well as asset owners. While travellers showed faith in their safety and hygiene protocols, asset owners were drawn to their operating, distribution and marketing reach.

Having survived the thick of the lockdowns with parched cash-flows, asset owners have been nudged to re-evaluate their business continuity options, which in several cases, has resulted in tie-ups with established hotel operating brands. While over 30 per cent of the signings in 2021 were with international operators, domestic brands emerged with the larger share of signings. Similarly, of the 56 signings recorded in Q1 2022, domestic operators dominated signings over international operators with 75:25 ratio in terms of inventory volume.

After a long hiatus, the momentum for asset transactions is also likely to pick up as hotel performances improve and the gap between seller and buyer expectations narrows. Whilst the discussions started in 2021, we should see sizeable deals to fruition in 2022. We are also likely to witness some mergers and consolidations across players in the ecosystem with the goal of swift expansion across competencies. The transaction roster for 2022 includes not only the sale and purchase of assets but also mergers and acquisitions between brands, digital platforms within the industry and asset owners, fostering strategic partnerships towards building resilient and diverse business models. 

With agility and survival as the guiding mantras, the hotel industry is now recovering steadily on the back of lessons learnt over the past two years. Should this momentum continue and with the worst hopefully behind us, we anticipate a window of steady performance over the next few months, in the absence of major health, safety and geopolitical setbacks.