The Hindu Business Line : Vacant rooms hit hotels’ profits

Mumbai, Aug.10 Sluggish demand led to a fall in the average room rates and occupancies in hotels across India, and this has a cascading impact on the profitability of hospitality majors in the first quarter ended June 30, 2009.

According to market analysts, Revpar (Revenue Per Available Room), the true indicator of the performance of hotels, crashed 33-35 per cent , adversely impacting the bottom-line as well as top-line of hotel companies.

While the average room rates (ARRs) have fallen 18-20 per cent across cities, occupancy has moved southward to around 50-55 per cent against 65-70 per cent in the same quarter last year.

Foreign tourist arrivals

Post the terror attack of November 2008, growth in foreign tourist arrivals remained negative till May.

However, in June and July the numbers showed have showns ome improvement, with FTAs growing by 0.3 per cent and 0.7 per cent, respectively, on a year-on-year basis.

Indian Hotels Company, which runs the Taj Hotels, Resorts and Palaces, saw a 73 per cent decline in net profit to Rs 16.4 crore (Rs 61.2 crore).

Leelaventures’ net profit was down to Rs 1 crore from Rs 33.4 crore last year, a whopping 97 per cent drop. While EIH saw its profits fall by 50 per cent to 19 crore (Rs 38 crore), Delhi-based Asian Hotels’ net profit declined 58 per cent to Rs 11 crore (Rs 26 crore).

Cost control

The hotels have resorted to cost control to minimise the impact of lower occupancy. Three major costs — raw material, employee costs and other costs — declined by an average of 19 per cent, 13 per cent and 28 per cent, respectively, for IHCL, EIH and Leela.

The short-term outlook for the sector does not look bright as the second quarter is traditionally a low-season period. “With the fear of spread of swine-flu looming large, the revenues of the companies are unlikely to improve,” said Mr Shah. However, with the peak season hitting from the third quarter and going up to the fourth, the scenario could change.

“Hospitality is a seasonal business and a lot depends on external factors. Last year, apart from the economic slowdown, the terror attacks on two prime hotels in the heart of India’s commercial capital hit the entire tourism season. Even in the first quarter of fiscal year 2010, the slowdown continues to haunt the industry. Going forward too, a lot will depend on the overall scenario in the economy and otherwise,” said an analyst from a broking firm.

Related Stories:
Hotel stocks decline as overall occupancy level falls
Drop in occupancies hits Indian Hotels net
Leelaventure sees hard times persisting till Oct

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