How the hotel industry is beating slowdown blues

So, what is happening?

Why does this matter?

Demand in hotels is seasonal. Meaning there are always some months where demand is stronger than the rest of the year. The third quarter (ending December) is typically one of their best quarters.

Think about it, it's a quarter filled with festivals from Diwali to Christmas and ofcourse New Years! People take leaves around this time and generally tend to travel more, which bolsters demand around this time.

As we move to Q4 (the quarter ending March), demand typically slows down compared to the previous quarter. See the table below to understand this better. As you will note, on a quarter-on-quarter (QoQ) basis, hotels either saw a negative revenue growth or a single-digit one.

In such a scenario to deliver double-digit revenue growth, would be a noteworthy achievement.

Quarterly performance (in ₹ crores)

Source: Screener

As such, this comment by Indian hotels is important from two vantage points:

• Strong demand in the hotel industry during periods when demand is typically mellow; and

• Indication of possible greenshoots in the overall economy.

Why is it happening?

For Q4 FY25, the sector is set to benefit from several tailwinds:

• Large-scale events: Major gatherings like the Mahakumbh and concerts by international artists such as Coldplay are expected to boost leisure tourism.

• Weddings and festivals: An extended wedding season, driven by favourable dates, contributes to high bookings, especially in the luxury and upper-upscale segments.

• Spiritual tourism: Peak travel to destinations like Prayagraj, Varanasi, and Tirupati adds a steady stream of travellers.

• Corporate conferences: Corporate bookings would be seeing good demand on the back of annual business events like Bharat Mobility Expo, Aero INdia, Prasvasi Bharitya Diwas etc.

• Sports events: Q4 will also see some biggest sports events like IPL, Hockey India League etc which will further keep the demand intact

• Foreign tourist: Q4 being the hub of major events and favourable climatic conditions to derive almost 30% of foreign tourists in Q4.

Source: IHCL

Overall sector at a glance

Regardless of short-term volatility, like most sectors in India, the hotel industry’s long-term outlook remains strong. It is poised for an extended period of growth, buoyed by a strong demand-supply dynamic. As per IBEF, the demand growth (12% CAGR, FY24-27E) significantly outpaces supply growth (9% CAGR).

Long-term growth drivers for the hotel sector

• Rising disposable income: Disposable incomes are expected to grow by 50% between 2024 and 2030, enabling more Indians to explore luxury travel.

• Growing middle class: The middle class, a key driver of domestic tourism, will grow from 31% to 38% of the population by 2030, as per Mckinsey.

• Urbanisation of tier 2/3 cities: With 75% of new hotel additions in Tier 2/3 cities, smaller urban areas are emerging as tourism and business hubs. These cities are emerging as spiritual and cultural hubs and are expected to drive future growth

• Infrastructure push: Government investments in airports, roads, and railways will improve accessibility.

• Supply constraints: India remains underpenetrated in terms of hotel rooms per capita (0.2 rooms per 100 people), ensuring that demand will outstrip supply for the foreseeable future.