HVS Monday Musings: Indian Hotel Sector – Crystal Gazing Into 2022
2022 will be a critical year for the Indian hospitality industry as it continues its upward journey on the long road to post-COVID recovery. We expect the strong rebound in domestic leisure demand to continue as people embrace the new ‘normal’ of COVID world travel, although Omicron or other variants that may emerge from time to time. act as temporary bottlenecks in the recovery of the sector. Likewise, India’s hospitality industry has also learned to adapt quickly, think outside the box and embrace new ideas faster than before – the few benefits of the instability caused by the pandemic over the past two years. . We expect India-wide occupancy to reach pre-pandemic levels in 2022, with average rates approaching pre-pandemic levels towards the end of the year.
1. Explore the underserved leisure segment: Hotel companies are already expanding their presence in Indian leisure destinations as leisure travel rebounds faster than business travel in times of crisis. We expect this trend to accelerate in the coming years as the domestic leisure segment continues to be underserved, with several emerging tourist spots in India still lacking adequate infrastructure, including accommodation. good quality brand. The government has planned major investments in the country’s road and rail networks, as well as plans to privatize airports in Tier 2 and 3 cities, which will help improve regional and last mile connectivity to several tourist spots. emerging markets and encourage hoteliers to further exploit this underserved segment.
2. Business travel will take off: Domestic business travel is slowly gaining traction as face-to-face meetings are finally making a comeback after months of virtual meetings and video conferencing. Business travel already accounts for 20-25% of hotel revenues in some cases, which is a positive sign for the industry. Demand from sectors such as manufacturing, healthcare, pharmaceuticals, FMCG, consumer durables and financial services is rebounding significantly, but demand for IT & ITES is picking up at a faster pace. slow. While growing travel restrictions due to Omicron may prompt companies to focus on short-term, critical and critical travel, we expect the situation to stabilize and domestic business travel to pick up significantly in the coming months. the year to come.
3. Unlock ancillary revenue streams: The hospitality industry generally lags behind other travel-related industries when it comes to unlocking ancillary revenue streams primarily focusing on a few additional services such as restaurants and spas. However, when room revenues fell during the pandemic, the hospitality industry was forced to find new ways to use its assets, creating a host of ancillary revenue streams such as food delivery, laundry services. and DIY meals to name a few. Having realized the true potential of ancillary revenues to increase revenue, hoteliers are now expected to take advantage of the vast untapped opportunity by using existing infrastructure for new business opportunities. This could include creating a space dedicated to coworking spaces, monetizing parking spaces, deploying electric vehicle (EV) charging stations, renting kitchens for cloud-based cooking needs during hours. hollow and other similar optimizations of space and services. This strategy will improve customer engagement and brand loyalty while increasing real estate revenue per square foot.
4. The rise of smart technologies will fundamentally change the design of hotels: After embracing digital keys and menus during the crisis, several hotel companies are now evaluating other technological aspects to revamp their properties to remain relevant in today’s rapidly changing world. Smart technology is poised to play a bigger role in future hotels, as it offers hoteliers endless possibilities to differentiate themselves from the competition and exceed the expectations of tomorrow’s guests. It will also help reduce costs, streamline processes, optimize operational efficiency and improve staff productivity, which will help improve the profitability of the industry. However, as hotels begin to process and store large amounts of guest data, the industry will face a whole new set of challenges. Customer privacy, data security and cybersecurity will become critical considerations as the industry becomes more data-driven in the future.
5. Adopt lean operations: We expect hotels to continue to operate with lower staff ratios, although we can already see the temptation to revert to previous ratios and workforce strength, especially in the economy segment, where the ratios are already lower. However, hoteliers have found that the past staffing ratio may not be necessary for efficient operation and will strive to achieve the best ratio for their property in the future, focusing on revising staffing levels. SOP to account for lower headcount ratio, as well as employee retraining and training, to ensure service quality does not suffer.
6. Management by third parties will gain in importance: Franchising is slowly but steadily gaining ground in the Indian hotel industry as it offers owners the opportunity to manage their own properties. Making the franchise or base charge equally attractive in management and franchise agreements, while allowing flexibility in the franchise period with shorter terms of 8-10 years, can help promote franchise in the country. . As franchising gains in importance, we expect the role of a third-party manager, which has traditionally been underestimated in India, to become more important as hotel owners and operators realize the real benefits. and the potential to work with professional asset managers to review and improve their hotel performance, particularly in the post-COVID era. In addition, as the Indian hotel industry evolves, an increasing number of hotels will be owned by institutional investors, making return on investment crucial; third-party management is likely to gain ground in this scenario.
7. Partnership with branded restaurants: Hoteliers should reinvent F&B by leasing space to reputable, stand-alone restaurant brands on a revenue-sharing model, which can be mutually beneficial. Restaurant owners can benefit from the hotel’s captivated clientele, the advantages of location and branding, while hotels have the opportunity to enhance the customer experience by becoming a “destination” for customers. of the hotel and the inhabitants, which leads to an increase in income and profitability of the catering industry.
8. Evaluation of hotel residences: Branded residences, which are still a niche idea in India, are another opportunity that hospitality players should seriously consider in the post-COVID era to diversify their risks and sources of income. By leveraging its brand through affiliation, the hotel operator can not only collect royalties / license fees, but also diversify revenue streams by providing end-to-end property management and a full range of services such as concierge services, housekeeping, laundry, housekeeping, and catering services. This is a lucrative model, as hotel operators can leverage their brand equity for high-end housing projects and earn not only license fees and services provided, but also the commission charged on the sale of each house.
9. Capitalize on the popularity of alternative housing: Traveler preferences have changed dramatically since the start of the pandemic, resulting in a growing preference for vacation home rentals and homestays as alternatives to hotels and resorts among many domestic travelers. These segments offer travelers the best of both worlds: the privacy, security, flexibility and convenience of private accommodation combined with the pleasures and comforts of a hotel, especially for those traveling in small groups or with families and pets. of company. However, these segments are still very poorly organized with the presence of very few branded hotel players, particularly in the upscale and luxury segments. As a result, new players are likely to enter these segments with lucrative investment models, especially for expansion into underserved leisure destinations, due to lower overheads and higher profitability than that. of a hotel. IHCL, for example, launched the amã Stays & Trails brand to enter the country’s rapidly growing homestay market. Likewise, the major international hotel companies have already diversified into the vacation rental space on a global scale and it is only a matter of time before they do so in India as well.
10. Sustainability will become more than lip service: India pledged to become carbon neutral by 2070 at the recent COP26 summit, a goal that will require unprecedented collaboration between industries, including tourism and hospitality, which are not only victims of the climate crisis, but also the main emitters and contributors to global warming. As the sector continues to recover from the COVID crisis, it has the opportunity to step up climate action to move towards a greener and more sustainable future. The government and the private sector should make a determined effort to put in place all the necessary measures to realize the ambitions related to climate change, because empty words are not enough.