HVS Monday Musings: Indian Hotel Sector – Crystal Gazing Into 2022

2022 will be a critical year for the Indian hospitality sector 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 travel in the COVID world, even if Omicron or other variants that may emerge from time to time act as temporary bottlenecks in the recovery of the sector. Similarly, the Indian hospitality sector 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 occupancy across India to reach pre-pandemic levels in 2022, with average rates approaching pre-pandemic levels towards the end of the year.

As the sector continues to rebound in 2022 and beyond, here are ten trends we think will gain momentum in the year ahead.

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 during a crisis. We expect this trend to accelerate in the coming years as the domestic leisure segment continues to be underserved, with several emerging tourist locations in India still lacking adequate infrastructure including brand name accommodations. good quality. 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 Tier 3 cities, which will help improve regional and last-mile connectivity to several tourist locations. emerging markets and will encourage hoteliers to further exploit this underserved segment.

2. Business travel will take off: Domestic business travel is slowly gaining traction as in-person meetings are finally making a comeback after months of virtual meetings and video conferencing. Business travel already accounts for 20-25% of hotel revenue in some cases, which is a positive sign for the sector. Demand from sectors such as manufacturing, healthcare, pharmaceuticals, FMCG, consumer durables and financial services is recovering considerably, but demand from IT and ITES is picking up at a faster pace. slow. While increasing travel restrictions due to Omicron may cause businesses to focus on short-term critical and crucial travel, we expect the situation to stabilize and domestic business travel to increase significantly over the course of the year. coming year.

3. Unleash Ancillary Revenue Streams: The hospitality sector generally lags behind other travel-related industries when it comes to unlocking ancillary revenue streams by focusing primarily on a few additional services such as catering and spas. However, when room revenues plummeted 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 home cooked meals to name a few. Having realized the true potential of ancillary revenue in increasing revenue, hoteliers should now take advantage of the vast untapped opportunity by utilizing the existing infrastructure for new business opportunities. This could include creating space dedicated to coworking spaces, monetizing parking spaces, deploying electric vehicle (EV) charging stations, renting kitchens for cloud cooking needs during off-hours. troughs and other similar space optimizations and services. This strategy will improve customer engagement and brand loyalty while increasing real estate revenue per square foot.

4. The rise of smart technology will fundamentally change hotel design: After embracing digital keys and menus during the crisis, several hotel companies are now evaluating other technological aspects to revamp their properties to stay relevant in today’s fast-paced world. Smart technology is poised to play a bigger role in future hotels, as it offers endless possibilities for hoteliers 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 sector. However, as hotels begin to manage and store large amounts of guest data, the industry will face a new set of challenges. Customer privacy, data security, and cybersecurity will become key considerations as the industry becomes increasingly data-driven in the future.

5. Embrace lean operations: We expect hotels to continue to operate with lower staff ratios, although we can already see the temptation to revert to earlier ratios and workforce, particularly in the economy segment, where ratios are already lower. However, hoteliers have discovered that the previous staffing ratio may not have been 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 the lower staff ratio, as well as on the reskilling and reskilling of employees. training, to ensure that the quality of service does not suffer.

6. Third-party management will gain in importance: Franchising is slowly but surely gaining traction in the Indian hotel industry as it offers owners the opportunity to manage their own properties. Making the franchise or base fee equally attractive in management and franchise agreements, while allowing flexibility in the franchise period with shorter terms of 8-10 years, can help promote franchising in the country. . As franchising grows 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 true benefits and the potential to work with professional asset managers to review and improve the performance of their hotels, especially in the post-COVID era. Additionally, as the Indian hotel sector evolves, an increasing number of hotels will be owned by institutional investors, making return on investment crucial; third-party management is likely to gain traction in this scenario.

7. Partnership with brand restaurants: Hoteliers should reinvent F&B by renting space to stand-alone marquee restaurant brands on a revenue-sharing model, which can be beneficial for both parties. Restaurant owners can benefit from captive clientele, location advantages and hotel branding, while hotels have the opportunity to enhance the customer experience by becoming a “destination” for customers of the hotel and the inhabitants, which translates into increased revenue and profitability of the restaurant business.

8. Evaluate hotel-branded residences: Branded residences, which are still a niche idea in India, are another opportunity hospitality players should seriously consider in the post-COVID era to diversify their risk and revenue streams. By leveraging their brand through affiliation, the hotel operator can not only receive royalties/licensing fees, but also diversify their revenue streams by providing end-to-end property management and a full range of services such as janitorial, housekeeping, laundry, maintenance, and catering services. This is a lucrative model as hotel operators can leverage their brand image for high-end housing projects and earn not only royalty licenses and services provided, but also the commission charged on the sale of each house.

9. Leverage the popularity of alternative housing: Traveler preferences have changed significantly since the onset 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. However, these segments are still poorly organized with the presence of very few players in the branded hotel industry, particularly in the high-end and luxury segments. As a result, new players are likely to enter these segments with lucrative investment models, especially for expansion in underserved leisure destinations, due to lower overhead and higher profitability than of a hotel. IHCL, for example, launched the amã Stays & Trails brand to foray into the country’s growing homestay market. Likewise, major international hotel companies have already branched out into the vacation rental space globally 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 recently concluded COP26 summit, a goal that will require unprecedented collaboration between industries, including tourism and hospitality, which not only suffer of the climate crisis, but also the main emitters and contributors to global warming. . As the sector continues its recovery from the COVID crisis, there is an opportunity to scale up climate action to move towards a greener and more sustainable future. Government and the private sector should make a determined effort to put in place all the necessary measures to realize climate change ambitions, because lip service is no longer enough.

Mandeep S Lamba
President (South Asia), New Delhi
+91 (124) 488 5552

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Christina A. Kroll