Hotel tariffs to melt in slowdown heat

The country's five- and four-star hotels could soon revise downwards their tariffs as the world's second fastest-growing economy heads for a slowdown. According to Crisil Research, the average room rates in cities like Chennai, Hyderabad and Bangalore are likely to fall 5-10 per cent in the next few months. Industry experts said the occupancy rates could fall from 75-80 per cent now to 65-70 per cent soon. Hotels said this is because of companies cutting their travel budgets to deal with the slowdown in business. Some large companies are even known to have hired flats in many cities to control their hotel expenses. "The industry could face rate consolidation (slashing of rates) in the next year. The rates will be slashed when the contracting season begins from October 2008 and the impact of the same would be visible on their revenues in second quarter of 2009," said Siddharth Thaker, the executive director of HVS Hospitality Services, a hotel consultancy.

DROP DOWN
City	Current room rates (avg)	Projected	Decline	Decline %
Bangalore	14,000	12,700	1,300	9.29
Chennai	7,200	6,800	400	5.55
Hyderabad	7,500	7,100	400	5.33
Figures in Rs Source: Crisil Research

Large players like ITC Hotels and East India Hotels, which runs the Oberoi chain, denied any move to reduce their room rates, though some hotels told Business Standard that such a move was indeed on the cards. A five-star hotel in north Mumbai is mulling a rate cut, while it has added other services like free breakfast and free airport-drop for its clients. The hotel charges around Rs 12,000 per room at present. Another player in the leisure segment has already revised the rates for its properties in Goa and Kerala. This could impact the price of hotel stocks in the market. "If business recorded in the next couple of months is weaker than usual, there could be downgrading of hotel sector stocks," said a Mumbai-based investment analyst. Though hotels are unwilling to talk about it openly, several travel houses, which book hotels for customers, said they had recorded a significant drop in travel bookings. Mumbai-based Sree Raj Travels, for instance, has seen a drop of over 36 per cent in international travel bookings between January and May 2008. This comes at a time when new hotels are coming up across the length and breadth of the country. With 39 hotels under various stages of development, Bangalore will have 3,000 rooms by 2008-09, as compared with the present 2,300, an increase of 30 per cent. Hyderabad will have around 2,200 rooms by 2008-09 as compared with the existing 1,600, an increase of 38 per cent. The most dramatic increase will be in Chennai, where the supply will go up by 30 per cent in a year, while the demand is projected to rise 15 per cent. To make matters worse, the cost of building a hotel could go up by 20 per cent in the current situation, experts said. Construction of the building makes 50 per cent of the cost of any hotel.