Hospitality sector's contribution projected to reach $450–500 bn by FY30: CareEdge

Hospitality sector growth: India's hospitality industry is experiencing a notable rise in capacity additions, particularly in the midscale-economy segment, fueled by a resurgence in domestic tourism, the resumption of international flights, and a gradual recovery in foreign tourist arrivals (FTAs), reported the credit rating agency CareEdge.

The uptick in business travel demand, driven by an increase in meetings, incentives, conferences, and exhibitions (MICE) events, is also expected to contribute to the growth in room capacity over the next few years.

Over the last five years, India's travel and tourism sectors have contributed approximately 5 per cent of the country's total gross domestic product (GDP).

Projections suggest that the sector's contribution to the GDP could reach $450–500 billion by FY30. The increasing urbanization in several tier-2 and tier-3 cities is expected to further boost the demand for hotels across different segments, leading to a robust addition of rooms in the coming years.

In FY21, capacity additions hit a low point as the hospitality industry faced significant challenges due to the COVID-19 pandemic. The outbreak led to a drastic decline in revenue and losses, causing delays in project completion and a halt in capex plans.

However, the industry has shown signs of recovery, with improving operational and financial parameters encouraging players to resume projects that were stalled in FY21.

India currently boasts approximately 160,000 branded hotel rooms and keys, with expectations to add approximately 50,000 rooms over the next five years, representing a supply CAGR of 4-5 per cent.

While capacity addition in FY24 is expected to surpass the levels of the preceding two pandemic years, it is projected to remain below the pre-pandemic levels of FY20. The growth in chain-affiliated supply is expected to occur through conversions, with the possibility of existing hotels being transacted for repositioning or rebranding.

The sector's supply is now more balanced across different segments, with a reduction in the share of luxury and upper-upscale hotels. The focus has shifted towards the upscale, upper midscale, and midscale/economy segments, with several operators launching sub-brands to cater to different segments efficiently.

This shift towards asset-light models such as management contracts, franchising, or revenue-sharing is helping major players increase revenue and EBITDA margins without significant capital expenditure. The upcoming supply pipeline is expected to align with the projected growth in tourism and infrastructure developments, indicating a positive outlook for the industry.