Hospitality sector growth: The hospitality sector is experiencing a strong uptick in key performance indicators, driven by a robust resurgence in demand and reduced supplies due to pandemic-induced disruptions, reported the credit rating agency CareEdge.

Occupancy rates have notably improved, averaging around 67–68 per cent in the current fiscal year, up from 65 per cent in FY23 and a significant increase from the 50 per cent recorded in FY22. This rise in occupancy has empowered industry players with enhanced pricing leverage and has led to an increase in average room rates.

Average room rates (ARRs) are expected to range from Rs 7,200 to Rs 7,400 in the current fiscal year, with further growth projected to range from Rs 7,700 to Rs 7,900 in FY25. The sector's recovery in occupancy rates and average rates has bolstered its Revenue per Available Room (RevPAR), estimated to have climbed to an average range of Rs 4,800 to Rs 5,000 by the end of FY24, up from the 4,300 range in FY23, with a 9–11 per cent growth expected in FY25.

The industry's overall profitability has notably improved, with operating level profitability for FY23 reported at 27.2 per cent among a sample set of 62 listed players analysed by CareEdge Ratings. This represents a substantial increase from the 14.3 per cent recorded in FY22 and the 19.3 per cent reported in FY19. Despite challenges such as escalating costs of raw materials, high manpower expenses, and increased borrowing costs, industry players have shown resilience by augmenting ARR and navigating these adversities adeptly.

The transition of the sector into a growth phase in FY23 has been marked by significant improvements across key financial parameters. Fixed cost-saving endeavours pursued over the last two years have provided a foundational platform for growth in operating margins during FY23, a trend anticipated to continue.

Domestic travel is expected to be a significant driver of demand, supported by government infrastructure initiatives, increasing air and railway passenger traffic, and a rising preference for branded accommodations, outpacing supply growth.