Economic Times: December, 2016
Hyderabad, New Delhi: Don't be surprised if you come across more Marriott or ITC budget hotels when planning your next vacation. Looking to tap into the increasing spending capacity of middleclass business and leisure travellers, luxury hotel majors such as Marriott International, Carlson Rezidor and ITC have lined up mega plans to set up more upscale, budget hotels in state capitals and tier-II cities. Industry observers call it a logical move as mid-segment hotels involve less costs and generate better returns.
According to experts, the mid-hotel segment is expected to see an investment of close to Rs 6,600 crore, excluding land value, in the next five years.
For Marriott, of the 103 to be launched by 2020, 50% would be upscale and upper mid-scale hotel brands. Neeraj Govil, area vice-president for South Asia at Marriott International, said, “Since midsegment hotels have been giving better returns because of rising demand from domestic travellers, we plan to add more hotels under this segment by 2020.” Marriott has over 10 brands in the upscale and upper mid-scale segments, in its hotel portfolio of 30 brands.
Carlson Rezidor, which has a portfolio of mid-scale brands such as Country Inn & Suites and Park Inn by Radisson, plans to increase its share in this segment to 50% from the current 36-37%. Carlson expects to have 84 operational hotels in this segment by the end of this year in the country. "The metros and larger cities are saturated. We are expanding into secondary and tertiary markets as mid-scale properties offer better returns on investment.
Also, the segment holds a brighter future in terms of growth," Raj Rana, CEO, South Asia, Carlson Rezidor According to Knight Frank, around 7,000 keys will be added this year across segments, of which 38% would be in the mid-market space. In 2015, around 8,500 keys were added. Over the next 3-5 years, the segment will see an average addition of 6,000 keys per year.
Pavethra Ponniaha, vice-president, ICRA, said, “Due to high land costs, hoteliers earlier used to construct luxury hotels in large numbers as it was difficult to recover the desired return on investment from budget or upscale hotels. However, with the rising income levels and an uptick in domestic travellers, hoteliers are now focusing on this segment.”
“From a hotelier's perspective, mid-size hotels offer higher occupancies as the price range is more conducive for middle-class travellers and lower overhead costs such as staff numbers, food and beverages. Revenue per available room (RevPar) in this segment has grown by about 3.5% year-on-year in 2015 and 5.7% in 2016,” said Abhijeet Umathe, associate director (hospitality & leisure), Knight Frank.