Domestic travel demand drives structural growth in India's hospitality market
New Delhi, Jan 14
The Indian hospitality market is exhibiting higher structural growth driven primarily by domestic travel demand, which makes the sector less exposed to global shocks than in the pre-Covid-19 period, a report said on Wednesday.
The report from ICRA said industry revenues are expected to grow in FY26 despite a high FY25 base, supported by leisure travel, meetings, incentives, conferences and events, weddings, and business travel.
Pan‑India premium hotel occupancy rate is anticipated to hold at 72-74 per cent in FY26, with average room rates for premium hotels projected to rise to Rs 8,200-8,500 in FY26.
This follows room rates of Rs 8,000-8,200 in FY25, the report said.
Despite subdued foreign tourist arrivals, the overall demand scenario remains unaffected, with demand drivers having broadened significantly, supporting the sector's next phase of expansion.
The ratings agency forecasted the upcoming Union Budget to continue its focus on measures supporting tourism and infrastructure investments, ease of doing business, and enhanced connectivity and accessibility.
With supply growth continuing to trail demand, policy frameworks enabling favourable financing terms are expected to support inventory addition and sustain the next phase of hotel expansion in India.
Supply growth continues to trail demand expansion, boosting pricing power and pushing revenue per available room to record highs, the report said. This persistent demand-supply imbalance has strengthened sector profitability and supports calibrated capacity addition across markets.
"The market can support multiple formats and price points, pushing hotel companies to diversify beyond the traditional upscale business hotel," said Sruthi Thomas, Vice President & Sector Head, Corporate Ratings, ICRA Limited.
"There is an increasing preference towards asset‑light operating models, including management contracts and franchise models, which generate fee‑based, high‑margin income, require minimal capital, and improve return on capital employed and free cash flows," she said.
The ratings agency predicted sustained demand and pricing power to support revenue growth for the premium hotel segment in H2 FY2026 and FY2027.
The room occupancy and average room rates are estimated at 69-71 per cent and Rs. 8,100-8,200, respectively, in nine months of FY26, the report said.
— IANS
Reader Comments
Rs. 8,500 for a premium hotel room? That's still quite steep for the average middle-class family planning a vacation. While growth is good, I hope this boom also leads to more affordable, quality options for domestic tourists, not just luxury.
The shift to asset-light models (management contracts) is a smart move by hotel companies. It reduces their risk and capital lock-in. This sectoral maturity is a positive sign for investors. Good analysis by ICRA.
Interesting read. The fact that demand is holding strong even with lower foreign tourists is impressive. It speaks volumes about the rising disposable income and travel culture within India. Weddings and MICE events are indeed huge drivers.
Hope this growth is inclusive and reaches tier 2 & 3 cities as well. Improved connectivity via new highways, airports, and Vande Bharat trains is a game-changer. More destinations will get a economic boost. Jai Hind!
As someone who travels frequently for work, I've definitely noticed hotels being fuller and pricier over the last two years. The demand is real. But the service quality needs to keep pace with these rising room rates.
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