The profitability of premium hotels (5-star and 5-star deluxe) in India to plunge in 2012-13 and 2013-14 as per a recent research by Credit Rating and Information Services of India Ltd. (CRISIL).

A decline in both occupancy rates and room rates will shrink the operating margins, and rising costs will accentuate that pressure. Operating margins will drop to just over 16 per cent in 2013-14, the lowest in 10 years, it has said.

The company has arrived at this conclusion after assessing the performance of the premium hotel segment across 12 Indian cities which collectively account for 80 per cent of the country’s premium hotel rooms.

Slowing growth in demand and large-scale room additions will cause the occupancy rates of premium hotels in these cities to slip.

With global economic slowdown poised to affect both business and leisure travel, the annual demand growth for premium rooms is likely to stay at seven per cent during this fiscal and the next.

Crisil Research expects 14,500 new rooms to be added by 2013-14 to the existing 46,200 rooms. Occupancy rates of premium hotels will, therefore, fall from 64 per cent in 2011-12 to 56 per cent in 2013-14. Intense competition will aggravate the demand-supply imbalance leading to room rates dipping by about 10 per cent over this period.

As a result of these factors, the average revenue per available room (RevPAR) will plummet from Rs 5,000 per day in 2011-12 to Rs 3,900 per day in 2013-14.

According to Crisil Research, RevPAR will decline in 10 of the 12 Indian cities, with those in Ahmedabad and Chennai the worst affected, with an annual decline of over 20 per cent.

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