A greater focus on domestic tourism, low operational costs and expansion to territories unexplored by their large counterparts have helped mid- and small-sized hotels to deliver encouraging financials in the past four years - at a time when there has been an economic slowdown and low growth in tourist arrivals. 

Mid- and small-sized hotels such as Bhagwati Banquets & Hotels, Royal Orchid Hotels, Oriental Hotels and Asian Hotels (West) have performed much better than their large counterparts on various growth parameters such as cash flow from operations, growth in profits, net sales and occupancy rates as per a report in ET by Rajesh Naidu.

One of the main factors that worked in favour of these medium companies was the sharp fall in foreign tourists arrivals in the last five calendar years. In the last five calendar years beginning 2007, foreign tourist arrivals grew at a compounded annual growth rate (CAGR) of 4.12%, while in the preceding five years, it grew at a CAGR of 13.2%. 

This sharp slowdown in foreign tourists' arrivals resulted in a huge decline in occupancy rates of large-sized hotels. For instance, the occupancy rates of Indian Hotels dropped to 66% at the end of the December 2011 quarter from 73% in FY08. 

On the other hand, mid- and small-sized hotels, which flourish on the concept of providing an environment comparable to luxury hotels, but at affordable prices, managed to secure better revenues on increasing occupancy levels. Though these players suffered in FY09, when they had an occupancy rate of around 50%, business gained momentum gradually and occupancy rate grew to around 65-70%. 

This has boosted their cash flow from operations. A prime example is Bhagwati Banquets & Hotels. In the last four years, the company's cash flow from operations grew at a CAGR of 79% to 26.78 crore in FY11. 

Large hotels such as EIH, Indian Hotels and Hotel Leela Ventures, which derive a substantial portion of their revenues from foreign tourist arrivals, could not match this growth. Hotel Leela was the most-hit by this decline in arrivals. The company's cash flow from operations have seen a de-growth of 22% in the past four fiscals.

(You need to login first to read complete news).
New User? Register for FREE!
» Back to Travel News