India Election Impact on Hotel Performance
Following strong performance in Q1 2019, India recorded a marginal occupancy decline (-0.1% to 63.1%) during the second quarter of the year. Average daily rate (ADR), however, grew 1.8% to INR5,508.80. This drove growth in revenue per available room (RevPAR), albeit at its lowest level for a Q2 period since 2014, rising 1.7% to INR3,478.76.
Slowing Q2 occupancy performance could be attributed to a number of factors, including the impact of the April-May 2019 general election in India. During the April election phase, India hotel demand declined 0.4% year-over-year, while RevPAR fell to INR3,680.11 (-2.9%).
Interestingly, the deceleration of occupancy growth during the 11 April to 19 May election period was felt across all hotel classes, when comparing on a day-to-day basis. This temporary decline significantly affected RevPAR performance during the period for upper tier hotels (Luxury, Upper Upscale and Upscale), while the lower tier (Upper Midscale, Midscale and Economy) sustained RevPAR by increasing ADR. Midscale & Economy hotels drove rates by 6.9% to sustain year-over-year RevPAR growth of 1.9%.
It is important to note, however, that the uneasiness in India’s aviation industry, caused by Jet Airways ceasing operations in April 2019, may have also affected hotel performance during the election period. With the elections taking place at the close of the 2018-19 fiscal year, most corporate, domestic and international travelers stalled on their plans and strategies for India. As a result, corporate travel and international political visits ceased during the election phase, which explains the drop in occupancy during the voting process.
The lack of trade transition and cancellation of several government trade fairs and events resulted in less travel in the public sector, leading to a decrease in hotel demand. As a result, MICE business, including weddings, fell and added to the overall impact on demand.
The majority of India’s key markets reported day-to-day occupancy declines during the election period. Pune and Bengaluru posted the largest RevPAR declines, -16.8% and -9.1%, respectively, while Amritsar and Kochi were two of the top-performing markets.
Despite Mumbai occupancy levels falling 3.8% during the election phase period, hotels were able to increase rates 1.9% and, in Q2 2019, the market recorded marginal RevPAR growth (+1.0%) to INR5,761.87.
New Delhi is largely affected by the political landscape, as India’s capital city, and it posted a 4.2% drop in RevPAR to INR4,057.51 during Q2 2019. Despite ongoing political issues, hotels in New Delhi posted a significant increase in the three KPIs during the second swearing-in ceremony of Narendra Modi, which took place on 30 May 2019. In a day-to-day comparison, New Delhi occupancy rose 25.9% to 65.60% and ADR increased 10.0% to INR 6,763.18, resulting in double-digit RevPAR growth (+38.5% to INR 4,436.42).
Despite the challenges of softened demand for the country as a whole, a strong Q1 2019 led to ADR growth of 3.3% during the opening six months of 2019. India also experienced 2.2% year-over-year growth in inbound tourist arrivals, welcoming 5.3 million international visitors during this period. This translated to 4.0% demand growth, which outpaced supply at 3.1%.
Across January and February, group demand rose significantly (+29.6% and +9.8%, respectively) before it dropped drastically as the election period approached. While transient demand held steady, group demand finally fell during April 2019, decreasing 6.1% from the same period last year.