The Decade Ahead

What does the future of India's hospitality industry look like?

- RAHUL PANDIT

Tourism contributes 6.8% to GDP and 9.2% to employment in India. Punching 35% above its weight per rupee invested, it provides 45 million jobs. Elevating the hospitality economy to the global mean of 10% GDP would unlock immense potential, contributing $1 trillion to India's projected $10 trillion economy by 2035, generating 67 million jobs.

REBOUNDING FROM THE PANDEMIC

The pandemic snuffed out 28% of upcoming and planned supply but delivered a 12% demand rebound as a parting gift. This 40% demand-supply gap rejuvenated the hospitality market, restoring profitability.

India's air travel capacity is set to grow 200% over five years, adding 1,400 aircraft to the current 771. Assuming that half of the daily 5,00,000 air travellers, 4 million intercity rail passengers, and 7 million bus commuters are making a return journey, India's lodging demand exceeds 5 million beds.

Branded hotel inventory, currently under 2,00,000 rooms, is poised for significant growth. Greenfield inventory will expand at a 6% CAGR, while conversions will contribute another 2%. Domestic demand, growing at a 7% CAGR, will be bolstered 4% by international MICE and corporate travel from 2027. This 11% annual demand growth, minus a black swan, will outpace the 8% supply addition over the next decade, delivering inflation-beating RevPARs, and attracting sustained investments to the sector.

This expansion of returns will generate cap rate compression, pushing up the EV of hotel stocks. The market will reward consolidation, promoting economies of scale.

STRUCTURAL DRIVERS OF GROWTH