Is This Hotel Cycle Different? IHCL, Chalet Hotels And Lemon Tree Believe So

Hotels have traditionally been a cyclical industry, with demand ebbing and flowing based on seasons and economic conditions. However, the sector can see a structural shift to a more consistent growth trajectory if India's economy continues to expand at 6–7% annually, according to top management voices from the country's listed hoteliers.

Lemon Tree Hotels Ltd., Chalet Hotels Ltd. and the Indian Hotels Co. are all optimistic about the industry's long-term potential.

India's robust economic outlook and the country’s journey to becoming the third-largest economy are all helping boost the hospitality and tourism sector, IHCL Chief Executive Officer Puneet Chhatwal said.

The demand for hotels will rise significantly alongside infrastructure development like highways, railways and airports. "The country plans to add 300 airports by 2047. Each airport location will need hotels. And if one of our brands is there at every airport, we'll be very happy. And that is the size of the opportunity coming our way," Chhatwal said. 

With the growth in the gross domestic product and rising income levels, the number of households consuming discretionary items can grow from 5 million to 30 million, according to Patanjali Keswani, chairperson of Lemon Tree.

There is growing optimism among the leaders that the cyclical nature of the sector could break, transitioning it into a more stable, long-term growth story. They also agree that demand is likely to outstrip supply in the short term, driven by strong economic fundamentals and a post-pandemic rebound.

Chhatwal attributed this imbalance to the slowdown in hotel construction during Covid. "It's not just about completing projects. It takes time to start and advance them. The demand is growing faster than supply," the IHCL CEO said.

Keswani echoed this sentiment, predicting that the next three to four years would see heightened demand until new supply catches up. 

Leisure and business travel are both strong, supported by weddings, meetings, incentives, conferences and exhibitions, and international corporate travel, according to Sanjay Sethi, managing director of Chalet Hotels.

Sethi expects the second half to outperform the year-ago period. He also highlighted the significant role of food and beverage, which now accounts for 35% of Chalet Hotels' revenue.

Although demand for leisure travel is growing, Chalet Hotels' portfolio remains focused on business travel with only 5% dedicated to leisure. Sethi said their new property in Goa would increase this to 10–11%. Despite a slight lull in bookings post-December, the season is expected to rebound strongly in January and remain robust through March.

The hotel industry appears to be at the cusp of a transformative phase. With economic growth, improving infrastructure and rising consumer spending, the consensus is that demand is expected to remain strong for the next three to four years.

However, all three veterans underscored that challenges like regulatory hurdles and supply bottlenecks remained.

"This is the beginning of a good journey," Chhatwal said. "While there will be headwinds, the long-term outlook is very promising."