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Why do hotels fear a dent on margins

August 02, 2013 12:11 IST

HotelsEven as a security clearance for the Aerocity project here would help turn the capital into a hub for transit travellers, the hospitality industry fears aggressive competition, with the addition of 5,000-odd hotel rooms to the current inventory of 11,000 branded rooms in the Delhi-National Capital Region (NCR). This may result in pressure on average room rates.

Experts said while a price war was likely, hotels located close to the airport would have to ramp up fast. Properties in the vicinity of the airport include Radisson Blu Plaza, Leela, Oberoi Hotel and Trident in Gurgaon.

“Many people were happy to see delay in the project. It will certainly mean more competition for Delhi and NCR hotels,” a senior executive of a hotel company said, on condition of anonymity.

Radisson Blu Plaza, which overlooks the Aerocity has already invested in upgrading and renovating its property, expecting greater competition from the coming cluster of hotels in its neighbourhood.

“The additional supply will create short-term pressure on rates and occupancies. But in the medium to long term, it will be absorbed,” said P Srinivas, senior advisor, HTL Capital Advisors.

While existing hotels are already reeling under subdued occupancy and static rates, the extra supply is expected to escalate the problem. “We welcome good competition, as it keeps us on our toes. Aerocity’s main target is the transient business and they would build on that. Marketing will be the cutting edge,” said Rajan Bahadur, chief executive officer, The Grand.

Of the 16 hotels expected to come up in this area, four — Lemon Tree, Red Fox, Ibis and JW Marriott — are ready to open their doors this year. For most others, construction is on in full swing.

On Wednesday, the Cabinet Committee on Investment had cleared the Delhi Aerocity project, putting an end to delays that have dogged the project, primarily on the security front. The clearance comes just ahead of the peak travel season starting October. It is expected the development would lower average room rates compared to last year.

With the capacity of the Delhi airport’s terminal-III expected to exceed 75 million after the completion of phase-I, hotel companies feel the airport would become a hub for long-haul routes passing through Delhi, for conferences and MICE (meetings, incentives, conferences and exhibitions) business.

Ruchika Chitravanshi in New Delhi
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