Hospitality industry to grow despite disruptions

ICRA expects the Indian hospitality industry to grow by 11-13% YoY in FY2025 and 6-8% YoY in FY2026, over the high base of FY2024. Sustained domestic leisure travel, demand from meetings, incentives, conferences and exhibitions (MICE), including weddings, and business travel (despite a temporary lull during the General Elections) have driven demand in FY2025. This trend is likely to continue over the next 9-12 months. Spiritual tourism and tier-II cities are expected to contribute meaningfully in FY2026 as well. Cost rationalisation measures undertaken in the last few years and operating leverage benefits led to a sharp expansion in margins over pre-Covid levels.

ICRA Estimates Pan-India Premium Hotel Occupancy To Hold At 72-74% In FY2026. The average room rates (ARRs) for premium hotels are projected to rise to Rs 8,200-8,500 in FY2026, after a healthy Rs 8,000-8,200 in FY2025 amid lagging supply additions and several hotels undergoing renovation, refurbishment, and upgradation. Foreign tourist arrivals (FTAs) to India are expected to remain muted in the next few months in the aftermath of the terror attacks.

Foreign tourist arrivals (FTAs) to India are expected to remain muted in the next few months in the aftermath of the terror attacks, but are estimated to witness a gradual recovery thereafter. However, domestic tourism has been the prime demand driver so far and is likely to remain so in the near term, the report states. Factors like improvement in infrastructure and air connectivity, favourable demographics, and anticipated growth in large-scale MICE events, with the opening of multiple new convention centres in the last few years, among others, shall support the growth over the medium term, according to the report.

“The demand uptick over recent years led to an increase in supply announcements and resumption of deferred projects in the past 24-30 months. However, supply growth is expected to lag demand over the next 12-18 months." "ICRA’s premium room inventory database (12 key cities) across the country indicates a compound annual growth rate (CAGR) of 4.5-5 per cent in room inventory addition during FY2023-FY2026.

In 2025, the hospitality industry will face significant disruptions primarily driven by evolving guest expectations, the rise of technology, and ongoing economic challenges. These disruptions include the need for more personalized experiences, the adoption of AI and automation, and the constant pressure of rising operational costs and labor shortages.

AI is being used for tasks like customer service, revenue management, and even food preparation, enhancing efficiency and guest experiences.

Contactless check-ins, payments, and keyless entry are becoming more common to minimize physical interactions and enhance safety.

Hotels and restaurants are adopting sustainable practices like energy-efficient systems, reducing waste, and using recycled materials.

Focusing on locally sourced ingredients and reducing carbon footprints are becoming increasingly important.

Hotels are leveraging data to offer tailored amenities, personalized recommendations, and customized greetings. Utilizing data analytics to understand guest preferences and optimize services.

Integration of wellness programs and amenities into hotels and resorts is a growing trend.

Properties are incorporating wellness facilities and lifestyle features to appeal to health-conscious travelers.

Travelers are seeking authentic and memorable experiences, leading to a focus on local culture, food, and events.

Connecting with the local community and offering unique experiences is becoming increasingly important. The blend of business and leisure travel is becoming more prominent. Hotels are designing spaces that can be used for both business and leisure activities.

Focus on Food Innovation: Culinary experiences are a key differentiator in hospitality. Sustainability and luxury are no longer mutually exclusive. As eco-conscious travelers demand more responsible choices, hotels are finding innovative ways to integrate sustainability into their luxury offerings. Green certifications, renewable energy, and locally sourced materials are becoming standard practices.

Hotels will increasingly invest in biophilic design, incorporating nature into spaces to enhance well-being and reduce environmental impact. Guests will see features like vertical gardens, recycled construction materials, and solar energy seamlessly woven into the fabric of luxury properties.

Additionally, sustainability will extend to culinary offerings, with plant-based menus, farm-to-table dining, and reduced food waste practices gaining prominence.

The wellness industry is growing exponentially, and its integration with hospitality is set to reach new heights. In 2025, wellness tourism will expand beyond spas and yoga retreats to include holistic well-being experiences.

As 2025 unfolds, the hospitality industry will continue to adapt to the evolving preferences of travelers while embracing innovation and sustainability. Hotels that succeed will be those that prioritize guest-centric experiences, leverage technology for operational excellence, and integrate responsible practices into every aspect of their operations.

Hotels will focus on mental health, offering digital detox packages, mindfulness workshops, and personalized fitness programs. Sleep technology, including AI-powered sleep pods and circadian lighting, will cater to travelers seeking restorative stays.