New Delhi [India], January 14 : The Indian hospitality industry is expected to sustain its revenue growth in FY2026, maintaining momentum despite the high base recorded in FY2025. According to an ICRA press release, this growth trajectory finds support from domestic leisure travel, demand from meetings, incentives, conferences, and events (MICE), weddings, and consistent business travel.
ICRA anticipates the pan-India premium hotel occupancy rate to hold steady at 72-74 per cent in FY2026, matching levels seen in the previous two fiscal years. Meanwhile, average room rates for premium hotels are projected to rise to Rs 8,200-8,500 in FY2026, up from Rs 8,000-8,200 in FY2025.
The premium hotel segment is expected to see sustained demand and pricing power through H2 FY2026 and FY2027. While a revision in Flight Duty Time Limitation (FDTL) norms caused temporary flight disruptions in early December 2025, the impact on hotel bookings remained contained.
Travellers extended their stays or used alternative transport, while bulk wedding bookings mitigated losses. ICRA estimates room occupancy at 69-71 per cent and average room rates at Rs 8,100-8,200 for 9M FY2026, compared to Rs 7,800-7,900 in 9M FY2025. Robust occupancies of 76-78 per cent were recorded in Q3 FY2026, as sentiments recovered from earlier geopolitical developments.
The industry relies on a structural shift driven primarily by domestic demand, which shields the sector from global shocks more effectively than in the pre-Covid period. Sruthi Thomas, Vice President & Sector Head, Corporate Ratings, ICRA Limited, noted that overall demand remains unaffected by subdued foreign tourist arrivals.
Thomas stated, "Demand drivers now include corporate travel, weddings and social events, religious and spiritual tourism, concerts, sports, MICE activities, and leisure-led travel to Tier-2 and Tier-3 cities." She added that the market now supports multiple formats and price points, encouraging companies to diversify beyond traditional upscale business hotels.
Supply growth continues to lag behind demand expansion, granting hoteliers increased pricing power and pushing revenue per available room to record highs. ICRA expects the upcoming Union Budget to maintain focus on tourism and infrastructure investments, ease of doing business, and enhanced connectivity.
These policy frameworks are expected to support inventory addition. Thomas observed that the current demand-supply imbalance strengthens sector profitability and supports calibrated capacity addition across various markets.
Market players are increasingly adopting asset-light operating models, such as management contracts and franchise agreements. Thomas said, "There is also an increasing preference towards asset-light operating models, including management contracts and franchise models, which generate fee-based, high-margin income, require minimal capital, and improve return on capital employed and free cash flows."
She further noted that improved returns with lower risks make the sector attractive for investors, allowing capital to be diversified across geographies and formats.
Despite the shift toward management models, large Indian hotel companies appear unlikely to move entirely away from ownership. Thomas explained that owned assets continue to anchor brand prestige, particularly for landmark hotels in prime cities. "Owned assets continue to anchor brand prestige, with prime-city and landmark hotels creating long-term value, and control over standards still matter at the top end of the spectrum," she said.
Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor