Why hotel rooms in India cost a bomb, push Indians to holiday abroad

In July last year, Uttarakhand-based Anand Sankar and his wife were trying to book a hotel for their vacation in Goa. The price was so prohibitive that they ended up booking a holiday in Vietnam instead. Two interesting things here. Sankar is a tour operator, and July, the time of monsoons, is considered off-season for tourism in Goa.

Sankar's story isn't unique. People planning vacations are finding hotel prices in India exorbitant, and are ending up going abroad for holidays. This part of the story has been told and retold. But what hasn't been discussed is why hotel tariffs in India are so high, and can anything be done to bring down the rates?

"We found that the star-rated properties in several tourist hotspots across Vietnam were 30-40% cheaper than the properties in Goa. That too in July, an off season," Sankar, founder of Tons Trails, tells India Today Digital.

Other than high hotel tariffs, high domestic airfares and the ease of procuring visas in dozens of countries are making Indians ditch desi destinations for holidays abroad. The trend seems to have caught up after the Covid lockdown, when hotels in India increased room rents.

An India Today Digital research revealed how hotels in Indian destinations were costlier than those abroad.

A huge demand-supply gap in a crucial price segment, and a high entry barrier are behind hotel tariffs that burn a hole in pockets. Industry veterans and insiders explain how lack of enough rooms, high real estate prices, difficult loan processes, and slow returns push up costs.

This is making Indian hotels uncompetitive in terms of tariffs, and Indians are ending up choosing destinations abroad.

ADD RS 10,000 MORE, HOLIDAY IN THAILAND OR VIETNAM

At times, just by spending Rs 10,000 to Rs 20,000 more, Indians visit foreign destinations and earn bragging rights.

Many customers looking for a domestic tour package with a budget of Rs 50,000 for two are often opting for a trip to Thailand, Vietnam, or Indonesia, simply by increasing their budget by Rs 10,000-20,000, says Ashish Pratap Singh, MD of Ambition Destination Tour and Travel.

"The options offer three-star accommodation, complimentary breakfasts, sightseeing, and the same six-day duration, and it makes sense to the holidayers," says Singh, a Delhi-based tour operator.

India Today Digital researched hotel room rates for over a month (tables below) to understand comparative prices in India and abroad.

A search for properties on December 3 for a night stay on January 4 (a weekend) in Goa and Jaisalmer vis a vis Colombo, Phuket and Hanoi show that the starred properties abroad are cheaper in comparison to those in India.

A search on December 20 for properties in Srinagar for January 18, a weekend after the winter holiday rush, showed rates still remained high.

SEASONAL TREND IN 5-STAR PROPERTIES, SAY HOTEL VETERANS

Madan Prasad Bezbaruah, Secretary General of Hotel Association of India (HAI), says comparing starred Indian properties to those abroad just on the basis of tariffs wouldn't be fair.

"5-star hotels may be vastly different in services and facilities. The general view is that in terms of quality of experience and expanse of services, Indian hotels offer good value for money," Bezbaruah tells India Today Digital.

Ajay Bakaya, Managing Director, Sarovar Hotels and Director, Louvre Hotels India, says he doesn't believe that destinations like Kerala or Goa are more expensive than those in Southeast Asia, all-through the year.

"That can, however, be the case between December and February, which is the season in India with maximum demand," Bakaya tells India Today Digital.

But Indians are complaining all year through.

Discussions on social media platforms show Indians dissing Indian destinations over price and service while lauding foreign destinations.

"I'm comparing to places like Malaysia, Thailand, Sri Lanka and Vietnam. The prices I paid for normal Indian hotels are comparable to very good hotels in these places. It wasn't peak season or anything like that either. The service also wasn't that good to be honest," posted Reddit user solo_traveller93 in July.

"Was it just my bad luck or did other people have similar experiences," asked the Reddit user.

The conversation that followed shows most people agreeing that hotels abroad were winning hands down in terms of both tariffs and services.

LACK OF ROOMS IN SUB-Rs 10,000-PER-NIGHT SEGMENT

Bezbaruah, a former bureaucrat and hotel industry veteran, explains that hotel tariffs depend on a large number of factors like cost of investment, nature of facilities provided and demand for the services.

Sankar, who deals with the tariff issue on a regular basis as a tour operator, says that the problem stems from a major lack of capacity in the Rs 4,000 to Rs 10,000-per-night segment.

Other hotel veterans also agree that there is a big demand-supply gap.

"In properties below Rs 4,000 a night, there are issues with hygiene and safety. Therefore, the Rs 4,000-Rs10,000 price segment is what is recommended. But in that segment, the demand is way higher than the supply," explains Sankar.

"In the segment charging above Rs 10,000 a night, you have a lot of options and supplies. That is when people start comparing options abroad," says Sankar, adding, "People tend to think they are getting at Rs 6,500 in Vietnam, which is priced at Rs 10,000 in Goa."

HAI's Bezbaruah sees hotels and resorts making profits now after the Covid-time losses. Most hotels maintained establishments and paid statutory dues with zero income, he says.

"Most of them are now coming back to their pre-Covid level of occupancy and earnings. On average, the room rates have not shown any abnormal increase, though 2024 returns have been higher than recent times," Bezbaruah says.

Sarovar's MD Ajay Bakaya says hotel rates in India are starting to get on a par with destinations like Paris, London, Dubai, Rome and Barcelona. "They were too low for a long time," he argues.

BETTER SERVICES AT HOTELS ABROAD AT LOWER PRICES

Sankar, the Uttarakhand-based tour operator, says the services at 4- and 5-star properties in India are good, but the prices are not competitive with hotels in Southeast Asia, or even Dubai.

The properties claiming to be 3-stars, which generally they are not, are mostly in the under-Rs10,000 range and lack services.

"As this price segment lacks room capacity, the 3-star hotels see an opportunity and make profit, compromising on the quality of services. That's when customers feel cheated and are prompted to look for options abroad the next time they plan their holidays," says Sankar.

The shortage of good hotels at a decent price is a professional difficulty that Sankar faces on a regular basis.

"It is difficult to explain to a customer why I am out of options," he tells India Today Digital.

An industry insider alleges that "3-star ratings are handed out as if candies".

WHAT DETERMINES TARIFFS IN HOTELS AND RESORTS IN INDIA

The determination of tariffs in general is not arbitrary, say industry experts.

Tariffs depend on the cost of investment. Cost of land, taxes, rate of interest and period of loan repayment are among the major factors, explains Bezbaruah. "Rate of return on capital is a primary factor," he adds.

Sarovar's Ajay Bakaya explains that setting up hotels is a capital-intensive process and the returns are slow.

"As of now, getting loans is tedious. It takes much longer than the typical 8-10 year term loan period in India to repay most hotel loans," he says.

Though the Modi government has emphasised ease of doing business, remnants of red-tapism still exist.

"There are invisible costs of waiting for about 50 pre-construction licences and approvals and about 30 pre-opening licences," says HAI's Bezbaruah.

CORPORATE EVENTS MOVE TO BAKU, BALI FROM GOA, RAJASTHAN

Expensive hotels and unreliable logistics services like cabs and food catering are causing the Indian hospitality industry to lose out on corporate business as well. In industry parlance, it is referred to as MICE tourism, or meetings, incentives, conferences, and exhibitions tourism.

A prime example of this is how technology companies such as Vivo and Oppo are increasingly preferring neighbouring countries for their launch events and media briefings. Earlier, they would plan such events in Goa or locales in Rajasthan.

Five to six years ago, Udaipur and Goa were preferred destinations for corporates whenever they planned large media briefings, launch events, corporate off-sites, and partner conferences. Now, they are mostly flying out their guests and participants to Colombo, Dubai, Baku, Bali or Phuket.

Until a few years ago, the onerous visa requirements would hold these companies back because getting the necessary travel documents for a large group in a quick time was a hassle. Those hassles no longer exist.

With countries like Sri Lanka, Azerbaijan, Thailand, Cambodia and Vietnam either giving Indians visa-free entry, visa on arrival or e-visas, and international airfares not very different from domestic flights, the tech companies are preferring locations abroad for events.

To add to that, the hospitality industry ecosystem is much better abroad with logistics like high-end local transport, food arrangements and outdoor group outings smoother and cheaper.

WILL HOTEL ROOM TARIFFS IN INDIA COME DOWN?

It isn't a situation like in Hotel California where you can check out any time you like, but you can never leave. There is a way out, according to stakeholders. This will need some internal effort and some help from the government.

Sankar suggests hotel associations should come together and shore up room capacity and services in the sub-Rs 10,000 segment.

Hotel Association's Bezbaruah says capacity addition is taking place, especially in smaller cities. He says over 8,000 keys across 119 properties opened year to date in 2024. The overall plan, he says, is over 33,000 rooms, with almost half of those in tier-3 and tier-4 cities.

Sarovar's Ajay Bakaya says the government should grant infrastructure status to the hospitality industry.

If that happens, the hospitality industry would gain easier financing, tax benefits, streamlined approvals, and government support, boosting growth and investment.

"Demand-supply mismatch will continue to be an important factor pushing up prices, and granting of infrastructure status to the industry can ease the situation by facilitating wider investments," says Bezbaruah.

Bakaya, the Managing Director of Sarovar Hotels, says Odisha, Tamil Nadu and Andhra Pradesh are among states with "progressive tourism policies", and have extended policy incentives to the hotel industry.

With some handholding from the government, and some self-correction, Indian hotels and resorts might gain the competitive edge again. Provided with better tariffs and services, Sankar and his wife would not hesitate to choose Goa over Vietnam. Kyuki Dil Hai Hindustani.