India’s Hotel Industry: Growth vs. Erosion

Hospitality N More (HnM) is at the forefront of providing insights into what is working for the industry and what isn't. 

India’s hotel industry has matured from a fragmented, limited market into a vibrant, world-class sector. Towering new projects from Mumbai to Manali, record domestic travel, and mobile-first bookings reflect a boom in hospitality. Yet rapid growth has strained skills, service standards, and profitability.

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Rapid Expansion and Opportunities

• Brand proliferation: Global chains and domestic groups have expanded aggressively. Marriott operates 30,000+ rooms in India and aims to reach ~50,000 within five years. Hilton has announced deals to bring 150 Spark hotels and 75 Hampton hotels into the market.

• Tech-driven convenience: PMS upgrades, mobile check-in, AI-driven revenue management, and e-KYC have streamlined operations. For well-run hotels, these systems have driven real efficiency.

• Domestic tourism surge: 2023 saw 2,509 million domestic tourist visits and 18.89 million international arrivals, generating ₹231,927 crore in foreign exchange earnings. Rising middle-class incomes and affordable air travel fuel this wave.

• Government support: The 2024/25 Union Budget earmarked ₹2,479 crore for tourism. New airports, metro lines, and highways are opening Tier-2/3 markets that were previously inaccessible.

• Performance gains: National occupancy reached ~63.9% in 2024, while RevPAR crossed ₹5,000 for the first time since 2008—an 11% YoY growth.

The upside is clear: India has both scale and momentum.

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The Flip Side: Service Strains and Margin Erosion

• Quality dilution: Expansion has outpaced training. In many hotels, staff juggle multiple roles, and service feels transactional rather than warm. The “workflow over welcome” trend erodes guest loyalty.

• Skills shortage: Industry reports highlight a persistent skills gap through 2028. Properties often open under-staffed, with training windows shrinking. Attrition is high and supervisory benches are thin.

• OTA commission pressure: Aggregators and OTAs take 15–22%+ in commissions, eating into margins. Reliance on discounts fuels price wars without boosting service delivery.

• Tech fragmentation: Hotels use too many apps that don’t talk to each other. Reservation, CRM, and accounting systems often run in silos, forcing manual workarounds.

Growth has been impressive, but quality and profitability are harder to sustain.

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Aggregators: Accelerator and Disruptor

• Democratization of demand: Thousands of small hotels became discoverable when aggregators digitized the unorganized segment.

• Occupancy boost: OTA promotions fill rooms, especially in shoulder seasons.

• Commoditization risk: Heavy dependence on aggregators trains guests to hunt for discounts and undermines brand differentiation.

• Data disconnect: Bookings through third parties mean hotels lose access to guest preferences, limiting personalization and loyalty-building.

Aggregators are a powerful channel—but only as part of a balanced distribution mix.

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Technology: Double-Edged Sword

Where tech shines:

• Digital check-ins, e-invoices, and AI chatbots reduce friction.

• Revenue management tools optimize pricing in real time.

• Predictive housekeeping improves efficiency and satisfaction.

Where tech hurts:

• Guest experience turns “cold” when humans hide behind screens.

• Tool sprawl without integration creates inefficiency.

• Valuable guest data is often collected but not converted into personal service.

Playbook:

• Choose ecosystems, not piles of apps.

• Fund onboarding and training as seriously as capex.

• Automate repetitive tasks but over-invest in human touchpoints.

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Strategic Takeaways for Operators

• Invest in people: Build structured cross-training, career paths, and recognition systems to reduce attrition.

• Balance channel mix: Incentivize direct bookings while capping OTA share by segment and season.

• Unify tech: Prioritize open APIs and two-way integrations.

• Protect brand standards: Codify service minimums, training hours, and preventive maintenance.

• Elevate service: Technology should free staff to create meaningful guest experiences, not replace them.

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The Road Ahead (Next 5 Years)

• Branded hotels everywhere: Mid-market and budget flags will dominate Tier-2/3 markets.

• Optimized OTA share: Hotels will achieve strong direct repeat business while leveraging OTAs for reach.

• Integrated systems: PMS ↔ RMS ↔ CRM ↔ Messaging will create seamless data flows.

• Skilled pipelines: More institutes and in-house programs will address the skills gap.

• Sustainability: Eco-friendly practices will become a selling point and a cost-saver.

• Human touch as differentiator: Hotels that keep the “hospitality” in hospitality will enjoy a reputational premium.

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Conclusion

India’s hotel industry has achieved enviable scale and momentum. The winners will be those who keep their margins without losing their manners—who digitize the frictions and humanize the moments. Growth got us here. Discipline will take us the rest of the way.

The Hospitality Industry: Navigating a New Era of Growth and Disruption

Introduction

 

The hospitality industry, a cornerstone of human connection and comfort since ancient times, has always been about more than just a place to stay. It's about delivering a human touch, exceptional service, and a sense of warmth to travellers. While this essence remains steadfast, the past two decades have witnessed a profound transformation. Technology has reshaped its infrastructure and operations, yet the core of hospitality—the human connection—remains its defining characteristic.

 

This blog delves into the current state of the hospitality industry, exploring its rapid growth, the inherent challenges that accompany this expansion, and, in particular, the evolving landscape of service standards, hotel quality, and the acute shortage of skilled labour. Crucially, we will also shed light on the disruptive role of online travel agencies (OTAs) and aggregators (you know who we are referring to) and their multifaceted influence on the industry.

The Evolution of Hospitality

 

From ancient inns to modern luxury resorts, the hospitality industry has consistently adapted to societal shifts. In recent years, technology has truly been a game-changer. Global brands have raised the bar by integrating advanced property management systems, AI-driven guest personalization, and contactless services. These innovations have not only streamlined operations but also significantly enhanced guest experiences, elevating overall industry standards.

 

However, this dynamic landscape has also seen an influx of new players – individuals and entities often operating outside the traditional hospitality mould. Driven by profit motives and the opportunity to legitimize unaccounted wealth or even social prestige, these newcomers have fuelled a construction boom. Affluent owners frequently partner with international chains that manage properties without owning assets, often operating under franchise agreements or brand management contracts. Concurrently, homegrown luxury brands and a burgeoning mid-segment market cater to diverse needs, further intensifying competition.

 

This rapid proliferation of hotels across luxury, mid-range, and budget segments reflects the immense economic potential and rising travel demand in many countries, particularly in emerging economies like India. Yet, this aggressive growth, while seemingly positive, brings with it significant drawbacks that threaten the industry's long-term sustainability.

The Impact of Online Travel Agencies (OTAs)

 

The rise of online travel agencies (OTAs) and booking platforms has undeniably brought convenience to travellers. However, for hotels, especially independent and smaller operators, these platforms have presented significant challenges, fundamentally altering the traditional dynamics of the hospitality industry.

 

• Price Wars and Margin Pressures: OTAs often impose steep commission structures, ranging from 15% to 30%, which significantly eat into hotel margins. To remain competitive on these platforms, hotels are often forced into intense price wars, leading to diminished profitability. Many hoteliers feel trapped, as opting out of these platforms often means a substantial loss of visibility and a steady flow of bookings.

• Loss of Brand Identity: Aggregators frequently overshadow the hotel’s branding, reducing the property to a mere listing in a vast sea of options. Guests often remember booking through the platform rather than the hotel itself, leading to weak brand recall and a reduction in crucial direct bookings.

• Dependency on OTAs: Smaller hotels and independent operators often become overly reliant on OTAs for bookings. This dependency erodes their ability to generate direct bookings through their own websites or other marketing channels, perpetuating a cycle of high commissions and reduced control over their pricing and customer relationships.

• Unrealistic Guest Expectations: Aggregators often employ aggressive marketing tactics, including discounted rates and promotional offers. While this attracts bookings, it can lead to guests expecting the same level of discounts or perks during their actual stay, creating friction when these expectations are unmet by the hotel directly.

• Erosion of Customer Loyalty: OTAs prioritize their own platform over individual hotels, often offering loyalty programs that reward guests for booking through them rather than directly with specific properties. This fundamentally erodes traditional customer loyalty programs and weakens long-term relationships between hotels and their patrons.

The Flip Side of the Aggregators

 

While some may argue that these "budget hotel aggregators" brought standardization to a previously unorganized segment, their rapid expansion and business models have had particularly detrimental effects on the wider hospitality ecosystem, especially for independent and mid-tier hotels in India:

• Aggressive Commissioning and Contractual Disputes: The aggregators (You know who they are) often operate on a franchise or revenue-sharing model where they promise guaranteed occupancy or revenue. However, numerous independent hotel owners have reported instances of delayed payments, arbitrary deductions, and a unilateral change in contract terms, leading to significant financial strain and even legal battles. The Competition Commission of India (CCI) has also investigated these entities for anti-competitive practices, including imposing wide price parity obligations and exclusivity clauses with OTAs, which further stifled competition.

• Devaluation of the Budget Segment: By focusing heavily on price and offering rooms at extremely low rates, these platforms have inadvertently driven down the perceived value of the entire budget and mid-segment hotel market. This makes it challenging for independent hotels that maintain certain quality standards to compete, forcing them to either lower their prices drastically or lose out on bookings.

• Quality Inconsistency and Brand Dilution: While their initial promise was standardization, the sheer volume of properties onboarded by these entities, often with minimal due diligence or strict quality control, has led to a widely inconsistent guest experience. Negative reviews pertaining to cleanliness, service, and basic amenities are common, which not only impacts the reputation of the individual property but also contributes to a general distrust of "budget" accommodations, even those outside their networks. This brand dilution makes it harder for truly quality budget hotels to distinguish themselves.

• Operational Interference and Lack of Autonomy: For many independent hoteliers, partnering with these aggregators meant ceding significant control over their operations, pricing, and even guest interactions. The centralized nature of these platforms often meant that hotel owners had limited autonomy, leading to frustration and a sense of losing ownership over their own business.

• Increased Competition for Staff: Their rapid expansion often led to a surge in demand for trained staff in the budget segment. While this might seem positive for employment, it often led to a "poaching" scenario, where independent hotels struggled to retain their trained staff against the potentially higher, albeit often unsustainable, wages offered by these large-scale aggregators.

The Down Side of Rapid Expansion

 

Beyond the direct impact of aggregators, the industry's swift growth presents other significant challenges:

 

• Declining Standards of Service: The pressure to expand quickly often prioritizes quantity over quality. This can lead to a decline in service standards, as new properties may lack adequately trained staff or the institutional knowledge to deliver exceptional guest experiences. The "human touch" that defines hospitality is often sacrificed in the race for rapid expansion.

• Compromised Hotel Quality: In a rush to open new properties, construction quality can be compromised, and maintenance might be deferred. This can result in poorly constructed buildings, inadequate infrastructure, and a general deterioration of the guest experience over time, impacting the brand image of the industry as a whole.

• Acute Labor Shortage: Despite the growth, the hospitality industry faces a severe shortage of skilled labour. Attracting and retaining talented individuals, from chefs and front-desk staff to housekeepers, remains a significant hurdle. Long hours, relatively lower wages compared to other sectors, and a lack of clear career progression often deter potential employees, exacerbating the problem.

• Environmental and Community Strain: Uncontrolled expansion can place immense strain on local infrastructure, natural resources, and communities. Increased waste generation, higher water and energy consumption, and potential disruption to local ecosystems are serious concerns that must be addressed for sustainable growth.

Striking a Balance for Sustainable Growth

 

To truly thrive and uphold its core values, the hospitality industry must adopt a more balanced and sustainable approach:

• Prioritize Quality Over Quantity: Focus on developing properties that adhere to high standards of construction, design, and operational excellence. Invest in regular maintenance and upgrades to ensure long-term quality.

• Invest in Human Capital: Implement comprehensive training programs, offer competitive wages, and create clear career paths to attract and retain skilled professionals. Foster a culture that values employees and recognizes their crucial role in delivering exceptional service.

• Embrace Sustainable Practices: Implement eco-friendly initiatives, from energy-efficient operations to waste reduction programs. Engage with local communities, support local businesses, and contribute positively to the regions where hotels operate.

• Leverage Technology Strategically: Utilize technology not just for operational efficiency but also to enhance personalized guest experiences and streamline internal processes, freeing up staff to focus on direct guest interaction.

• Minimize Aggregator Dependency: Hotels must strategically invest in their own digital marketing efforts to strengthen direct booking channels. Developing user-friendly websites, leveraging social media, and offering exclusive deals for direct bookings can significantly reduce reliance on OTAs, leading to better profitability and stronger, direct relationships with guests. Diversifying distribution channels and exploring niche booking platforms can also help reduce over-reliance on a few dominant players.

The Way Forward

 

The hospitality industry stands at a crossroads. Its remarkable growth reflects immense economic opportunity and rising global travel demand, particularly in markets like India. However, the accompanying challenges – declining service standards, compromised hotel quality, critical labour shortages, and the disruptive, often negative, influence of OTAs and the aggregators – demand urgent and strategic attention. By prioritizing quality, investing in people, carefully managing partnerships with OTAs, aggregators, and embracing sustainable practices, the industry can preserve its core essence: delivering exceptional experiences through the irreplaceable human touch. Only through balanced and responsible growth can hospitality continue to thrive as a beacon of warmth, comfort, and connection in an ever-changing world.

 

This also serves as a conscious call to the veterans of industry, past and present, to come forward and unite to arrest this potential downward trend. They can work together to infuse the authenticity and freshness back in to the industry by educating all stakeholders.

Authored By: 

Sachin Mahesh

Founder

Hospitality N More

LinkedIn: https://shorturl.at/ID5vk