New Delhi, Jan 14 (NationPress) The hospitality sector in India is witnessing a significant surge in structural growth, largely propelled by domestic travel demand. This shift in demand dynamics has rendered the industry less vulnerable to global disruptions compared to the pre-Covid-19 era, according to a report released on Wednesday.

The report from ICRA indicates that industry revenues are projected to increase in FY26, even with a robust FY25 baseline, supported by various factors including leisure travel, meetings, incentives, conferences, weddings, and business travel.

It is anticipated that the premium hotel occupancy rate across India will stabilize at 72-74 percent in FY26, with average room rates for premium hotels expected to rise to Rs 8,200-8,500 in FY26.

This comes after room rates of Rs 8,000-8,200 in FY25, as noted in the report.

While foreign tourist arrivals remain subdued, the overall demand landscape is unaffected, thanks to a significant broadening of demand drivers, facilitating the sector's next phase of growth.

The ratings agency anticipates that the forthcoming Union Budget will maintain its emphasis on initiatives that bolster tourism and infrastructure investments, enhance the ease of doing business, and improve connectivity and accessibility.

As supply growth continues to lag behind demand, favorable policy frameworks are expected to support inventory expansion and sustain the next phase of hotel growth in India.

The persistent imbalance between supply and demand is enhancing pricing power and driving revenue per available room to unprecedented heights. This ongoing demand-supply disparity has fortified sector profitability and supports a measured capacity increase across various markets.

“The market has the capacity to support diverse formats and pricing tiers, pushing hotel companies to expand beyond traditional upscale business hotels,” stated Sruthi Thomas, Vice President & Sector Head, Corporate Ratings, ICRA Limited.

“There's a growing inclination towards asset-light operational models, including management contracts and franchise arrangements, which yield fee-based, high-margin income, require minimal capital, and enhance return on capital employed and free cash flows,” she added.

The ratings agency predicts that sustained demand and pricing power will bolster revenue growth for the premium hotel segment in the latter half of FY2026 and into FY2027.

Room occupancy and average room rates are expected to be around 69-71 percent and Rs 8,100-8,200, respectively, in the first nine months of FY26, as per the report.