Monday, 08 Jun, 2026
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The West Asia conflict has weakened international arrivals and disrupted corporate travel and MICE activity, prompting some foreign visitors to defer trips and weighing on hotels with higher exposure to overseas guests
The ongoing conflict in West Asia has emerged as an unexpected headwind for India’s hospitality sector, disrupting a multi-year recovery cycle that had been driven by strong domestic travel, rising corporate spending and a steady return of international visitors.
The impact became visible in the March quarter (Q4FY26), when most listed hotel operators reported slower growth in occupancy despite continued gains in room rates. Industry executives and analysts expect the pressure to linger through the current quarter, particularly if geopolitical tensions continue to affect international travel flows and business confidence.
According to Kotak Institutional Equities (KIE), the sector delivered a modest performance during the quarter, with revenue per available room (RevPAR)—a key measure of hotel profitability—rising 5.3 per cent year on year to Rs 6,868 a day. The increase was largely driven by higher room rates rather than stronger demand.
Average room rates climbed 6.3 per cent to around Rs 10,100 a day, reflecting the pricing power that hotel operators have enjoyed over the past few years. However, occupancy levels fell by 67 basis points to 68 per cent, indicating that demand growth was insufficient to sustain the sharp gains seen earlier in the recovery cycle.
The conflict in West Asia has affected the industry through several channels. International tourist arrivals have weakened, while corporate travel and meetings, incentives, conferences and exhibitions (MICE) activity have been disrupted in some markets. Travel uncertainty has also prompted some foreign visitors to postpone trips, affecting hotels that depend heavily on international guests.
The slowdown is significant because the hospitality industry entered FY26 with expectations of another year of robust growth. Strong domestic tourism, improving airline connectivity and rising business travel had encouraged hotel operators to accelerate expansion plans. The sector had also benefited from a supply shortage in many cities, allowing operators to raise room rates well above pre-pandemic levels.
Despite the challenging backdrop, India’s largest hotel company, Indian Hotels, managed to outperform the broader industry. The company reported a 13 per cent increase in standalone revenue during the quarter, supported by a 9 per cent rise in room rates and a 200 basis-point increase in occupancy to 82 per cent.
Additional support came from food and beverage sales, which grew 6 per cent, and management fee income, which jumped 30 per cent on the back of new hotel signings. The performance suggests that well-established brands with diversified revenue streams remain relatively insulated from short-term demand fluctuations.
Other operators were less resilient. ITC Hotels, the second-largest listed hotel company by market value, reported room-rate growth of 5 per cent, below market expectations and weaker than several peers that recorded increases of 6-15 per cent.
Yet analysts remain broadly positive on the sector's medium-term outlook. One reason is that operators continue to invest aggressively despite near-term uncertainty. The industry signed agreements for roughly 14,000 new rooms during the quarter, signalling confidence that demand will continue to grow over the coming years.
This expansion reflects structural strengths that remain intact. Domestic leisure travel continues to grow, supported by rising incomes and improved transportation infrastructure. Corporate travel has also recovered strongly from pandemic lows, while India's convention and events market continues to expand.
Analysts at KIE expect occupancy and room rates to improve as the effects of the West Asia conflict ease and international travel normalises. They argue that the current slowdown appears cyclical rather than structural.
Recent data, however, suggests that the pressure has not yet fully subsided. According to HVS Anarock, occupancy levels in April were broadly flat compared with a year earlier, while average room rates rose by 5-7 per cent. This indicates that hotels are still relying more on pricing than volume growth to support revenues.
ICICI Securities expects annual room-rate growth of 6-8 per cent between FY26 and FY28, assuming geopolitical tensions do not intensify. The brokerage believes the sector is capable of demonstrating resilience because balance sheets are healthier than in previous downturns and new supply remains relatively disciplined.
May was also challenging. Analysts at IDBI Capital noted that demand remained muted amid global uncertainty and seasonal weakness. Extreme heatwaves across parts of India further reduced travel activity, while higher airfares put additional pressure on occupancy.
For investors, the key question is whether current weakness represents a temporary pause or the start of a more prolonged slowdown. Most brokerages favour the former view. They point out that hotel valuations have moderated in recent months, providing room for a recovery if geopolitical risks diminish.
For the hospitality sector, the immediate challenge is to preserve occupancy while maintaining pricing discipline. If international travel rebounds and domestic demand remains healthy, operators could return to stronger growth in the second half of the fiscal year. Until then, hotel companies are likely to focus on cost control, brand expansion and capturing market share in a softer demand environment.
The sector’s long-term growth story remains intact, but the pace of recovery in the coming quarters will depend largely on how quickly geopolitical uncertainty gives way to a more stable travel environment.
