September , 2016
12:15 pm

Varsha Singh and Ankita Chakraborty

If you want a clean and comfortable stay, which will be light on your pocket, budget hotels are the best option for you. A budget hotel is the category of hotel that provides rooms and meals at relatively cheap rates. These hotels also offer facilities like daily room service, telephone, television, air conditioning, mineral water, broadband connection, and doctor-on-call.

Budget hotel owners have to walk a tightrope between providing quality services and keeping the rates affordable.But with a growing middle class, youth with disposable incomes, and all-season travellers, the stars of budget hotels are on the rise.

The growth of hotel industry in India is in step with the Varsha Singh and Ankita Chakraborty growth of the tourism sector. Both overseas and domestic tourists are increasing in India, leading to a considerable leap in the sector. Domestic tourism has risen by 90% in the past six years. According to an IBEF report, the total outbound trips increased by 8.7% to 19.9 million in 2015.

Inbound tourist volume grew at a Compound Annual Growth Rate (CAGR) of 6.8% during 2010-15. There has been a rapid growth of budget hotels in India that caters to the section, which seek affordable stays. International and domestic companies see budget hotels as an opportunity for growth to meet the demand in increasing inbound tourism.Around 40 international brands are poised to enter the country in the next five years.


The hospitality sector in India has brought home the concept of budget hotels. This has facilitated the domestic tourism with the number of trips increasing by 12%. The country has an estimated number of around 1, 70,000 hotel rooms. According to a report by Equitymaster, even with the expected addition of another 60,000 hotel rooms (across segments) over the next 3-5 years, the industry is expected to fall short of meeting the long-term demands of an economy growing at 7%-9% per annum.

A report by ICRA also states that the domestic hotel industry is likely to touch $1.8 billion by the end of 2016, from $0.8 billion presently. However, the growth is expected to come from a rise in online bookings.

Google India also reported that branded budget hotel queries in India are growing at 179% YOY in comparison to just 36% YOY growth in generic budget hotel queries.

Increased demand and healthy occupancy have fuelled the growth of budget hotels. These hotels use various cost control measures to maintain lower than average room rates without compromising on service quality.

Mandeep Lamba, Managing Director, Hotels, JLL India, recently wrote in an article, “Since 2007, the branded economy hotel supply in the country has increased at an average rate of 21% year on year, growing from a base of approximately 2,200 branded economy rooms to over 10,400 economy hotel rooms – a nearly five-fold increase. The growth was driven by a healthy mix of both global and regional hotel companies. While the Bangalore hotel market today accounts for the largest share of branded economy hotel rooms in the country, Pune comes a close second with nearly 1,050 branded economy rooms.”

According to Ritesh Agarwal, CEO and Founder, OYO Rooms, “India’s hospitality industry is largely fragmented and unorganized. It encompasses budget hotels, each of which is typically a 15-20 room property offering “nofrills” accommodation at an “economical” price, lower than what other establishments charge. These were started to cater to budget travellers, who typically did not want to pay more than a minimal amount for their stay. In the organised classified segment, the budget category largely includes the one-star and two-star hotels as well as bed-and-breakfast operations. Budget establishments may be economical but service standards vary.”

The online sensation

Hotel bookings are one of the least penetrated segments in the travel categories in India. Online bookings account for 16% of the hotel bookings currently and is expected to grow to 25% in 2016. It is estimated that 8.4 million Indians are likely to book hotels online by 2016, up from 3.5 million in 2014.

The digital platform is taking the budget hotel industry to another level. Small hotels are making huge business by associating themselves with the online groups. For instance, Durga International, a small budget hotel in Paharganj in central Delhi started making profit after associating itself with ZO rooms which is an online budget room aggregator.Similarly, there are many hotels that are associating themselves with several online travel agencies (OTA) and online travel aggregators like OYO rooms.

Reports by Google India reveal that in the domestic hotel industry, branded budget hotel chains are driving the growth of hotel bookings online. With over 300 million Indians online, hotel providers have been slow to catch up with the digital bandwagon, with only 20% of total hotel inventory available online. Seizing this massive opportunity, several players including new and established players are focused on bringing quality budget accommodation online across the country.

The estimated budget hotel aggregation market is somewhere between $25 and $40 billion. Various platforms are vying to grab this segment. As per industry estimates, the inventory in the budget hotel space is expected to grow further with both new and existing players expected to bring up to 10,000 new rooms online this year.

Online brands like MakeMyTrip, Yatra, and Tripadvisor have gone that extra mile and developed more features in order to satisfy their customers. Travellers are increasingly depending on the ratings and reviews on these sites to book rooms. For these brands to run their show, prioritizing the guest experience is becoming a critical component.

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