ICRA projects revenues of the Indian hospitality industry to grow by 7-9% pc YoY in 2026-27
Despite geopolitical tensions that have weighed on inbound and outbound travel, ICRA, a leading credit rating agency, says that India’s hospitality industry is expected to maintain steady growth in 2026-27, with revenues projected to rise 7-9 pc year-on-year and premium hotel occupancy remaining stable at 72-74 pc.
In a press statement, ICRA says that the industry is projected to grow in 2025-26, based on a sample of 15 large premium hotel companies that account for a majority of the sector’s revenues. The agency expects pan-India premium hotel occupancy to remain at 72-74 pc in 2026-27, similar to 2025-26 levels, while Average Room Rates (ARRs) are projected to increase to INR 8,600-8,800 from INR 8,200-8,500. Operating margins are expected to remain healthy at 34-36 pc.
The report says foreign tourist arrivals (FTAs), excluding non-resident Indians, declined 7.9 pc in calendar year 2025 due to multiple headwinds, including terror attacks, retaliatory actions and broader geopolitical uncertainties. The West Asia conflict further impacted inbound travel, with FTAs declining 5 pc year-on-year in March this year and 14 pc in April. Although travellers from West Asia account for only around 3 pc of India’s total FTAs, flight disruptions, higher airfares and postponed discretionary travel affected overall inbound demand. While airline operations normalised and recovery was visible during May-June, FTAs in the first half of the year remained 1 pc below the same period last year.
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“The West Asia conflict resulted in airspace closures and some moderation in discretionary travel, weighing on FTAs to India. FTAs contracted by 9.1 pc YoY during March-April and by 2.4 pc YoY in 4M CY2026. However, the impact on the Indian hospitality industry remained contained as demand is largely driven by domestic travellers. Further, Q1 is generally a lean season for the sector, which limited the effect of decline in FTAs despite some cancellations and deferrals in meetings, incentives, conferences and exhibitions (MICE) activities. In addition, while the conflict caused a shortage of liquified petroleum gas (LPG), affecting food and beverage revenues for hoteliers, availability of piped gas infrastructure and adoption of alternative cooking solutions, including electric and induction ovens, helped mitigate the impact,” says Srikumar Krishnamurthy, Senior Vice President and Co-Group Head-Corporate Ratings, ICRA Limited.
The statement adds that outbound travel from India increased to 32.9 million in calendar year 2025 from 26.9 million in 2019, driven by higher disposable incomes and attractive visa policies. However, outbound travel contracted 29 pc year-on-year in March and 22 pc in April following the West Asia conflict. Travel remained subdued in May and June, declining 11 pc and 3 pc, respectively. ICRA says that the Government of India’s advisory to curb discretionary overseas travel, combined with higher airfares, a weaker rupee and geopolitical tensions, could encourage travellers to choose domestic destinations, supporting local hospitality demand.
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According to ICRA, inbound tourism is expected to remain an important growth driver over the medium term, supported by easier travel processes, infrastructure upgrades, expanding airport connectivity, India’s growing appeal as a business and events destination and the entry of global hotel brands. These developments are expected to improve international brand recall and enable premium hotels to command higher room rates.
“The Indian hospitality sector is unlikely to witness a prolonged adverse impact from the West Asia conflict, given its strong reliance on resilient domestic travel demand. Over the past decade, domestic travel has emerged as the key growth driver for the industry, reducing its dependence on FTAs. Over the medium term, FTA growth is expected to be supported by easing travel processes, improving infrastructure, expanding airport connectivity, India’s growing appeal as an events and investment destination, and enhanced cost competitiveness owing to a weaker rupee. While geopolitical disruptions may weigh on near-term sentiments, structural drivers are likely to support a gradual recovery in inbound tourism. Overall, ICRA anticipates pan-India premium hotel occupancy to remain at 72-74 pc in 2026-27, similar to 2025-26 levels, while ARRs for premium hotels are projected to increase to INR 8,600-8,800 in 2026-27 from INR 8,200-8,500 in 2025-26. A prolonged delay in resolution of the West Asia conflict, however, would exert pressure on these estimates,” says Krishnamurthy.
