Hospitality sector set for 9-12% revenue growth in 2025-26

India's hospitality sector is projected to register revenue growth of 9-12 per cent in 2025-26, driven by steady demand across multiple segments, according to a report by rating agency Icra.

The sector is expected to maintain healthy operating performance in FY26, supported by domestic leisure travel, MICE (Meetings, Incentives, Conferences, and Exhibitions) activities, weddings, and robust corporate demand. Despite a high base in FY25, the growth outlook remains favourable.

Pan-India premium hotel occupancy is estimated at 72-74 per cent in FY26, slightly higher than the 71-73 per cent recorded in the first 11 months of the current fiscal year. Average room rates (ARRs) are projected to rise to Rs 8,200-8,500 per night, compared to Rs 8,000-8,200 in FY25, reflecting sustained demand and strong pricing power.

Premium room inventory across 12 key cities is expected to grow 5-6 per cent annually over FY25-FY26, trailing estimated demand growth of 8-9 per cent. This persistent demand-supply gap is likely to support occupancy levels and rate growth over the next two to three years.

The report highlighted that demand drivers are now diversified, including corporate travel, weddings and social events, MICE activities, concerts, sports events, religious tourism, and leisure travel to tier II and III cities. This diversification has reduced the sector’s vulnerability to global or cyclical shocks.

Hotel companies are increasingly using asset-light expansion models such as management contracts and franchise arrangements. These models generate fee-based income with lower capital requirements, improve return on capital employed, and support stronger free cash flow, the report noted.

With these trends, the hospitality sector is poised for stable growth in the coming year, underpinned by sustained domestic demand and strategic operational models.