Home TTJ Spotlight Features Premium Over Standard – The Rise of Premiumisation in the Hospitality Sector

Premium Over Standard – The Rise of Premiumisation in the Hospitality Sector

Premium Over Standard - The Rise of Premiumisation in the Hospitality Sector

Years of stagnation in the hospitality industry have passed, and the concept of premiumisation has taken centre stage. Today, travellers are no longer content with basic accommodations; they seek personalised, high-end experiences that align with their lifestyle and values. This shift is not only due to the changing demands of travellers but also a reflection of the industry’s ability to innovate and adapt. Through interviews with industry leaders, we explore how premiumisation is shaping the hospitality sector and driving guest preferences.

– Vartik Sethi

Occupancy rates for premium hotels in India are projected to reach decade-high levels of 70-72 percent in FY2024 and FY2025, following a recovery to 68-70 per cent in FY2023, according to credit ratings agency ICRA. The sustained high occupancy rates indicate that travellers are increasingly prioritising premium experiences over budget options, driven by a desire for enhanced comfort, personalised services, and unique experiences.

Kadmbini Mittal, Regional Vice-President at Hyatt India Consultancy, highlighted a newfound focus on personalised experiences post-pandemic. “There is now a significant inclination towards exploring destinations within the country, considering its diverse landscape and rich cultural heritage. Hotels are investing heavily in luxurious amenities, cutting-edge technology, and unique, culturally immersive activities,” she said. This shift is driven by a desire for experiences that go beyond traditional luxury, offering authenticity, exclusivity, and a strong sense of place.

According to Ashwni Kumar Goela, Area General Manager, Delhi – NCR, Radisson Hotel Group, the aftermath of the COVID-19 pandemic marked a pivotal point for premiumisation in hospitality. “Post-COVID, a growing number of people started to reflect on the purpose of earning money if they couldn’t fully enjoy spending it. The culture has shifted to valuing experiences everywhere you go,” he noted. The focus has moved beyond merely reaching a destination; it is now about how and where people stay. Standard rooms have given way to premium rooms that offer enhanced benefits and experiences. The domestic market, once inclined towards saving, is now more inclined towards spending on experiences and relationships. “This is just the start, and it’s only going to go up from here,” Goela added.

Similarly, Seema Taj, Director – Sales, Sheraton Grand Palace Indore, noted a significant evolution in guest expectations. “Guests today are not just seeking a place to stay; they are looking for memorable experiences that resonate with their lifestyle and values,” she added.

Personalisation has become a cornerstone of premium hospitality. Vinit Chhabra, General Manager at The Khyber Himalayan Resort and Spa, Gulmarg, emphasised that modern travellers demand customisation that matches their lifestyles. “In recent years, players in the hospitality industry have upped their game by offering high-end amenities in the rooms, such as large TVs, Nespresso machines, or even pillow preferences, as well as unique experiences, whether they are curated activities or wellness options to pamper their guests,” Chhabra explained.

The shift from focusing solely on premium products to delivering exclusive and personalised offerings is apparent, particularly among younger generations who seek to capture picture-worthy moments for social media and ultra-high-net-worth individuals looking for unique experiences.

The influence of social media cannot be overstated when it comes to the demand for premiumisation. Nazir Rah, Managing Director, Rah Hotels and Resorts, pointed out that social media amplifies the appeal of exclusive, shareable moments. “The rising use of social media that amplifies the product offering and exclusive shareable moments and experiences further influences demand for premiumisation,” he explained. At Rah Bagh in Srinagar, their Royal Attic Suites and independent Garden Cottages have seen tremendous success, catering to the desire for unique, luxurious stays that are perfect for social media sharing.

Economic Stability and Health Concerns

The pan-India premium hotel average room rates (ARRs) are expected to be Rs 7,200-7,400 in FY2024 and rise further to Rs 7,800-8,000 in FY2025. The spike in ARR in some hotels and specific pockets has been higher than the average levels, with a few outliers even crossing the FY2008 peak in FY2024. This indicates robust pricing power in the premium segment, allowing hotels to capitalise on the growing demand for luxury experiences.

Moreover, the Indian hotel industry will report revenue growth of 7-9 per cent in FY2025, building on the robust 14-16 per cent growth expected in FY2024, according to ICRA.

Several key factors are driving the sustained demand for premium hotel accommodations, including domestic leisure travel; MICE travel, which is expected to remain robust despite a temporary lull during election periods; a positive overall outlook for business travel, contributing to the premium segment’s growth; and spiritual tourism and tier-II cities, which are also expected to contribute meaningfully to the hospitality sector’s growth in FY2025.

Economic stability and health concerns are also pivotal in driving the demand for premium experiences. Kadmbini Mittal emphasised that wellness and well-being have become integral to premium experiences. “Many premium experiences offer wellness-related services such as spa treatments, fitness programmes, and healthy dining options, attracting guests who prioritise their physical and mental health,” she said.

A report from HVS Global further supports this, indicating that the hospitality industry is on a recovery path with increased demand and higher average daily rates (ADR) in several markets. Leisure destinations have particularly benefited from the return of international travellers and strong domestic demand.

Vinit Chhabra highlighted that personalisation has become paramount in delivering premium hospitality services. “Well-heeled travellers are looking for customisation that matches their lifestyle,” he said. In response to this demand, the industry has enhanced its offerings with high-end amenities such as large TVs, Nespresso machines, and personalised pillow preferences. Additionally, unique experiences, whether curated activities or wellness options are now integral to providing a premium stay.

Seema Taj further elaborated that growing disposable incomes and the impact of the pandemic have shifted guest priorities towards quality and exclusivity. She noted, “Guests today seek authenticity and personalised services that make their stay special and memorable. Moreover, the impact of the pandemic has shifted priorities, with a greater emphasis on health, wellness, and safety.”

Demographic Shifts and Experiential Travel

Digitalisation in the tourism sector will enhance travel experiences, with immersive experiences becoming more prevalent. Additionally, the push towards sustainability in hospitality is driven by consumer demand for eco-friendly practices, with many travellers now prioritising hotels that implement sustainable solutions (EHL Insights Hospitality Insider).

Nazir Rah observed a significant shift in guest preferences over the past decade, with an increasing number of travellers opting for premium rooms over standard ones. “The concept of standard rooms is now passé in the hospitality industry. High-quality rooms and experiences have been redefined,” he stated.

The demographic landscape of premium travellers is also changing. Vinit Chhabra observed that high-net-worth individuals (HNIs) in the age group of 35-65 are key drivers of this trend. Chhabra shared, “Our guests are generally HNIs who could be newlywed couples wanting to create memories, older couples celebrating togetherness, or cross-generational families looking to bond and celebrate milestones.”

Adding to this, Seema Taj shared that millennials and Gen Z travellers, as well as high-net-worth individuals, show a greater inclination towards premium experiences. “Millennials and Gen Z value experiences over material possessions and are willing to invest in unique and enriching stays that they can share on social media,” added Taj. It is safe to say that the demographic shift towards younger, tech-savvy travellers who give importance to experiences is shaping the way hotels approach premiumisation.

Kadmbini Mittal echoed the narrative by pointing out the profound shift among Gen Zs, who value authentic experiences over traditional investments. “Embracing a more enriching and holistic approach to travel, the new-age generation of tourists is at the forefront of this transformation,” she shared.

Ashwni Kumar Goela also highlighted the changing age demographics of premium travellers. “The age group of 25 to 40 are the people who are spending money now and are looking at experiences coming forward,” Goela noted.

Balancing Premium Services with Competitive Pricing

40 per cent of guests at Radisson Blu Plaza Hotel, Delhi Airport, now opt for higher room categories. Goela shared, “People don’t mind spending money as long as they get good quality service.” To meet these expectations, Radisson focuses on continuous innovation and robust staff training to ensure high-quality service and guest satisfaction.

Seema Taj mentions that approximately two-thirds of guests at Sheraton Grand Palace Indore opt for premium rooms over standard ones. “To balance offering premium services while maintaining competitive pricing, we focus on delivering exceptional value. This includes offering exclusive packages, personalised services, and unique amenities that enhance the overall guest experience,” she explained.

Balancing premium services with competitive pricing remains a challenge. Vinit Chhabra explained that at The Khyber, all guests are considered premium customers, with even the lowest-priced rooms offering picturesque views and bespoke services. “To remain competitive, we also deploy price management strategies to balance and maximise revenue,” he added.

Beyond luxurious accommodations, Rah Hotels and Resorts prioritises bespoke experiences that showcase the unique cultural fabric of their destinations. At Rah Bagh, guests have the opportunity to participate in immersive activities and interact with local communities. This approach enriches the guest experience and fosters a deeper connection to the destination.

Future Trends and Adaptation

Looking forward, industry leaders anticipate a growing demand for premium experiences. Seema Taj predicts that the demand for premium experiences will continue to grow, driven by rising disposable incomes, a focus on health and wellness, and the influence of social media. “To meet these evolving needs, we plan to continuously innovate our offerings, integrating advanced technology, enhancing our wellness and sustainability initiatives, and curating more bespoke experiences that reflect the local culture and heritage,” she said.

Kadmbini Mittal emphasised the importance of wellness and spiritual tourism in the future of premium hospitality. “At Hyatt, wellness is a big area of focus, and properties such as Andaz Delhi, Grand Hyatt Kochi, and Alila Diwa Goa offer comprehensive wellness experiences rooted in local culture,” she noted.

Ashwni Kumar Goela adds that innovation and creativity will be key to keeping guests engaged with premium services. “We need to be innovative and creative to keep our guests engaged with higher categories of rooms and services,” he added. By ensuring robust training plans and high-quality service, hotels can continue to attract and retain premium guests.

In conclusion, the trend towards personalisation in the hospitality sector is set to continue, driven by premiumisation, social media influence, economic stability, and a shift towards experiential travel. As guests increasingly seek unique, high-quality experiences, the industry must innovate and adapt to meet these evolving demands, ensuring a memorable and luxurious stay for all.