Nepal’s hotel industry has witnessed a surprising growth in profits despite facing several challenges, including a series of tragic plane and bus crashes, and a decline in demand for banquets—one of the key revenue streams for many luxury hotels. Hoteliers attribute this growth to an unexpectedly strong spring season, which saw a surge in tourist arrivals, compensating for the downturn in banquet bookings and the disastrous monsoon season.

Subdued Banquet Demand and Shift in Preferences

In recent years, hotels have seen increased demand for banquets due to their popularity for hosting weddings, bratabandha (a traditional initiation ceremony), and other religious events. Luxury hotels became preferred venues over traditional party palaces, offering guests an upscale experience and increasing revenue for the hotels. However, the last fiscal year saw a significant dip in banquet demand due to fewer auspicious dates for ceremonies and rituals.

Hotel Association Nepal remarked that the limited number of auspicious dates last year affected revenue. This trend continues into 2024, with Mangsir, the traditional wedding month, having only one auspicious date for marriage (November 23), resulting in no banquets available for that day.

Spring Arrivals Rescue the Hotel Industry

Despite the banquet downturn, an influx of tourists during the spring months (March-May) saved many luxury hotels, leading to higher occupancy and profits. The peak spring season, which coincides with popular trekking and expedition activities, brought a record number of tourists, particularly in April when the country received 111,376 visitors by air. This influx provided much-needed relief and helped hoteliers offset the losses incurred from the subdued banquet business.

Hotels like Soaltee Hotel Limited and Taragaon Regency Hotel Limited were among the major beneficiaries. Soaltee reported the highest profit among hotels listed on the Nepal Stock Exchange, posting a net profit of Rs 601.07 million, an increase of 8.30% compared to the previous year. Similarly, Taragaon, which operates under the Hyatt Regency brand, reported a net profit of Rs 518.26 million, up 28.17% from the previous year, with revenues reaching Rs 1.73 billion.

Impact of Aviation and Road Accidents on Tourism

While the spring season was promising, Nepal’s tourism sector took a hit due to a series of tragic accidents, including plane and bus crashes. Recently, aviation accidents of Saurya Airlines and bus accidents of Simaltal and Indian bus accidents have sparked a sense of doubt on tourists visiting Nepal. Hoteliers estimate that cancellations after these accidents amounted to over 25%, directly impacting the industry's growth potential.

Before the monsoon season, the hotel industry was optimistic, with high hopes for sustained tourist arrivals. However, the monsoon, coupled with the accidents, caused significant setbacks, particularly for smaller hotels that have struggled to recover.

Challenges Ahead for the Hospitality Industry

Although luxury hotels reported increased profits, the industry faces several ongoing challenges. Fierce competition in the five-star segment, a shortage of skilled labor due to migration, and legal complexities in organizing concerts and entertainment events are some of the key issues. Additionally, a new luxury tax imposed by the government has further burdened hotels, with the 2% tax on services provided by five-star or higher-rated hotels discouraging domestic tourism.

Oriental Hotels Limited, which operates the Radisson Hotel in Kathmandu, experienced slower growth compared to its competitors. The hotel’s net profit for the fiscal year was Rs 122.30 million, down from Rs 160.92 million in the previous year. The decline was attributed to lower banquet sales and rising food inflation.

Smaller hotels, particularly those outside the three-star category, have faced greater difficulty recovering from the economic impact of the accidents. For instance, City Hotel Limited, operating under the Hyatt Place brand, posted a net loss of Rs 204.73 million despite a 14.25% rise in total earnings.

Chandragiri Hills: A Bright Spot

One notable success story is Chandragiri Hills Limited, which operates a cable car service in Kathmandu. The company reported a net profit of Rs 223.38 million, more than doubling its profit from the previous year. This growth reflects the sustained demand for domestic tourism offerings, particularly for attractions that offer scenic and recreational experiences.

Looking Forward

Nepal’s hotel industry, while resilient, faces a mix of optimism and uncertainty. Hoteliers remain hopeful that tourist arrivals will continue to rise, especially with the spring trekking season showing promising signs. However, challenges like geopolitical tensions, rising operational costs, and increased competition in the luxury segment could dampen future growth prospects. Moreover, the looming Israel-Hamas conflict and Russia's war on Ukraine may further affect international travel patterns, creating additional hurdles for the sector.

In the short term, hotels are planning to upgrade their infrastructure and services to remain competitive. City Hotel Limited, for example, plans to upgrade to Hyatt Centric, expanding its banquet capacity from 400 to 600 guests, hoping to capture more business in the next fiscal year.

While the industry has successfully weathered some of its recent storms, the road ahead will require adaptability and innovation to sustain growth in the face of ongoing challenges.