A hotel's unit of production is the available room-night, and its master KPI is RevPAR, Revenue Per Available Room:
RevPAR = ADR × Occupancy
where ADR (Average Daily Rate) is the average realised room price and Occupancy is the fraction of available rooms sold. The identity is exact, and it's worth internalising because it tells you why revenue moved. RevPAR of ₹8,640 can come from ADR ₹12,000 at 72% occupancy, or from ADR ₹10,800 at 80% occupancy. Those are two very different businesses. RevPAR is computed on available rooms, the whole inventory, instead of sold rooms, so it already blends price and volume into one comparable number. Typical occupancy runs 65 to 75% across a market cycle. Luxury hotels run lower and are rate-driven. Budget hotels run higher on volume.
What do GOPPAR and RevPAR Index add?
Two richer measures go beyond RevPAR:
- GOPPAR, Gross Operating Profit Per Available Room = gross operating profit / available rooms. GOPPAR beats RevPAR because it captures two more things. One is cost control: two hotels with identical RevPAR can have very different GOPPAR if one manages staffing and energy better. The other is non-room revenue (food & beverage, banquets, weddings, spa), which for an Indian luxury hotel can rival room revenue. When you can get GOPPAR, it's the truer profit KPI.
- RevPAR Index (RGI, or "MPI/ARI/RGI" family) = your RevPAR ÷ your competitive set's RevPAR × 100. Above 100, you're taking more than your fair share of the market's revenue and winning share from the comp set. Below 100, you're losing it. It's the hotel industry's cleanest relative-performance metric because it strips out the market cycle. Even in a downturn, an RGI of 115 says you're beating your neighbours. STR, the data provider, supplies these benchmarks, and managed-hotel contracts are often judged on them.
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Why are hotels cyclical?
So why are hotels cyclical? Because of the supply lag. It's the sector's defining dynamic, and it's pure capital cycle. Hotel demand is tied to GDP, business travel, and tourism, and it swings fast. A recession or a pandemic can halve it in a quarter. Hotel supply takes three to five years to add: land, approvals, financing, construction.
That mismatch creates a textbook cycle. Demand recovers. Occupancy and ADR climb, and RevPAR spikes. Developers see fat returns and all start building. Three to four years later the new rooms open together, often just as demand is cooling. Supply floods. Occupancy and ADR fall, and RevPAR craters. Building stops, supply tightens over the next few years, and the cycle repeats. The multi-year supply lag is the cyclicality.
What should an analyst watch in the hotel cycle?
Your edge as an analyst is watching the supply pipeline, the rooms under construction in a micro-market, which STR/HVS publish. Heavy new supply arriving into a RevPAR peak warns you the down-leg is coming, however good current numbers look. And because a hotel's costs are largely fixed (staff, property, utilities), operating leverage amplifies everything. Incremental RevPAR flows to profit at a very high margin on the way up, and the reverse happens on the way down.