Capacity of Hotels Underutilized

Capacity of Hotels UnderutilizedCapacity of Hotels Underutilized

Despite the considerable rise in the number of tourist arrivals in Iran over the past two years—topping 5 million inbound tourists in 2014—hotels are not faring too well, at least according to Ali Farrokhmehr, the president of Tehran Hotels Association.

Elaborating on the sorry state of the hotel industry, Farrokhmehr told the Persian daily Donya-e-Eqtesad that on average, hotels were operating at 52.48% capacity during March-July 2015, showing a 3.08% slump compared to the same period of last year.

“To make profit, more than 60% of hotel capacity should be occupied,” he said.

Farrokhmehr warned that the lack of guests means hotel owners will struggle to repay their loans, apart from discouraging potential investors from financing hotel projects.

He singled out Airbnb-style services and lodging facilities run by state organizations that charge lower fees as the main reason behind the slump in hotel occupancy rates.

This is while last week, Morteza Rahmani Movahed, tourism deputy at Iran’s Cultural Heritage, Handicrafts and Tourism Organization called Airbnb-style facilities “illegal”.

“We’re collaborating with the police force to identify these establishments and take legal action against the perpetrators.” He said.

Movahed argued that the existence of “numerous lodging facilities across Tehran and the large number of hotel projects underway override the need for these types of accommodation”.

  Contradictory Claims

However, in the past two months, officials had claimed that Iran’s lodging facilities are operating at full capacity.

ICHHTO chief, Masoud Soltanifar, has repeatedly said Iran needs at least 400 hotels by 2025 to accommodate 20 million tourists a year, which is the country’s tourism target.

In fact, the shocking lack of hotels prompted ICHHTO to prepare detailed information on 1,020 investment projects that will be made available to potential domestic and foreign investors soon. The package includes information about three- to five-star hotel projects.

Yet, Farrokhmehr, who has been pushing for more hotels to be built, is now complaining about the “explosion of illegal lodging facilities and lack of support from authorities”.

In July, the hotelier famously lamented the lack of lodging in Tehran in a July interview with Donya-e-Eqtesad and said the Iranian capital alone needs 100 more hotels.

“Unless ICHHTO steps in, hotels will go bankrupt,” Farrokhmehr said, calling for swift legal action against establishments that are operating “illegally”.

He then suggested extensions on loan installments to allow hoteliers to make payments while business remains slow.

One cannot help but wonder if the country’s push for more lodging facilities is merited, given the low hotel occupancy rates.