Hotels Under Severe First-Order Impact of COVID-19

Hotel Industry is reeling under severe first-order impact of COVID-19, however its recovery is expected with a lag.

With India in midst of a lockdown owing to the Coronavirus (COVID-19) spread, Motilal Oswal Institutional Equities held interactions with hotel players and experts to get an understanding of the demand scenario and measures deployed to reduce fixed cost. We have also performed scenario analysis in this note. Key insights are below:

Severe first-order impact of COVID-19

  • Given the various travel restrictions imposed by the Indian Government as well as countries globally, the most visible and immediate impact of COVID-19 is seen in the hospitality and tourism sector. Almost all segments/verticals – inbound, outbound and domestic/leisure, adventure, heritage, MICE, cruise and corporate – have been impacted.
  • Forward bookings for various conferences and leisure travel bookings to foreign destinations have already been cancelled.
  • However, on a positive note, the 1H of the financial year is typically a lean season (40-45% revenue contribution) for the hospitality industry. Thus, hotel players would get ample time to prepare for the peak season and minimize business loss by reducing fixed costs.
  • Even if the lockdown is lifted on 3rd May’20, the recovery in the hospitality sector is expected to lag as corporate travel would pick up at a slow pace and leisure travel would also get postponed until the situation normalizes. Note that domestic travel demand would recover faster vis-à-vis foreign travel.
  • Additionally, lower Foreign Tourist Arrivals (FTAs) in India would weigh on occupancies as well as on the average room rate (ARR). Typically, foreign customer mix for IHIN stands at 35-40% and for LEMONTRE at 10%.
  • According to our interaction with a hotel expert, travel demand would be under pressure until a vaccine for COVID-19 is out and made available at affordable rates.

Impact on 1QFY21 to be severe in comparison to 4QFY20

  • Performance in 4QFY20 was mixed. While Jan-Feb’20 recorded RevPAR growth, Mar’20 witnessed an escalation in the spread of COVID-19.
  • Thus, March witnessed severe occupancy decline, which has dragged overall 4QFY20 performance across hotel players.
  • Assuming the lockdown continues into May’20, hotels would have had negligible revenues for two consecutive months (Apr-May’20). RevPAR for Jun’20 too is expected to decline significantly, which should lead to overall revenue decline of >75% for 1QFY21. Further, fixed costs are also likely to lead to EBITDA losses across major hotel players. Should the lockdown extend beyond May’20, hotel players would be further impacted.
  •  Large conferences and exhibitions generate demand for hotel rooms. These would also be affected as large gatherings would be avoided for 4-6 months. As a result, food and beverages (F&B) income would also get impacted.
  •  Management contract income for brand owners would also remain under pressure. This is because a major part of the management contract income is linked to the operating profit of a hotel. Also, asset owners are high net worth individuals/real estate developers; hence, the segment would be under pressure due to the liquidity crisis.

About author

TnH Global
TnH Global 4073 posts

Our platform is the most comprehensive, current and accurate content destination for tourism that also offers the opportunity to connect and network with quality buyers and sellers.

Name: TnH Global              Email: admin@tnhglobal.com

You might also like

Wellness

Awards Galore for Nusa Dua Beach Hotel & Spa at The 7th Asian Lifestyle Tourism Awards 2017

Nusa Dua Beach Hotel & Spa has been recognized as the “Outstanding Beach Resort Destination in Asia”, “Best Spa Resort Destination in Indonesia” and “Best Wedding Destination in Indonesia” at

Trends

Mumbai to Bali cruise service soon: Nitin Gadkari

Union Road Transport and Highways Minister Nitin Gadkari recently said that his ministry was working on a cruise route from Mumbai to Bali in Indonesia, via Kochin and the Andaman

Latest

Orchid Mumbai celebrates ‘Earth Hour’

The Orchid Mumbai, Asia’s first Ecotel Hotel celebrated Earth Hour on 28th March 2018 from 7:30 pm to 8:30 pm. With this initiative The Orchid Mumbai reaffirmed its firm commitment in maintaining a strong Environment Program

Trending

Vistara bags top honours in TripAdvisor’s Travellers’ Choice Awards

Vistara has been awarded the ‘Best Airline in India’ in the second edition of TripAdvisor Travellers’ Choice® Awards 2018 for Airlines. In addition to bagging the grand jewel, Vistara’s win goes beyond

IATA urges government to defer hike in airport charges

Rise in airport charges should have been implemented after consultations with all stakeholders as is done under international regulations, says IATA. International airline lobbying group International Air Transport Association (IATA) has

Slider

Singapore Tourism Board celebrates 10th year of partnership with Messe Berlin at ITB Asia 2017

Singapore is the 2017 Partner Country and Singapore Pavilion will showcase local talents and their passions. The Singapore Tourism Board (STB) is celebrating its long-standing 10-year partnership with Messe Berlin.

Pakistan’s link unearthed in Kanpur train accident that killed more than 140 passengers, 3 arrested

According to sources, ISI plotted the Kanpur train derailment on November 20, 2016 in which over 140 people were killed. Railways has rushed an investigation team to Motihari in East

flydubai celebrates its 2nd anniversary in Mumbai

Airline continues to build trade and tourism links between Mumbai and Dubai Dubai-based flydubai today marked the second anniversary of its service between Mumbai’s Chhatrapati Shivaji International Airport and Dubai

Latest

GTDC to offer white water rafting activity from today

The monsoon season has arrived bringing with itself the perfect time to ride the waves of the gorgeously moody Mhadei River amidst the spectacular jungle scenery along the Mhadei wildlife

Wellness

Nusa Dua Beach Hotel & Spa is a proud winner in the two categories of Bali Tourism Awards 2017

Nusa Dua Beach Hotel & Spa honored with “Bali Leading Thematic Resort” and “Bali Leading Resort in Nusa Dua” at Bali Tourism Awards 2017/2018. Nusa Dua Beach Hotel & Spa

Trending

Exemption on service charge on train tickets till September

The service charges on booking train tickets online through IRCTC range from Rs 20 to Rs 40 per ticket. Train passengers will continue to get benefits of a service charge

Latest

Louvre Hotels Group continues expanding in the Delhi NCR region with the launch of its fifth property

Louvre Hotels Group, the largest hotel chain in India is all set to announce the launch of  its fifth property  Golden Tulip Suites, Gurgaon, in Delhi NCR region. Conveniently located

0 Comments

No Comments Yet!

You can be first to comment this post!