Hotel industry’s revival hopes hinge on easing of restrictions, govt support

The Indian hospitality sector has been heavily impacted by the Covid-19 pandemic, says Singh,  especially with the countrywide lockdown and suspension of all air and railway services.

He says that the sector is still coming to terms with low room demand and uncertain future bookings as the hotels are unable to secure any future business.

According to Singh, segments such as corporate travel, leisure and MICE have been severely hit in the last few weeks.

The calendar year 2020 had a strong start with January and February bringing in usual business, says Singh, however, “the circumstances caused by Covid-19 outbreak triggered cancellations and fall in occupancies.”

Research papers by HVS and Hotelivate have estimated the losses would range anywhere between USD 1.5 Billion (early stage assessment) – USD 3.5 Billion (assessment post the lock down) for the organised sector of hotels, given the situation is controlled by July 2020.

As per Singh’s own assessment, these numbers may differ and can even go up to USD 4.5 Billion if the situation remains the same till Q3 of FY 2021. As per STR, the occupancies for the country wide hotels were earlier estimated at ‘-44%’ against last year. The same number is now reporting as low as ‘-80%’ according to the data available till March 2020. As a matter of fact, Singh says that the occupancy PAN India during the last week of March was as low as 11% which is extremely rough for the entire sector.

During this time the blended nationwide Average Daily Rates (ADR) have also seen a drop of around 14% – 20%. “There hasn’t been a drastic drop in the ADR as hotels may not be able to secure any further demand than they currently have even by lowering the hotel rates. Reduced room revenue coupled with decline in both F&B demand & MICE has cascaded to the overall revenue of hotels across India,” says Singh.

The long-term impact is particularly hard to predict, says Singh, however, partial removal of restrictions seems like the scenario which will be playing out for some time. “It will be very difficult for the industry to recover the lost ground for this year, but we anticipate a V-shaped recovery curve and we are hopeful that business sentiment will start improving by mid of Q2 of the Financial Year 2020-21. If all businesses are opened in a phased manner by the initial weeks of May or sometime around then, it will take a minimum of 3-5 months for organizations to stabilise and business to gain the volumes as the travel sentiments of people improving will take at least this much time.”

The hotel companies and operators are already working towards the revival and the next steps that will be taken to get back on track once the threat is contained, says Singh. “We first expect the work-related travel to rebound as most companies would want to take stock of the situation and move towards business as usual. Next would be domestic leisure travel as people would be cautious while travelling abroad. Social functions should also pick up as several events have already been cancelled and we could see a rise in these numbers.”

In this regard, Singh says, MICE is likely to remain slow for the rest of the year as most companies might clamp down on costs for the year. In terms of hotels in the economy/midmarket space, this category should pick up first as companies will remain cost conscious.

“Having said this, we should not expect an immediate spike in travel and tourism but once the business movement begins again after the lockdown is lifted, the travel sentiments will eventually progress thereby improving the domestic travel numbers,” says Singh. “With people being averse in traveling to foreign locations, there is an opportunity for domestic travel and tourism. Places like Kerala, Goa, Rajasthan, MP, North East and other hill stations are some of the areas which we are optimistic about.”

Singh says that these are challenging times for everyone including the government and that a countrywide lockdown was an unprecedented but essential step. “The government is taking various measures including fiscal stimulus packages of 1.70 lacs crore package for poor people and working on helping industries in a phased manner. However, all the proactive steps by RBI & Government will go in vain unless the benefits are passed by the banks to consumers like – moratorium and lower interest rate. The government can also support the industry in project financing, waiver / deferment on various licence fees such as Property Tax, Insurance Costs and deferment of Statutory Compliances to name a few.”

Insurance Cost – Huge cost for Industry. The Govt. can advise IRDA to allow companies to pay Insurance premium monthly / quarterly basis instead of yearly advance

Financial supports like MGNREGA – Usage of the MNREGA funds to support salaries of employees in the Tourism Industry which will help reduce costs until revenue improves.