Economy

Covid impact: Hospitality sector set for consolidation

Forum Gandhi Mumbai | Updated on April 26, 2021

Struggling small and medium hotels likely to look for exit, say experts

The hospitality industry in India is facing the brunt of the ongoing pandemic as bookings slow down to a trickle. This could accelerate mergers & acquisition activity in the industry in the second half of the year as several small and medium hotel owners come under financial stress and look for exit.

“Last year, we knew that there was a lockdown and the hotels were supposed to remain shut. Now, with these partial lockdowns, hotels continue to remain open but the bookings are next to nil. While there is no income we have to bear the expenses and costs related to keeping the units open,” said Sanath Ralia, managing partner at a Gujarat-based hospitality firm.

Covid wave two impact: Hotel sector sees little room for hope

De-growth in occupancy

A recent hospitality industry report by Hotelivate forecast that FY22 will see a hike of a mere 18.9 per cent nationwide occupancy compared to FY21, which closed books on March 31, 2021, with only 33.8 per cent hotel rooms occupied. This, according to the hospitality industry consultancy firm, is a de-growth of at least five years in hotel occupancy.

With international travel being close to nil, hoteliers were banking on domestic travel. But with the rising cases of Covid-19 even domestic travel has come to a standstill.

Hotel occupancy to remain low till FY24

Labour constraints

Victoria Club Hotel, located in the heart of Puri, Odisha, used to enjoy a huge number of international tourists as well as domestic travellers. Last year, the hotel was shut for close to six months. It was only in December that it opened its doors to pilgrims and tourists. However, with the new set of restrictions, business has come to a near standstill.

In a last-ditch effort to get customers in the wake of falling demand and occupancies, hotels reduced tariffs significantly. This has pulled down revenue per available room (RevPAR) to a dismal low of ₹1,500 - ₹1,800 in 2020, reflecting a decline of 57-59 per cent, property consultants HVS Anarock said in its annual hotels & hospitality report. According to industry experts, this trend is likely to continue in this fiscal as well.

The other challenge is that the hospitality industry is known to be labour-intensive. But with many workers going back home, it would take a lot of effort to restart business and arrange manpower after the lockdown restrictions gets lifted.

“We had 200 employees before Covid. Today I only have 2 and paying even them is becoming a task for us. If this continues we will have no option but to declare bankruptcy and carry the tag of NPA though it is not our fault,” Abhijeet Deshmukh, Managing Director at Bizzgrow Hotels, said.

According to Naukri.com, the hospitality and travel sectors registered a decline of 11 per cent in hiring in March 2021 compared to last year.

“We expect merger & acquisition activity in the industry to accelerate in the second half of the year, with hotel transaction volumes exceeding $1 billion in 2021, as several assets and asset owners come under financial stress and look for exit,” HVS Anarock’s report stated.

Published on April 26, 2021

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