Hard-hit hotel industry expected to touch pre-Covid levels in next 2-3 years : ICRA

The domestic hospitality industry is expected to witness a 70-75 per cent decline in revenue per available room (RevPAR) pan-India in FY2021.The industry has been one of the worst hit by the Covid-19 pandemic and the subsequent lockdowns.

According to estimates by ICRA, in the first eight months of FY2020-21, pan-India occupancy hit an all-time-low of 18-20 per cent, down from 64-65 per cent in the previous year. While the average room rates were discounted by 35-40 per cent, RevPAR declined by about 80 per cent during this period.

Tough days ahead

Though the industry has been witnessing an uptick in demand since September, recovery has been slow and arduous. The rating agency expects the industry to report massive operating and net losses, wiping out cumulative profits of the past four years, and the industry sample to contract by 65 per cent in FY 2021.

Pavethra Ponniah, VP and Sector Head, ICRA, said the high growth numbers for FY2022 will place the industry on the recovery path to pre-Covid levels in 2-3 years.

“We expect FY2021 RevPAR to decline by 70-75 per cent pan-India and close at ₹900-1,000. FY2022 will see the industry witnessing over 120 per cent growth in revenues, and operating margins clawing up to 13-15 per cent, supported by pick-up in revenues and some continued benefits of the large-scale cost-rationalisation measures undertaken during the pandemic, particularly in staffing,” she Ponniah added.

Pent-up demand

The industry has seen pent-up leisure demand in recent times and outbound tourism has shifted to domestic tourism, apart from rising trends of staycations. The rating agency expects domestic tourism to recover faster but expects foreign tourist arrivals to stay muted in 2021.

The report noted that hotels have also enforced sharp cost control in FY2021, including a 39 per cent reduction in employees costs during the first half of the current financial year, by letting go of contract employees, enforced pay cuts and mandatory leave encasements.

“Overall costs shrank by 54 per cent, while revenues fell by 80 per cent in H1FY2021. Interest costs however stayed largely sticky. In H2FY2021, the industry will witness a sequential growth in revenues, while staying deeply negative at over 60 per cent of previous-year levels,” the report added.