Hospitality sector stares at $6-14-b losses in FY21

Sangeetha Chengappa Bengaluru | Updated on April 29, 2020 Published on April 29, 2020

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The road to recovery for the Indian hospitality sector may take anywhere from 3-4 months to 24-36 months, with revenue erosion of $6.28 billion in a best case scenario, to revenue losses of $14.76 billion in a worst case scenario this fiscal, as the industry continues to grapple with near closure of businesses amidst the Covid-19 lockdown.

India has an inventory of 1.4 lakh branded rooms with an annual average daily rate (ADR) of ₹6,000, and 26.6 lakh unbranded rooms supply with an annual ADR of ₹1,667. Annual revenue generated in a normal year for branded rooms is $5 billion and unbranded rooms is $18 billion, totalling up to $23 billion.

According to hospitality consulting firm Hotelivate, which provided these revenue erosion estimates, recovery for the Indian hospitality industry is dependent on factors such as the spread of Covid-19 in the country, extent of the ongoing lockdown and subsequent zoning exercise, lifting of travel bans in India as well as internationally, availability of the vaccine and possible relapse of the virus in typical feeder markets.

“Travel is slated to become a time-consuming and inconvenient process post the crisis when elaborate health and travel history checks as well as distancing measures are put into place. These measures will need to be emulated by hotels in order to reassure travellers of their safety. Therefore, in the coming 12-18 months, the extent of recovery from the ongoing lockdown does not look swift,” said Achin Khanna, Managing Partner, Hotelivate. What makes the situation more complex is the lifting of travel bans in different places across the globe at different times. Hotels will have to deploy brainpower and manpower across geographies to respond to lifting travel bans and reopen their inventories in a phased manner, along with putting adequate safety measures in place, he said.

Demand had already started declining in the weeks preceding the government’s announcement of the nationwide lockdown on March 24, as hotels began witnessing large numbers of cancellations, especially with big group events.

“The travel restrictions that came into place from March 24, effectively brought the hospitality industry to a standstill, with most hotels in India operating at sub-20 per cent occupancy levels since then. While many hotels have closed, some still remain open, operating with skeletal staff and limited inventory, catering to local demand that mainly comes from medical personnel or quarantined passengers. Hotel owners and operators will continue to perform cost-benefit analyses to decide when it might be better to close their enterprises and we believe we will see more hotels closing as the crisis continues,” said Kaushik Vardharajan, industry expert with two decades of experience in hospitality consulting and development.

Asked about demand recovery, he said “The only time in the last 20 years when the Indian hospitality industry saw a demand drop was the quarter when Taj Mumbai was attacked by terrorists in 2008 November. Fortunately, 80 per cent of demand is generated by domestic travellers. Therefore, we should be able to start recovering faster. Smaller cities such as Kanpur, Bharuch, Ludhiana, Varanasi, Surat, Pune and Kochi should see a demand uptick as the government focuses on easing restrictions around manufacturing and agriculture.”

Similar to other markets globally, economy and mid-scale hotels should recover first, followed by higher-priced hotels. We expect leisure demand to return to resorts located within driving distance of major urban centres first, before fly-to destinations, added Vardharajan.

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Published on April 29, 2020
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