India’s tourism, hospitality sectors need a Covid bailout

Rahul Pandit | Updated on April 23, 2020 Published on April 23, 2020

These sectors are facing heavy losses due to coronavirus disruptions. Along with monetary relief, steps to kick-start travel and tourism must be taken

We are at war. The Covid pandemic is not regional or limiting. No government or corporate has a business continuity planning adequate enough to fight its egalitarian reach, increasing intensity and black swan impact.

The economy runs on the four wheels of demand, supply, capital and labour. Covid has sucked out demand, obliterated supply, forced capital into protection and left labour facing unemployment. We are staring at the four-wheeled car being transformed into a bicycle.

In the US, 22 million people have filed for unemployment benefits the past four weeks. This scourge equals the 22 million jobs that the US had created in the last decade.

The US government has stepped in to support its industry with a $2.2-trillion package. Delta’s $5.4-billion bailout — including a $1.6-billion soft loan — South West’s $3.2-billion rescue and Jet Blue’s $936-million bailout are testament to its sagacity. The US Senate has further this week passed a $484-billion package to aid small businesses. Similarly, the UK’s Coronavirus Job Retention Scheme allows companies to apply for a grant covering 80 per cent of employee wages as a necessary step to protect its economy.

India has been struggling to find jobs for a million citizens every month at a 6.5 per cent GDP. GDP forecasts for the country now range from 1.9 per cent by the IMF to -0.5 per cent by Nomura.

The tourism, hospitality, restaurant, entertainment and aviation sector accounts for 10 per cent of India’s GDP. It is running on depleted oxygen and would be on the ventilator soon if not resuscitated fast.

India needs a $25-billion rescue fund to protect the 50 million jobs and 250 million dependents on the sector. This could be structured as a 30 per cent grant over the next 4 quarters and a linked 70 per cent loan (Libor+1-2 per cent) over the subsequent four quarters with a two-year moratorium and five-year payback with future warrants for the government to acquire equity in such companies. At 0.9 per cent of the GDP, this is an essential pill to swallow to avoid the nightmare of quarter of a billion Indians left to fend for themselves.

At least one-fourth of corporate travel will disappear. Foreign travellers and MICE will contribute single-digit volumes, weddings will provide some succour. Domestic travel would halve as the consumer wallet shrinks and shifts to savings. Today’s hospitality volumes would drop 50 per cent.

Efficient properties have 30 per cent fixed costs, others up to 50 per cent. Efficient operators will see single digit to zero EBITDA, others would be in the red.

Hospitality has to restructure and re-purpose — co-living, student housing, senior living, serviced residences, short lease offices etc. Must be looked at to serve varied asset classes.

Lease rents need to be negotiated as variable to revenue/EBITDA. Technology — chatbots, self-service kiosks, facial recognition etc — has to deployed as labour arbitrage. Workforce has to be enhanced by multi-skilling and co-opting the gig economy. Energy, water, waste and distribution are costs to chisel.

We need a ‘Bharat Darshan’ campaign to encourage Indians to travel. Prime Minister Narendra Modi’s Swachh Bharat initiative and his fore-sighted call-out of tourism as one of the five key pillars of nation-building needs to get into school curriculum.

Junior school students need to be taught hygiene and environment protection. High school students need an appreciation tour of the values enshrined in our national temples from Sabarmati to Sriharikota to the Statue of Unity. This will also boost domestic travel and create jobs locally for guides and teachers in tourism and hygiene.

The Covid war is a clarion call for India to protect its industry and people. Are we ready for a fight?

The writer is member, CII National Committee on Tourism, and MD&CEO, Hamstede Living

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Published on April 23, 2020
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