As the second wave ebbs, most hospitality players are strategically preparing for a revival in June and July 2021. The absence of government directives to close hotels and state borders will aid relatively better occupancies, says the author of a new report on the state of Indian hospitality.
While the pandemic and the resultant lockdowns impacted most sectors adversely, among the worst hit were those dependent on travel – tourism, aviation and hospitality – with multiple businesses going under or looking at distress sales. Hospitality consulting firm Hotelivate has released its report on the health of the sector – Indian Hospitality: Status and Pulse Report FY 2021.
Its author, Achin Khanna, Managing Partner – Strategic Advisory, Hotelivate quantified what the industry is going through, and when and how recovery will happen. India’s hospitality sector has, with little to no help from external bodies, worked towards adapting to the circumstances. Excerpts from an interview.
What is the likely impact of the second wave on Indian hospitality? How do you foresee the sector in about three months from now?
The immediate surge in cases will undoubtedly prove to be another blow to all industries and the economy as a whole. From a quantitative standpoint, the nationwide occupancy is likely to dip drastically in comparison to the final quarter of FY21. In terms of the obstacles to the resurgence of the industry, this time last year was a period shrouded by uncertainty and ever-changing guidelines.
In contrast, while negative COVID-19 test results and vaccination certificates are likely to become compulsory documentation for any kind of travel, the absence of directives to close hotels and borders will aid with relatively better occupancies. Through the experience of the year behind us, hotels, restaurants, and airlines alike have developed competencies to ensure the safety of their patrons with all the necessary protocols in place.
As it was last year, the number of new daily cases has a role to play in things. For hospitality, specifically hotels and airlines, this immediate quarter and the year beyond will be defined by people’s apprehensions to travel, which in turn is linked to that number. In recent weeks, the cases have grown to numbers never imagined and Q1 of the new fiscal will face the brunt of severely muted travel.
However, assuming that no borders are sealed, we do expect performances to pick up again by Q2. Unfortunately, markets that are reliant on corporate & MICE business are likely to remain dormant as the pandemic continually drives companies/corporates to re-consider their definitions of ‘essential travel’.
Hotels, specifically, have displayed creativity to mitigate costs and stay afloat over this past year, and these practices will see a rise and repeat should the occupancies decline. Overall, considering that most hotels were closed from May to June 2020, this quarter’s numbers should represent relatively better performance.
By how much did the average occupancy and room rate recover in the January to March quarter for Indian branded hotels?
The following numbers represent Hotelivate’s estimation for the performance of nearly 140,000 organised, branded hotel rooms in India, based on the best available data.
FY21 Quarter 1
- Occupancy: 16.0%
- Average Daily Rate: ₹3,408
FY21 Quarter 2
- Occupancy: 23.9%
- Average Daily Rate: ₹3,473
FY21 Quarter 3
- Occupancy: 38.0%
- Average Daily Rate: ₹4,257
FY21 Quarter 4
- Occupancy: 49.0%
- Average Daily Rate: ₹4,173
The Q4 RevPAR of Rs 2,045 was almost half of FY20’s Rs 3,964 full-year performance. Nationwide, occupancy has shown a Q-on-Q improvement. However, it remained sub-50 per cent as of the last quarter closed. Average Daily Rate (ADR), too, was about 33% lower than the pre-COVID year in the last quarter of FY21. The recovery, while slow, has been visible.
If you were to compare March/April 2020 to March/April 2021, how much difference has been there in revenues, room occupancies and ARRs?
The numbers above represent Hotelivate’s estimate for the performance across the nation, along with segment-wise performance based on the best available data for nearly 140,000 organised, branded hotel rooms in India. For this estimate, luxury hotels represent one segment, while Upper Upscale and Upscale have been blended to represent a single segment (Upscale). Similarly, Upper Midscale and Midscale have been blended (represented as Midscale) and Budget and Economy have been blended (represented as Economy).
Hotels at both ends of the spectrum (economy and luxury) bore witness to not just the steepest declines but are also likely to attain the sharpest improvements. Early signs of this already became visible in Q4 FY20, as business travel-related demand resumed first in the budget/economy hotels at the one end, and discretionary transient leisure picked up pace across luxury hotels and resorts.
Most Upscale and Midscale hotels in India are present in urban environments, many of them dependent on corporate transient as well as business MICE travel to resurge. The absence of meaningful inbound travel (which is largely corporate again) adds to their woes.
Specifically with regards to March/April 2020 vs 2021, this year will bear witness to better performance when compared to the same time last year, primarily on the back of the fact that March 2020 is when the nationwide lockdown was announced. That being said, the sudden and severe wave of skyrocketing cases over the past few weeks, followed by partial lockdowns across various parts of the nation, are likely to cause reduced occupancies for the next 60 to 90 days. Should this wave be arrested in the weeks ahead, we expect travel and room night demand to show signs of improvement by June or July.
What steps would you like to see from the governments – central or state – on the operational side, tax relief or financial support?
Here is a link to the Hotelivate report that offers a complete analysis of what policy reforms are required to make Indian hospitality sector world class.
Several steps have already been taken, such as the recently announced Emergency Credit Line Guarantee Scheme 3.0, which is a step in the right direction and will help hotels to survive. Some more need to be taken. Such as:
- Adjusting the validity of multiple licences required to run a hospitality operation to account for the months of non-operation and zero-revenue situation. Perhaps extended validity of these licences will automatically defer the cash outflow related to the renewal of the same.
- Protection from lending institutions through granting of moratoriums, extended payback periods, reduced rates of interest, etc.
- Engaging hotels and restaurants to aid with the COVID-19 struggle as immediate cash flow takes precedence over profitability, and providing services at discounted rates would be preferable to a zero-revenue situation.
What could be done to mitigate the situation and ensure a quick recovery?
Avoid imposing travel bans and focus on clear and concise communication regarding conditions/compulsory documentation about changing travel policy. Uncertainty acts as a major obstacle to the creation and execution of travel plans.
Show solidarity with hospitality institutions and have a zero-tolerance policy towards patrons refusing to adhere to hygiene and safety related norms. Refusal of service may not be enough, and the threat of punishment may aid in preventing such behaviour, especially at relatively large events such as weddings, where crowd control may prove challenging and pose a severe health hazard.
Hotels, airlines and restaurants have been focused on promoting new policies related to safety and hygiene. State-level efforts to provide a sense of security and promote destinations with a similar focus would instill confidence and encourage travel.