COVID 19 its impact on the Indian hospitality industry Achin Khanna Managing Partner Hotelivate

The massive wave of cancellations in recent weeks has largely eroded the ability of hotels across India to operate without racking up worrying losses, writes Achin Khanna.

As COVID-19 continues to spread, industries, sectors and organizations around the world are making feverish attempts to find ways to address the challenges facing us all. While it is obvious that no company can remain immune to bleeding, some industries have the unfortunate disadvantage of being bruised in the jugular. The hospitality sector is entirely dependent on travel, trade and tourism for its livelihood. The massive wave of cancellations in recent weeks has largely eroded the ability of hotels across India to operate without racking up worrying losses. The lack of new business on the books only adds to the dark story ahead.

Spare a thought for cruise operators and investors. Their business has come to a screeching halt across the globe, and their inability to stay afloat (no pun intended) is a stark reality. It may not be obvious to many that around 8-10% of the total global cruise liner workforce is Indian. As all these professionals return home, unemployed, this will create a large mass of skilled labor who may be looking for opportunities, only to find that none exist in the Indian hospitality sector for the moment. Added to these misfortunes is the fact that between 15% and 25% of the employees of the various branded hotel chains in India are either contract employees or casual employees. Under financial duress, the first line of layoffs that hospitality companies will make over the coming weeks are these people. From the point of view of human resources and unemployment, a serious crisis is brewing.

While this may paint a grim and dire picture, it is also imperative that we highlight the two fundamental forces of the hospitality industry. Much like a heavyweight boxing champ, the hospitality industry is able to bounce back every time it gets punched in the gut; and he shows a lot of heart. In addition, the dynamic nature of this company gives it the agility to quickly change strategies and find ways to mitigate problematic situations.

That being said, the problem is very real and the danger for the hotel industry is clear and present. Hotelivate has discussed the continued impact of COVID-19 with key industry stakeholders and we present a logical and data-driven assessment of the total revenue loss that the Indian hotel sector is likely to face in 2020.

January was a busy month as usual for most hotels in the country. The first signs of reduced travel became evident in mid to late February. March saw many large-scale cancellations in the corporate, MICE and leisure segments. Notably, the magnitude of this loss of business was primarily seen in the eight major markets. Various tier two and tier three hotel markets in India continue to witness a slight erosion of business at the moment, and occupancy rates at least through the first half of March were only partially lower despite the spread of the virus in some states. Similarly, established leisure markets have seen an increase in cancellations as well as a significant decline in booking pace and BOB, while smaller and more remote destinations have, in fact, seen little impact. Unfortunately, business for the second half of March appears to have fallen off a cliff in just about every way.

We expect the next two to three months to remain bleak, with thousands of businesses adopting ‘work from home’ and ‘no travel’ policies. At this point, our estimate of India’s hospitality industry revenue losses in 2020 assumes that the impact of this virus may start to fade by June or July, and business may start to pick up again around the second. semester of the year. We also assume that as we approach the final months of 2020, it is likely that inbound travel is still only a fraction of what India gets in typical years. For domestic hotel companies following the fiscal year regime, this equates to a weak Q4 FY20 and a weak Q1 FY21. For companies that follow the calendar year, the losses of the first half cannot be recouped only by the strong month of January that has passed and they will pin their hopes on the fact that the second half will be able to turn around the situation, albeit partially.

In this “best case scenario” where the impact of the viruses is only devastating for the next two to three months, our estimates are that the weighted impact of this is likely to erode mixed national occupation (over the course of calendar year 2020) by around 18% to 20%, while mixed domestic ADR could see a decline of 12% to 14% this year. Reduced room revenue, coupled with eroding demand from restaurants and MICE activities, will most likely have a cascading effect on hotel non-room revenue across India as well. We therefore estimate that the overall loss in total revenue for the ~140,000 branded/organized hotel rooms across the country will be between US$1.3 billion and US$1.55 billion. This represents an erosion of 27 to 32% of the overall turnover compared to last year. Moreover, since these 140,000 rooms represent only about 5% of the total accommodation sector in India (95% of which are bed and breakfasts, guesthouses, unbranded and unorganized offerings , etc.), we estimate that there will likely be an additional loss of anywhere between US$4.2 billion and US$4.7 billion in total revenue in the alternative hosting industry. We reiterate that this loss of income is due to the current situation and the assumption that normality may begin to prevail in the next 90 days or so. If this situation continues for a longer period, then hotels in India are likely to incur losses that simply cannot be quantified.

None of these estimates even begin to address the fate of a long list of connected and ancillary service providers such as tour operators, wedding and conference planners, vendors and suppliers, etc. It has often been stated that the tourism industry in India contributes about 10% of GDP (about $275 billion). It’s perhaps no exaggeration to say that almost all of that revenue could shrink to a painfully negligible amount if COVID-19 doesn’t stop this year.

As we quantify and qualify the challenges, it’s also important to lay out some suggestions to help with a reboot in the months ahead. These measures could certainly be useful if the government seriously considered them.

  1. There is merit in providing some sort of monetary support to casual/contract staff in the hospitality, aviation and cruise industries. Many of these professionals are the backbone of the tourism industry and offering them assistance in times like this would go a long way.
  2. Second, if the decline in revenue is indeed close to the numbers we have estimated, it could break the backs of hundreds of hotel owners and investors. Finding a way to offer a moratorium or deferment of debt payment could be the difference between several hotel companies surviving this crisis or going bankrupt.
  3. Finally, as the virus begins to fade, there will be an urgent need to revive tourism. The Government would be well advised to seriously consider the reintroduction of the Leave Travel Allowance (LTA), perhaps even at a multiple of two or three of the previous amount, so that the hotel and aviation industries can benefit from a boost. on vacation by the great demographic dividend that is the citizens of India.

A loss of revenue of this magnitude is cause for concern. However, companies around the world continue to believe that it is not a question of “if” it will improve, but of “when”. It is possible (and certainly hoped) that India will not experience a rapid spread of this virus and the effects are largely contained in the coming weeks. The sooner the world finds reason to believe that the worst is behind us, the sooner the chances of recovery for all businesses will of course be. If so, the Indian hospitality industry could certainly benefit from a faster ramp-up: the other truth about travel, trade and tourism is that, although it is usually the first to be hit, she also has the ability to be the first to choose save. Here’s hoping the coming summer months will bring some glimmers of hope.

Christina A. Kroll