Hospitality: Comatose Since The Lockdown
A close look at strategies that could revive the hospitality sector, as a virus gnaws at its profitability
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The Doller 22 billion hospitality industry in India finds itself both shaken and stirred – and not at all in the manner a bartender would use those two words. “The hospitality industry is quite simply facing an existential crisis. Losses in business, in jobs, closure of hotels, inability to meet cash flow requirements – all point to a catastrophic future for the industry in the near term,” laments Dilip Puri, Founder and CEO, Indian School of Hospitality.
Puri echoes cross-industry concerns, where the advent of the novel coronavirus and the three-week lockdown that followed, suddenly brought business to a standstill. “We all know that India and the world is going through the unprecedented challenge posed by the Covid-19 outbreak. The travel and tourism indus try are facing an existential crisis,” echoes Dipak Haksar, former CEO, ITC Hotels and Chairman, CII National Committee on Tourism & Hospitality. “With the lockdown, the sector faces negligible demand from international and domestic business and leisure travel. Occupancies in hotels have come down to single digits and recovery is not expected in the near future,” he says.
“There will be tremendous pain in the hospitality industry and hotels will need to rework projected revenues and profits for the year. Initially cash flows will be negative and owners would need to fund the gap in working capital, at least for the next two quarters,” says Ranvir Bhandari, CEO, Shristi Hospitality India.
As governments began to issue travel advisories and suspend visas around the world in February, inbound foreign tourist arrivals came to a halt. Soon after lockdowns were announced across vast swathes of five continents and hopes of leisure travel and tourist arrivals in India in the immediate future, began to fade.
As airlines and public transport withdrew services, domestic travel too petered out. Travel agencies, airline services, taxi-hailing services, restaurants, eateries, hotels, coffee shops and even take-aways suspended operations after the countrywide lockdown on March 24.
Locked down and out
Occupancy across hotels in key cities in India declined rapidly. According to some estimates, hotel occupancy in India has declined by a staggering 45 percentage points in February and March compared to the same period last year. Dilip Puri points out that the hospitality industry was “the first to be impacted and will be the last to recover unless there is some serious fiscal and monetary relief provided”. He predicts that “recovery will be sluggish with no visibility of any revival till at least October 2020.”
Some in the industry predict that the second quarter of the year would be the worst hit. According to a report by HVS (Impact of Covid – 19 on the Hospitality Sector) the overall occupancy in the branded hotels segment in 2020 is estimated to decline by 16.7 per cent to 20.5 per cent over 2019, while ADR (Average Daily Rates) are estimated to decline by seven per cent to eight per cent for the year. As a result, RevPAR (Revenue per available room) is expected to decline significantly by almost 35 per cent.
“The industry expects loss of over two crore jobs and revenue loss could be in the range of 35 to 50 per cent this year,” predicts Haksar. He apprehends that the industry could lose revenue to the extent of Rs 5 lakh crore. “The tourism industry is gasping for oxygen and we urge the government to pronounce immediate sectoral relief for the industry,” he says. Even so, as Puri points out, for those in the business of running hotels, motels or restaurants, “Nothing is of more importance right now than protecting our people and staying safe.”
The Union government has set up 11 Covid-19 taskforces to recommend sector specific measures to weather the storm. Hotels demand that annual renewal of licences paid for in 2020 be extended till the end of 2021 without any incremental fee or charges. They want the government to provide a 12-month corporate tax holiday to the travel, tourism and hospitality sectors.
The industry seeks deferment of all statutory dues, such as advance tax, custom duties, excise duties, PF, bank charges etc. at the central and state levels for 12 months. They expect the government to extend subsidies on Heat-Light-Power (HLP) costs, now that oil prices have fallen. The HLP, incidentally, happens to be among the largest fixed costs of the industry. They also seek waiver of and reduction in GST on products of the sector for a one-year period.
Deep Kalra, CEO of MakeMyTrip and member of the CII National Committee on Tourism & Hospitality, has gone on record to say that when a fragmented industry such as hospitality and tourism face risk, the first thing they do is let people go. He urged the government to act in this hour of need by making soft credit available to the industry to bridge the working capital gap, which he believes is to the tune of Rs 13,000 crores.
Many hoteliers like Dilip Puri, are of the opinion that contingency plans of hotel chains or independent hotels should factor in a significant scale down or even full-scale closure till end September, with provisions for conserving cash flow to keep people employed and paid for during this spell. Others like Bhandari talk of management strategies that could help the industry keep its head above water while business is dismal.
“The domestic segment will be wooed by all hotels as business starts trickling first from local guests, then short haul guests and eventually the long-haul guests,” muses Bhandari, looking at the environment after the lockdown is lifted.Innovation, obviously, will be the survival mantra and customers can expect to be wooed back in style, as hoteliers put their best foot forward to win them back.
“There will be tremendous pain in the hospitality industry and hotels will need to rework projected revenues,” Ranvir Bhandari, CEO, Shristi Hospitality India