Covid-19 impact: Hospitality sector on ventilator, gasping for breath
The COVID-19 has hit the Indian hospitality sector very hard resulting in significantly low demand, negligible future bookings, and exponential prospective job losses.
Anushruti Singh May 14, 2020
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As the world embraces Indian greeting gesture Namaste and governments across the world work relentlessly to contain COVID-19, the land of Athiti Devo Bhava laments as Indian hospitality industry hits a new low. While Indian economy ails due to more than a month’s lockdown, experts are unable to quantify the actual impact of lockdown on the hospitality sector. This includes the losses incurred by hotels that have come to a standstill. Patanjali G Keswani, Chairman and Managing Director, Lemon Tree Hotels says, “The impact is disastrous. The businesses of hotels are very capital intensive and also have very high fixed costs.”
According to a report by HVS and Anarock, India’s hotel industry is slated to incur a business loss of Rs 90,000 crore during this calendar year. The primary reason behind this is closure of most of the hotels. Observing the evolving scenario, the consultants are saying that they had earlier revised estimates of the overall revenue loss which the industry would face in 2020. “We expect the overall revenue of the Indian hotel sector to decline by approximately Rs 90,000 crore in 2020, reflecting an erosion of 57 per cent as compared to last year,” the report states. Out of total revenue loss likely to be incurred by entire hotel industry, the organised hotel operators are estimated to face a revenue loss of over Rs 40,000 crore.
Occupancy at An All Time Low
According to the global real estate consultant JLL, the annual revenue of branded and organised sector in India is nearly Rs 38,000 crore (US$5 billion). This infers that with more than 60 per cent of hotels already shut and possessing single-digit occupancies; recovery will be gradual if the situation didn’t improve till end of June, affirmed the JLL India report. HVS-Anarock says that the occupancy in hotels across top 13 markets dropped by 52 per cent in March compared to the occupancy of the same month during last year. It further states in its newsletter, “Occupancies across hotels in key cities witnessed a sharp decline, as travel restrictions intensified and India went into lockdown towards the end of March 2020,” The report also expects a decline of 48 per cent for the full year. The average daily rate (ADR) fell 7 per cent in March to Rs 5,690 compared with the corresponding period of the previous year.
The hospitality segment depends chiefly upon tourism which is debilitated due the impact of pandemic. For instance, Agra being one of the major tourist destinations recorded a more then 50 per cent drop in tourist traffic in first half of March. Subsequently, the traffic turned to zero after the lockdown.
Discussing about the plight of hotel occupancy, Hari Kumar, VP Operations, Jaypee Palace Hotel, Agra professes, “In the current situation every industry and individual is facing the impact. The losses are undefined as there is a global pandemic with thousands of lives getting destroyed. Obviously, there have been cancellations and losses for every hotel but all we can look forward to right now is healthy and safe country and individuals.” Although Kumar looks optimistically at post COVID-19 era, other experts believe that occupancy rate is not going to ascend anytime soon. Keswani of Lemon Tree Hotels predicts extremely low occupancy in India. He suggests that hotels either will have to shut down or run with very limited resources in near future.
“Earlier Indian hospitality industry was witnessing 65 per cent to 70 per cent or full occupancy on an average till end of the February. Situation was controllable till first few days of the March. Once the things started accelerating, the occupancy went down to minimum,” he adds. Similarly, Sarbendra Sarkar, Founder and MD, Cygnett Hotels and Resorts maintained that the lockdown has made rough impact on hospitality industry. Hence, they are experiencing a big drop in new reservations further resulting in increase of cancellations. Dr. Ankur Bhatia, Executive Director, Bird Group in a statement comments about decreasing occupancy rates that have reached to a low of 5 per cent against 95 per cent. He tells that the tourism industry was the first one to bear the brunt of COVID-19 because of which hotels will have to economise in order to survive.
Dire Condition of RevPAR
As occupancy fall, challenges have also risen for Indian hotel industry. As a result, RevPAR, i.e. revenue per available room is also expected to decline by 58 per cent approximately in the organised sector. The unorganised sector which is ten times larger anticipates a similar fall. Industry has not witnessed such a slump in RevPAR in last two decades, states the HVS-Anarock report. An analytics and marketplace insights firm for global hospitality sectors, STR asserts that India remained resilient in February but the course of story changed entirely in March. According to their statement, “Along with a steep downward trend in occupancy, average daily rate (ADR) and RevPAR have also dropped significantly in India. ADR, which has decreased year over year by roughly 20 per cent or more for eight consecutive days, went as low as Rs 4,924.18 on 28 March. RevPAR reached its lowest absolute level (Rs 537.54) on 22 March.”
Smaaash, an acclaimed gaming and entertainment centre also believes that next few months look very bleak as hotels and resorts will not open soon. Jaydeep Ray, General Manager-Marketing, Smaaash Entertainment opines, “Even a short-term closure will have significant financial implications on our industry. Therefore, this is an uneasy waiting game.” He further adds, “The hospitality and entertainment industry will take time to recuperate and have to make some tough decision to contain losses. With the outbreak of Corona virus, the sales and footfall will continue to see a downward slide for at least eight to 12 more weeks after re-opening. We expect resurgence only in late 2020.”
The entertainment firm is now refunding 100 per cent to the customers who have bought online vouchers and online tickets in case they were not able to redeem those vouchers. Meanwhile, it is expected that the industry stakeholders will have to take some bold decisions to curb losses. Explaining the reason behind this, Keswani says, “The capital intensive component is normally debt and it has to be serviced by the payment of interest on debt and repayment of debt. Hotels are also labour intensive and hence they have lots of fixed costs such as wage bill, government levies, minimum load charges etc among others. As liquidity becomes an issue in this situation, layoffs and salary cuts become inevitable.”
Jobs on Ventilators during Corona Times
K B Kachru, Vice President of Hotel Association of India (HAI) specifies that around 3.5-4 crore employees of India’s hospitality industry may lose their jobs if restorative measures are not taken to support this sector. Kachru thereafter suggests that the statutory liabilities including EMIs for around 12 months should be deferred as the industry is not earning at all right now. “It couldn’t be worse for this particular vertical which creates almost 9 per cent employment and accounts for over 9 per cent of the GDP of our country. Currently, we are sitting at zero. Hence, we have been badly affected,” he adds. However, renowned Indian hospitality brands wish to pull out from this extreme situation without taking some strong steps. This is because of the fact that skilled labour force is considered significant for running successful businesses.
Hari Kumar of Jaypee Palace Hotel, Agra confesses that the situation is critical and has shook hotel business. However, layoffs can be avoided to retain brand integrity. “One can always avoid such unpleasant steps by taking effective measures like implementing a freeze in hiring, reduction in pay roll etc. It is only possible when the entire team works towards the smooth functioning of the organisation and takes steps such as giving in productive hours efficiently while employees work from home.” Kumar tells further that their team has decided to let go a certain percent of their salaries so that daily wage earners and the ground staff at the hotel could receive their fair share first.
When asked about the job losses and lay-offs Smaaash’s Jaydeep Ray says, “I am more concerned about revenue which automatically hits the costs and sustenance. We cannot survive a 100 per cent hit for next 4 months. But, we also have to worry about our labour workforce and how will we re-open when all this mayhem is over? Retaining the right talent is also very important once this ends. We need to get back and work aggressively to get the processes rolling at a high pace to compensate for the losses.”
He further adds that being an employer, it is their moral obligation to pay the staff as they cannot survive for long without work. “When people are not working because they are practicing self-isolation, we do not have to pay them legally. But, I believe we have a moral obligation to do that as ours is not a high-paying industry. Individuals working for us cannot survive if they are not paid for even a month. At Smaaash, there are no job losses as of now since we are not asking anyone to leave.” Considering the situation, Sheraton Grand Bengaluru Whitefield has started delivering food and laundry services to continue the business.
Faiz Alam Ansari, Complex General Manager, Sheraton Grand Bengaluru Whitefield Hotel and Convention Center while talking about this resolves, “The hotel has a full-time workforce but we are able to run operations with minimal staffing. The restricted numbers of associates stay at our premise and are completely safe and secure. This ensures the safety of our staff and guests as their well-being is of utmost importance for us.” With businesses closed, establishment owners are struggling to support their families and those of their employees. Hospitality players have been voicing their concerns about expenses such as property tax, electricity, maintenance, staff, welfare and water bills etc which are still being levied in a zero revenue environment.
Restorative Measures for Hotel Industry
In a letter to the Prime Minister Narendra Modi, HAI has highlighted the impact of coronavirus crisis and its possible aftermath seeking relief for the sector. This includes deferment of statutory liabilities such as EMIs to a minimum of 12 months at center, state and municipal levels. It will be further curb job losses. The body has also urged government to subsidise employment for three months through government’s contribution of 50 per cent of employee’s salary. The health of Indian hospitality industry is correlated with the growth of tourism, entertainment, events, wellness, and skincare industry. Since corona crisis has severely impacted the revenue share, experts predict no sooner recovery. In addition to this, working capital of hotels is also stressed this year which clearly infers that the drive uphill will be bumpy.
In order to curb the losses, cost optimisation will be the key solution. Furniture, fittings and equipment (FF&E) reserves would need to be cautiously utilised during this phase. Also, operators would need to support the hotel owners more than ever. This crisis hence has led the hospitality industry to pause, rethink, and reshape the future strategies to cope up with any kind of similar crisis that occurs in future. However, the current focus of the industry should be on survival and good health of their employees. Talking about the restorative measures, Jaypee’s Kumar affirms that industry is under severe influence of the pandemic and its impact will last for several quarters even after the lockdown ends. He observes, “The biggest forthcoming trends for our industry will be sustainability, global perspective, finding balance with new lodging options, and growing demand.”
In order to revitalise the hospitality industry, JLL India has also come up with some suggestions. According to them, sales and marketing strategies should be customised according to the needs of domestic travelers first. This is primarily because of the reason that domestic demand will gain momentum first and will drive growth of the industry in short term. Further, F&B should be operated keeping in mind the health and safety parameters for guests. Steps such as operating only one restaurant with optimum staff should be taken. Menus should be restrictive putting emphasis on cost effectiveness. Discounting room rates will thereafter drive the recovery period effectively. While implementing these steps, factors such as projects under development which are most likely to get delayed should also be considered. On the contrary, cost of construction is likely to come down as developers with cash reserves could develop projects at a discount of 15 to 20 per cent.
Opportunities in Future
The experts that rely on segments such as MICE, business, sporting events, and cultural gatherings will now view domestic travel and government assistance in revival as a their prime saviour. Indian hoteliers, however look for sector specific measures such as policy support—extension or renewal of licenses; fiscal support—one year corporate tax holiday and deferment of statutory dues; workforce support—moratorium of six to twelve months; and monetary relief—stimulus package, waiver or reduction on GST of products. “Business continuity in any form is a refreshing change at this time. Moreover, there are many variables which will decide the reviving plan of the whole industry. In the course of time, once the pandemic ceases to exist, businesses will revive and return to normal. It will lead to stress on hygiene and social distancing as a new norm,” concludes Ansari of Sheraton Grand Bengaluru.