Impact of COVID-19 on Hospitality Industry in India

“In terms of our business, COVID-19 is like nothing we’ve ever seen before,” remarked  Arne Sorenson, CEO - Marriott International, in his address to his employees on 19 March 2020. He underlined that COVID-19 as a crisis is more severe for the global hotel chain than the Great Depression and World War II. Sorenson added that the chain’s global business is running about 75% lower than normal, hundreds of hotels have closed, and some may never re-open. Sharing that the financial impact will be worse than 9/11 and the 2009 financial crisis combined, Sorenson in his address declared that Bill Marriott Jr, executive chairman of Marriott International, and he himself will receive no salary for the rest of 2020. Further, Marriott International executive team will take 50% pay cuts, he added.

Sorenson informed his employees that the hotel chain would be furloughing tens of thousands of employees for at least 60-90 days, as well as shortening work weeks at the “above-property” level, and at headquarters. The reverberations of his address are being felt not just at Marriott but across hotel chains. Neeraj Govil, Marriott International’s Vice President, South Asia, stated that the group will postpone its new launches because of a volatile market and patchy supply chains from China.

Hotelivate, a hospitality consulting company, estimates that 2020 may see a loss of up to Rs 620 crore across hotel chains, standalone hotels and alternate accommodation segments due to the cascading effect of COVID-19 across the top eight markets.

“It doesn’t make sense to run the complete infrastructure. For both our hotels in Delhi/NCR, we have shut down a couple of public areas, besides a couple of floors to save on costs. The rates are softer by 15-20% from last year,” said Ankur Bhatia, executive director at Bird Group, which runs Roseate Hotels & Resorts. “Every part of the operation, from hotel bookings to destination weddings, restaurants and family entertainment venues has been left badly crippled for at least a quarter,” shared Rajesh Radhakrishnan, director, F&B, Radisson Blu Resort Goa. He added that In India, the losses could run into several crore, as the lucrative summer travel season gets completely trashed.  According to Puneet Chhatwal, MD & CEO, IHCL (parent company of hotel groups such as Taj and Vivanta), the impact of COVID-19 will be felt more in the next quarters, rather than this one.

Hospitality Takes a Hit

Unprecedented times call for unprecedented measures. To stop the contagion of Coronavirus, COVID-19, the governments across the world have been issuing travel advisory. India is no different. Rising instances of locally detected cases have added to the growing concerns, with economists fearing a hit to key services sectors. The immediate impact of the calamity is visible on sectors, starting from travel and tourism to hospitality and aviation. As a matter of fact, the number of international passengers arriving at the country's airports coming down to 40,000 per day from 70,000. According to the Minister for Civil Aviation, Hardeep Singh Puri, the Coronavirus scare may lead to 15-20% drop in domestic air traffic but India would overcome the challenge and see robust growth in the civil aviation sector. The numbers cited by the minister are in consonance with the exchange filing by India's largest airline IndiGo. It stated that it has seen a 15-20% decline in its daily bookings and that it will have a material impact on IndiGo's earnings.

Tourism body expects 1.2 million direct job losses

ICRA, a credit rating agency, has stated that the domestic impact of COVID-19 can be far reaching as witnessed around the 2003 SARS period when the Indian hospitality industry also witnessed a slump. According to industry chamber CII, this is the one of the worst crises ever to hit the Indian tourism industry impacting all its geographical segments - inbound, outbound and domestic, almost all tourism verticals - leisure , adventure, heritage, MICE, cruise, corporate and niche segments. The whole tourism value chain across hotels, travel agents, tour operations, destinations, restaurants, family entertainment venues and air, land and sea transportation have been hit. "The ban on travel to India for a period of one month will have a cascading economic impact and will lead to job losses in the entire hotel, aviation and travel sector. We estimate that it will lead to direct loss of not less than Rs 8,500 crore," said IATO secretary Rajesh Mudgill to news agency PTI.

India annually earns nearly $30 billion from foreign tourist arrivals, and the industry is worried that a global spread of the virus will harm already weakened economic growth. Anuj Puri, chairman of Anarock Property Consultants too feels that the cancellation of visas for foreigners as well as the strong advice issued to Indians to refrain from unnecessary travel will have a marked effect. "This is the most unsettling healthcare crisis in recent times and hotel bookings will go south," he remarked. Further, a note by Edelweiss Securities states that both occupancies and tariffs would be impacted in March 2020 and the April-June 2020 quarter. “While domestic tourism might see an improvement on limited outbound travel, the recent cases in India would limit that opportunity as well,” said the note.

Hotels Are Bearing the Brunt of Reduced Travel

The crisis could not have come at a more worst time. The hotel industry was witnessing increasing demand for midscale hotels that allowed them to narrow the revenue per available room, RevPAR, gap with upscale and upper upscale hotels. Given the pandemic, both the mid-sale as well as luxury hotels will see their growth numbers get impacted, the immediate quarter and probably the next, as most of them will witness a dip in occupancies and revenues. At present, the impact has been far more acute for the luxury segment where a large percentage of clients are foreigners. The Indian Hotels Company, owners of the Taj brand has said that there was an impact from COVID-19 on the business, but was difficult to quantify as yet and wait till March for a clearer picture to emerge.

Hotels in India will continue to bear the impact from inbound travel as economic restart around South East Asia will take at least until quarter two of 2020. "Indian High Commissions in South East Asian countries – China, Hong Kong, Taiwan, Macau, Thailand, Singapore, South Korea have restricted visas to travellers coming from these countries. Although India doesn’t have a lot of Chinese travellers but with all these countries included in the travel restriction bracket – the impact on hotel demand could be significant throughout quarter one of 2020,” said Jaideep Dang, MD- Hotels & Hospitality Group, JLL.

Some luxury hotels in India are slashing room rates and introducing cost-cutting measures to weather the crisis. Westin, Accor Group hotels and Leela are offering to reschedule and postpone events at no extra cost.

Trade analysts agree that it is the Indian luxury chains and global chains where a large percentage of clients are foreigners, that are in fair amount of pain and distress. They reason that February has not been as buoyant as a February every year,  which is typically the best month of the year for the hotel industry. On the leisure front, groups coming in from the far east have seen cancellations and alterations.

"Business-wise, it will likely have an impact on the hospitality sector, especially on luxury hotels. Luxury chains have about 60-65% foreign travellers in their total guest composition and a large chunk of their business will potentially be impacted this season. Luxury hotel rates are also likely to decline in both quarter one and two as result. A full rebound may take time but we could see some recovery signs in the third quarter depending on the wider situation," said Dang. He shared that even for the mid-scale brands that derive more business from local tourists, two quarters are going to be challenging as domestic travel restrictions come into force. "Occupancies will be hit for sure but given the fluidity of this global situation, assessing the impact is a challenging proposition,” he said. Given that business related conferences and meetings are either being cancelled or postponed, the hospitality demand arising out of it will also take  a hit.

As a result, Westin, Accor Group hotels and Leela are offering to reschedule and postpone events at no extra cost. But the larger question remains - when there is no clarity on what will be the trajectory of COVID-19, will rescheduling, postponing or deep discounting work?

 

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