Hotel Sector: Finally Light at The End of Tunnel

Hotel sector had remained one of the worst hit sectors due to pandemic. Six quarters down the line and they are emerging with flying colours.

Industry View Point 

“While the ease in curbs did come as a relief to the hospitality industry, most remain wary of the constant start-stop nature of restrictions imposed by the government. Easing of restrictions is music to the ears for anyone in the hospitality industry and we welcome the move. But, one of the biggest issues that concern restaurants today is the constant start-stop nature of restrictions. Not just owners, restaurant employees are in constant fear of when the next round of restrictions will be imposed. They don’t know if they will have their jobs in a month from now, and if they should continue to stay in the city or go back home.”

The vision document proposes four strategic pillars to achieve the goals, including a shared national tourism approach, value accretive regulations, investment drivers and market excellence. It recommends tourism to be a concurrent subject as a shared execution between the Centre & states, and setting up of a National Tourism Council of PM and CMs, among others.

The vision also suggests travel credit for domestic travel and MICE (meetings, incentives, conferences and exhibitions), single-window e-clearance for all projects and national seamless tourist transportation. Moreover, establishing five mega tourism zones is also recommended to achieve the outlined objectives, besides having global tourism brand ambassadors in all markets and Rs 5,000-crore annual average tourism expenditure by the Centre and equivalent by states.

The investment drivers suggest setting up 200 centres of excellence across states through Swadesh Darshan and Prasad schemes each with to 0.1 million foreign tourists and 20 million domestic tourists.

After almost six quarters of forgettable quarters, holiday season has brought some of the shine back to the hotel industry. This was the sector that had remained one of the worst hit sectors due to pandemic. The sector, which employs large number of population and contributes a significant portion of India’s annual GDP, has been hit hard by the restrictions and curfews imposed by Indian government as well as state governments. Many of these businesses had been brought to a standstill as they were merely allowed to deliver food that qualifies as an essential service. The complete closure of operations, led to humungous revenue loss for the sector.

Deep Fall

Extended lockdown, restrictions on travel, closure of international flights and curtailed cost for business travel led to unprecedented fall in hotel occupancy. The industry’s average occupancy hit rock bottom of single digit in April, 2020. Marginal recovery was seen in subsequent months, aided by quarantine stay provided at subsidized rates by key hoteliers. The Indian hotel industry has taken a hit of over Rs 1.30 lakh crore in revenue for the fiscal year 2020-21 due to the impact of the COVID-19 pandemic. Industry total revenue in FY2019-20 stood at Rs 1.82 lakh crore so approximately 75 per cent of the industry’s revenues got wiped off. The Indian hospitality industry recorded revenue per available room (RevPAR) of Rs 1,582 during FY21, the lowest in the last 22 years, according to a report by Hotelivate. This, according to the hospitality industry consulting firm, is a 60.8 per cent decline over the last year (FY20).

Cost Measures Helped To Remain Afloat

During the tough times, industry took tough measures to remain afloat. The domestic hospitality industry took measures to survive in the crisis. To fill the void created by international travel segment, the industry promoted domestic leisure travel through various initiatives at state and national level. The industry opted for stringent cost cutting on key verticals like employee cost, operational expenses, power and fuel as well as food and beverages. Rental contracts are being renegotiated. The cost cutting initiatives now remains part of the hotels’ operations even after business normalizes and it will drive healthy improvement in EBITDA margin in future.

A majority of costs of the hotel industry are fixed with power/lighting and employee costs taking the major share. Due to long 18 months of pandemic, hotel players have now realigned their cost base to tackle the extremely challenging environment. This helped to change the cost structure of the industry. Therefore, it is expected that over 37% reduction in operating costs from pre-Covid levels, which helped companies to recover from their losses sooner and post better margins going ahead.

‘Vision 35’ to achieve tourism goals for India@75

The Federation of Associations in Indian Tourism and Hospitality (FAITH) has unveiled the ‘Vision 2035’ road map outlining strategic pillars to achieve tourism goals to mark the 75th year of India’s Independence. The vision lays down action goals in multiples of 75 referencing all indicators. These goals target 75 million inbound tourists, aim for 150 billion of foreign exchange earnings from inbound tourism, eye 7.5 billion domestic tourism visits, and target 15 crore direct and indirect employment from tourism, among other objectives.

Light at the end of tunnel

After a long and lean time, the hospitality sector finally raked in some profits in Q3FY22. This came after six back-to-back quarters of net losses. Going ahead also we see the trend to continue. While January was a washout month for the sector, it saw a swift recovery from February 2022 onward. In fact according to Indian Hotels, travel bookings for March to May 2022 have surpassed March to May 2019 levels (pre-pandemic year). It’s not just leisure travel that is seeing strong traction – corporate bookings are also up with a rise in offsite events and conferences.

The quality of holidays is also a focus for Indian travellers now. According to Easy Trip Planners, bookings for business class seats on flights and five-star hotels for the summer of 2022 have doubled compared to pre-pandemic levels. There are also other reports that show a strong and robust demand for travel. According to a recent survey by Deloitte, over 80% of Indian consumers plan to undertake leisure/business travel in the next 3-4 weeks. With international travel opened up from March 27, 2022, hotels certainly await a bright summer in 2022. Travellers have shown increased aspirations to take trips and spend quality time with their families, friends or even solo.

This is reflected in higher occupancy. Market leader Indian Hotels saw its occupancy levels for domestic properties rise to 94% of FY20 levels due to higher leisure travel. The hotels sector (top 10 listed players) outperformed the Nifty 500 by 83.6% in FY22.  Looking at the trend we believe that the trend is likely to continue even in FY23.

In the following paragraphs we are giving you five best hotel company’s shares to invest in. You can invest in any two stocks based on your risk appetite.

5 companies

If you are reading this on our mobile app then click here

About the author: IE&M Team
IE&M Team
Indian Economy & Market is an Indian media and information platform producing data-backed news and analysis on all the vital elements at the intersection of the economy, stock markets, mutual fund, insurance, commodities, currency, technology, startups and business.

More articles by the author

Table of Contents