Rajiv Gupta
The COVID-19 global pandemic and ensuing lockdown has severely impacted the hospitality sector. In 2019, the tourism industry contributed around 9 percent of Indias GDP and generated 87.5 million jobs which is about 12.75 percent of total employment of 2018-19, according to the World Travel and Tourism Council (WTTC).
The global economy is going through the deepest recession in decades.
WTTC estimates revenue losses of up to USD 2.7 trillion with 100 million jobs at risk globally. In India, the next one year is going to be the most difficult for the travel and tourism industry with estimated revenue and job losses at $17 billion and 40 million (both direct and indirect) respectively.
Indias hospitality sector is facing its biggest crisis ever. Revenue per available room (RevPAR), one of the key performance indicators for the hospitality industry, has seen a drop of 18.5% in Q1 2020 over the same period last year.
May 2020 experienced an occupancy decline of 77% over the same time last year. As per estimates, occupancy for branded hotels in 2020 is set to decline by about 20% over 2019 and average daily rate (ADR) by more than 8%.
The combined impact of occupancy and ADR would reflect on RevPAR which is expected to decline by more than 30% over 2019. The other segments of revenue for hotels like food and beverages, banquets, spas would also see a significant decline over 2019.
Steep decline in total revenue added up with fixed operating expenses and debt servicing have added to the woes of the hospitality sector. The magnitude of the impact is far reaching and devastating with layoffs job losses and pay cuts becoming a new normal.
The coming months would also witness mounting credit distress for several hospitality companies resulting in a possibility of bankruptcy. The outstanding loans attached to hotel real estate are estimated at Rs. 50,000 crores, according to Hotelivate.
Weak business outlook and high fixed operating costs pose a serious challenge for servicing of loans. Defaults and loans turning bad is to be expected.
Covid-19 Unlock 1 allowed opening up of hotels outside the containment zones from June 8 with strict safety guidelines and standard operating procedures (SOPs) which was a relief after 75 days of lockdown. However, in this era, hospitality sector version 2.0 is going to be very different with the new normal being social distancing, minimal physical contact, wearing of masks, face cover and PPE kit and high level of hand hygiene.
International tourism and business travel would be a thing of the past till the time coronavirus is eradicated globally. Hospitality industry would have a high dependency on the domestic market and need to win customers confidence and assurance with hotels safety and hygiene standards.
Hotels need to make higher usage of technology to enable contactless servicing of customers. Contactless check-in like mobile app-based self-check-in and check-out is set to become a norm. At restaurants, a digital menu based on a QR code will be acceptable. Takeaways and home deliveries will be the way for survival of the food & beverage business. Innovation and digitalisation will be imperative for businesses to function.
Reduced operational capacity and increased operating costs due to heightened safety and hygiene standards are some of the challenges forthcoming for hotels reopening post lockdown. For example, in Maharashtra hotels are allowed to operate at 33% capacity subject to adherence of social distancing and hygiene guidelines.
The hospitality sector is restarting with a very advanced level of hygiene standards, infectious disease prevention programmes and care. All this would (perhaps) reassure the guests about their safety and well-being.
Companies would be required to do write downs in business during the current fiscal. Impairment provisions need to be created which would reduce profits drastically.
Hotel owners should get some relief on debt servicing due to moratorium extended till August 31 and relaxation in the Insolvency and Bankruptcy Code (IBC) provisions. RBI is expected to come out with relief measures including loan restructuring for stressed sectors like tourism and hospitality to ease down the lockdown pain.
Besides hotels would get opportunity for restructuring of operating costs. For example, reduction in consumption of heat, light, power and control of food wastages would be the norm. Sensible usage of technology for reduction of overhead expenses and rationalizing of payroll costs too would be expected.
Postponing non-essential IT and capex expenses would have a positive impact on cash flow. Cash reserves, deferred payment plans for creditors and spending need to be cautiously monitored to avoid fresh working capital infusion.
The hospitality sector will need to adapt new strategies for a strong comeback because the road ahead looks bumpy with restricted demand for all revenue segments.
Hotels should also continue to serve as Covid-19 quarantine facilities as this would be a steady new revenue segment. It may take 12-24 months for the hospitality sector to return to 2019 RevPAR levels. At this crucial juncture one cannot ignore the importance of critical success factors activities that a business must do to survive to fight another day.
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Future of hospitality in a world changed by COVID-19 - Moneycontrol