The COVID-19 global pandemic and the ensuing lockdown have severely impacted the hospitality sector. In 2019, the tourism industry contributed around 9 percent of India’s GDP and generated 87.5 million jobs which are 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.
India’s 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.
The steep decline in total revenue added up with fixed operating expenses and debt servicing has 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 are 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, PPE kit, and high level of hand hygiene.
International tourism and business travel would be a thing of the past until the time coronavirus is eradicated globally. The hospitality industry would have a high dependency on the domestic market and need to win customer's confidence and assurance with the hotel’s 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 the survival of the food beverage business. Innovation and digitalization 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 to social distancing and hygiene guidelines.
The hospitality sector is restarting with a very advanced level of hygiene standards, infectious disease prevention programs, 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.
