COVID-19 impact | Indian hoteliers stare at Rs 90,000 crore wipeout of revenues

The extended lockdown and the ensuing slowdown will erode 57 percent or Rs 90,000 crore in revenues for the hotels and hospitality industry while also forcing real estate developers to go slow on new properties.

Occupancies across hotels in key cities witnessed a sharp decline, as travel restrictions intensified and the nation went into lockdown towards the final week of March 2020. Only a handful of properties are open throughout India, catering to quarantined guests, medical staff and people providing essential services.

"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% compared to last year," stated a report by HVS Anarock.

Hoteliers fear that business may not return fully even by the festive months of the year given the tendency to reduce social engagements and cost cutting by corporate guests.

"We predict the second quarter of the year to be the worst hit. Hotels will be unable to drive rates and may even seek to attract business at deep discounts," the report noted.

Estimates shared by hoteliers and analysts tracking the sector reveal that new projects will be pushed back by at least 12 months, especially the luxury category properties.

"For six months the revenues from the corporate segment will be down and so MICE (meetings, incentives, conferencing and exhibitions) revenues will remain low. The hotel industry reached a high in 2008 and after that everything went down. Till 2020 we did not manage to achieve those highs. In 2020 occupancies were strong but rates were low. I would assume it would take two years to get to 2020 numbers," said Ajay Bakaya, Managing Director, Sarovar Hotels and Resorts.

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While foreigners coming to India on business or leisure trips will take a massive hit given the uncertainty over resumption of international flights to India even domestic corporate travel will be discouraged for several months.

A report prepared by JLL titled Hotel Momentum India noted the January-March quarter saw 18.5 percent decline in revenue per available room (RevPar) in 11 major markets including Mumbai, Delhi, Bengaluru and Chennai.

Fortunately for India its hotel market is dominated by its domestic travelers who make up 80 percent of the guests. The outbound travelers from India are three times the number of foreign guests coming to India. This could fuel some optimism for the hoteliers.

In addition, the slowdown will likely bring with itself several acquisition opportunities for the industry.

"There will be several buyout opportunities of properties. The ticket size will likely go down considering owners won’t be able to repay loans and cash flows will be compromised. New development will also take a beating," added Bakaya.

Date: May 19