The emergence of Omicron will impact hotel operations in March quarter: ICRA
Premium- While the situation is still evolving, it said that till December 2021, there was strong demand and there was only some cutdown in discretionary business travel
NEW DELHI : With a sharp rise in Omicron infections in the last one week across India and several states imposing partial lockdowns or curfews, hoteliers are witnessing cancellations for the month of January 2022 even as bookings and the enquiries for the next few weeks have come down, finds a new report by credit ratings agency ICRA.
While the situation is still evolving, it said that till December 2021, there was strong demand and there was only some cutdown in discretionary business travel. Leisure travel, until December, it said, largely remained unaffected. The third quarter of FY 21-22 was significantly better than the agency's earlier projections, it stated.
"With the emergence of the Omicron variant and sharp rise in infections, several states have imposed partial lockdowns. This will curtail travel over the next few weeks. We are witnessing cancellations and hotel enquiries have dropped. A month of complete lockdown will impact FY 21-22 pan-India occupancy by four percentage points," said Vinutaa S, assistant vice president and sector head at the agency.
With the Omicron variant disrupting travel as infections surge, some slowdown in the last quarter of the year is expected as compared to what was anticipated earlier. But ICRA clarified that there is no revision in its earlier expectations for FY 21-22 since the strong third-quarter demand and the downward bias for Q4 if there will be prolonged lockdowns, will balance out as per the ratings agency’s expectations.
For the third quarter of the current financial year, the operating margins of hotel companies is expected to witness sequential improvement with better operating leverage due to the spurt in travel. It said that the return to pre-covid levels for the sector is still a few quarters away.
ICRA clarified that it continues to maintain a negative outlook on the industry though. About 52% of its ratings for the sector are on the negative outlook currently. It has witnessed about 27 downgrades in the sector since the start of the pandemic.
This is despite the fact that there was steady demand around Christmas and the New Year's eve weekend in 2021. Besides, the hotel industry had been recovering post the second wave of covid in India in April last year, aided by easing restrictions, the high pace of vaccination and pent-up demand.
The demand for hotel stays in the last few months has come primarily from staycations, weddings, travel to driveable leisure destinations, and special-purpose groups. Biscations (working from a resort) too, saw traction in the second quarter and early part of Q3 in FY 21-22.
MINT PREMIUM See All
But even so, leisure destinations like Goa and Jaipur witnessed healthy occupancy, with Goa’s occupancy being higher than pre-covid levels in the last few months. Mumbai and Delhi also witnessed over 60% occupancy since August 2021, while Pune and Bangalore remained laggards. The recovery has largely been occupancy driven, with ARRs lagging in most markets. Leisure destinations and some high-end hotels were exceptions, reporting ARRs at pre-Covid levels or higher.
ICRA’s sample reported a quarter-on-quarter revenue improvement of 117% in the second quarter ended September 2021 and is expected to improve by another 15% sequentially in the third quarter ended December 2021, given the healthy festive season travel witnessed.
Some level of business travel pickup, mainly to project sites and manufacturing locations, was also seen in specific sectors, although it remained low when compared to pre-covid levels.
The pan-India premium hotel occupancy picked up from July 2021 post relaxation of lockdown and was 50%+ in Q3 FY2022, better than their earlier expectations.
Vinuuta S said that year-on-year revenue will grow for the hotel industry in FY2022 supported by Q2 and Q3 demand, closing at 50-55% of pre-covid revenues for the full year. The net losses are likely to be narrower compared to FY 20-21, supported by operating leverage benefits and sustenance of some of the cost-saving initiatives undertaken earlier. Hotels are also likely to report pre-covid margins at 85-90% of revenues going forward.
"Lenders are cautious as far as this sector is concerned, and incremental external funding is largely expected to be based on promoter comfort. Over the medium term, we expect that promoters would bring in capital or monetize assets held by companies, to improve capital structure," she said.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!