Omicron wave likely to be less disruptive for hotel industry than first two: Ind-Ra

The third wave of COVID-19 could meaningfully impact the operating metrics of hotels but the level of disruption is likely to be limited, stated a report by India Ratings and Research (Ind-Ra). It added that since the sector depends completely on the mobility of people, it faced a direct impact of the pandemic. However, since the restrictions in the third wave were somewhat less intense, the impact will be lower.

“Moreover, as witnessed during the first two waves, the ebbing of the infection wave starts from metro cities; therefore, the minimal restrictions by the government and self-restrictions by the people will start blurring away in a couple of months,” it said.

The Ind-Ra report stated that occupancy rates are likely to fall but also to bounce back in a similar fashion as witnessed in the first two waves. It added that the government as well as hotel operators have learnt from the impact of the pandemic and hence taken actions in similar manner. 

“Ind-Ra estimates the overall revenue of all the hotel categories will fall by 5-10 per cent year-on-year (YoY) for 1QFY23, and 4QFY22 revenue will fall by 25-30 per cent from its base case scenario,” it added. 

Unlike the first two waves, the overall impact of the third COVID-19 wave would be benign, mostly due to proactive preparation. While restrictions from the central and state governments have been minimal, there has been a rise in self-precautionary measures. 

However, the recovery of the hotel sector will be more protracted and patchier than Ind-Ra’s base case, which has assumed near normal occupancy in FY23, due to the mass cancellation of planned events (marriages and business conferences) due to the limit on the number of people attending an event and thus limited room bookings. However, like in the previous two waves, hotels in some cities could function as quarantine facilities, which will help shore-up occupancy, but this will have only a short-term impact on average prices,” it added.

Ind-Ra further added: The agency has assessed the impact on debt servicing ability of its select rated issuers, considering a 5 per cent drop in occupancy rate for 1QFY23 and presumably a 20-25 per cent drop for 4QFY22. For the issuers rated in the BBB+ to BB- category, a sustained pressure on the occupancy could compress the already weak EBITDA to interest coverage ratio; however, the debt servicing ability would not be significantly impinged. 

It added that if the situation worsens beyond six months then the debt servicing ability is likely to move to the red zone for most issuers, stated Ind-Ra. 

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