As demand improves, hospitality sector may rebound to pre-covid levels in FY23
Premium- The recovery was aided by leisure, transient demand, meetings and incentives segments as well as weddings and a gradual pick-up in business travel
NEW DELHI: Normalcy has returned to the hospitality industry at a much faster pace compared to that seen after the second covid wave, according to a report by credit rating agency Icra. Hospitality demand was impacted in January and the first two weeks of February this year because of the Omicron wave.
The recovery was aided by leisure, transient demand, meetings and incentives segments as well as weddings and a gradual pick-up in business travel.
Leisure travel, the agency said, continued to drive occupancy in the second half of 2022. Goa’s occupancy has been better than pre-Covid levels since September 2021. While gateway cities like Mumbai and the NCR region have also witnessed healthy improvement in occupancy, Bengaluru and Pune were laggards because of muted business/IT sector travel. However, they expect sequential improvement in occupancy in these markets over the next few months. The recovery has largely been occupancy-driven, with average room rates (ARR) lagging in most markets.
The recovery has been sharper than that witnessed post Covid 2.0. Pan-India premium hotel’s ARR stood at ₹4200-4400 in FY2022 and were at a 25-30% discount to pre-covid levels.
However, for some high-end hotels and leisure destinations, ARRs have been higher than pre-covid levels in the last few months. With significant improvement in demand, revenue per available room (RevPAR) are expected to improve to pre-covid levels in FY2023, as against the earlier expectation of pre-covid levels only by FY2024.
While the possibility of a fourth covid wave cannot be ruled out, the increasing vaccination coverage and reducing disruption with each Covid-19 wave provide comfort. The agency expects that a month of complete lockdown could impact FY2023 pan-India occupancy by 5 percentage points.
Vinutaa S, assistant vice president and sector head for the ratings agency said, “Easing restrictions, high pace of vaccination and pent-up demand resulted in recovery in leisure travel within the country in Q2 and Q3 FY2022. Domestic business travel also started picking up, mainly to project sites/manufacturing locations from specific sectors, in Q3 FY2022.“
She added that owing to improved operating leverage and sustenance of some of the cost saving initiatives, operating margins also jumped closer to pre-covid levels. Despite the Omicron impact, Icra expects Q4 FY2022 revenues and margins to be better than Q2 FY2022.
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She said hotel industry is expected to clock 60% of pre-covid revenues in FY2022, despite almost four months of impact because of Covid 2.0 and Covid 3.0. Further, the industry is also likely to report operating profits in FY2022 aided by improved operating leverage and sustenance of some of the cost-optimisation measures undertaken in FY2021.