Hospitality India – Braving the Winds

by Sep 15, 2020Travel & Tourism

Clichéd as it may sound, the adage rings true for India’s Hospitality Sector today – ‘When the going gets tough, the tough get going!’

It comes as no surprise to the readers that the hotels & resorts, restaurants, and allied businesses have been facing some of the strongest headwinds battering the Indian economy over the past six months. A near-complete shutdown of hotels across the nation for well over three months came as a punch in the gut that was both, sudden and severe. Hotels function as behemoths that must bear the burdens of high fixed costs, large teams, capital intensive operations, often unfavorable debt service terms, and relatively high uncertainty of revenue; all of this being business as usual. While savvy operators do a great job of planning and budgeting for these variables and cater for realistic, conservative as well as worst-case scenarios when planning budgets, no one ever felt the need to perform zero-revenue contingencies, that too for months at end. To say that this has been a rough ride would be saying very little. However, many obituaries have already been written for the hotel sector in recent weeks. A measured approach warrants an analysis of how the industry’s stakeholders are planning the next steps, identifying opportunities for revival, and finding the silver lining in this cloud that looms large over our heads.

I have been in conversation with a large base of hotel investors, owners, operators, and lenders over the past few weeks. The vast majority do believe that the worst is behind us. While some assets have truly been brought to their knees and may find it extremely difficult to bounce back from their financial woes, a good number of enterprises have begun the process of slowly picking up the pieces and putting a meaningful business back together. Most branded hotel companies are witnessing a surge in queries for transient leisure as well as social MICE  bookings. With outbound travel opportunities being scarce and inbound bookings being virtually non-existent, hotels across geographies and price points are likely to rely heavily on domestic leisure (both transient as well as social functions) over the next three to six months. Corporate travel – both locally negotiated as well as RFP led, will likely begin to pick back up only in early to mid-2021. Most hotel operators share the view that pre-COVID commercial room night demand will not be witnessed before the end of next year, if not by sometime in 2022.

So, how does this add up for the various types of hotels across India? Contrary to recent articles being published, our view is that midscale hotels in urban locations will not be the first to resurge. In fact, we find that upscale resorts in leisure destinations are likely to benefit first. Perhaps the biggest challenge is likely to be faced by big-box city hotels that were traditionally dependent on three major segments – Inbound business travel, corporate MICE, and domestic transient corporate. It is our view that room night demand emanating from all of these segments will take longer to revive. Shifting gears and focusing on social, domestic leisure and MICE would be a good idea for these hotels as well.

One of the key positives to come out of this unfortunate period has been the re-look and reset that several hotel companies have been forced to do, from an operating cost standpoint. As brands begin their budgeting processes for 2021, one would expect them to focus on keeping many of these costs in check through the revival period, and beyond. Efficient hotel operations and long-term elimination of cost lines that were previously acceptable, and are now clearly identified as unnecessary or excessive, would be a step in the right direction.

The inevitable postponement of a fair portion of the proposed supply serves as an incremental opportunity for existing players to focus on revival strategies, without having to bear the additional burden of new competition. If there was one key suggestion we would want to make, it would be that hotel companies focus their energies on capturing market share without eroding their pre-COVID ARR strategies considerably. Having witnessed what would hopefully be a ‘once in a lifetime’ destruction of business in the manner that was most unforeseen, we are hopeful that hotel owners & operators would view the months ahead as an opportunity to create a fresh foundation of business on the principals of low operating costs, and openness to cater to varied segments of demand, a steady and focused growth strategy to gain occupancy that does not purely focus on low ARRs as their value proposition.

The worst is indeed behind us. What we do to make the future strong again is dependent on how we plan the revival story in the months ahead.

For more information, please contact Achin Khanna on [email protected]

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