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Domestic hospitality industry to contract by 65% in FY21: Report

ICRA research observed that pan-India occupancy hit an all-time low of 18-20 percent in eight months of the financial year 2021, down from 64-65 percent in the previous year.

January 12, 2021 / 06:15 PM IST
Representative image

Representative image

The domestic hospitality industry, which has been severely affected by the COVID -19 related disruptions, is likely to witness a decline of over 65 percent in 2020-21, according to a report.

However, there might be a recovery in demand in the later part of financial year 2021-22 as vaccine rollouts gains traction, it said.

In a report, rating agency ICRA said it expects the industry to contract 65 percent in the financial year 2021, with massive operating and net losses, wiping out the cumulative profits of the four past years.

However, a sharp demand recovery is possible in the later part of the financial year 2021-22, as vaccine rollouts gain traction.

Much though will be contingent upon the spread of the pandemic and success of vaccination efforts, the report said.

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The situation is still evolving, with numerous headwinds as seen with the restart of crowd control and lockdowns, increasing India's COVID cases and globally over the last few weeks, the report added.

The domestic hospitality industry has been one of the worst-hit sectors, severely affected by the COVID-19 pandemic and subsequent lockdowns, which restricted mobility and hotel occupancies in all the major markets, the ICRA report stated.

ICRA research observed that pan-India occupancy hit an all-time low of 18-20 percent in eight months of the financial year 2021, down from 64-65 percent in the previous year.

The average room rates (ARR)s was at Rs 3,400-3,500 per night, a discount of 35-40 percent, while the RevPAR declined by about 80 percent during the period under consideration.

Although some sequential improvement has been witnessed since September 2020, recovery is slow and arduous, punctuated by setbacks, it said, adding that this will culminate in a weak financial year 2021.

"We expect FY21 RevPAR to decline by 70-75 percent pan-India and close at Rs 900-1,000 per night. It will continue to be impacted by the lockdown, travel restrictions because of the virus spread.

"FY22 will see the industry witnessing over 120 percent growth in revenues and operating margins clawing up to 13-15 percent supported by pick-up in revenues and some continued benefits of the large-scale cost rationalisation measures undertaken during the pandemic, particularly in staffing," ICRA VP and Sector Head Pavethra Ponniah said.

However, to put these growth numbers in perspective, the optically high growth numbers for financial year 2021-22 will only place the industry on a recovery path to pre-COVID levels in 2-3 years, she said.

ICRA expects the recovery to pre-COVID levels in financial year 2023-financial year 2024, she added.

Since October 2020, there has been a sequential improvement in occupancy across all the key markets driven by improvement in leisure travel, the report noted.

Pent up leisure demand and the diversion of outbound leisure travel to domestic tourism have been positive for markets like Goa, wedding markets such as Jaipur and Udaipur, driveable leisure destinations such as Coorg Ooty in the South and parts of Rajasthan, it said.

This apart staycation or workcations and social MICE filled some rooms, it added.

With closed international borders, foreign tourist arrivals are likely to stay muted well into 2021; the report pointed out that in comparison, domestic tourism will recover faster, aided by the diversion of outbound leisure travel to domestic tourism.

Nevertheless, the absence of corporate travel and big-box MICE events will cap recovery for most of the hotels in large cities, it opined.

Hotels have enforced sharp cost control in financial year 2021, including a 39 percent reduction in employees' costs during H1 financial year 21, letting go of contract employees, enforced pay cuts, and mandatory leave encashments.

Overall costs shrank by 54 percent, while revenues fell by 80 percent in H1 financial year 2021, it stated, adding that interest costs, however, stayed mostly sticky.

In H2 financial year 2021, the industry will witness a sequential growth in revenues while staying profoundly negative at over 60 percent of previous year levels, the report added.
PTI
first published: Jan 12, 2021 06:15 pm

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