We expect international tourism to revive in the second half of FY23 and add to our profitability: Thomas Cook MD Madhavan Menon

Thomas Cook Managing Director Madhavan Menon says that his company will not give up on cost cuts it had undertaken during the pandemic. He added that while the company has started hiring people again, the adoption of better technology limits the number of employees it will need compared to the pre-pandemic years.

Menon added that he expects the domestic tourism market to return to pre-pandemic levels by the end of June and expects the international tourism sector to recover to pre-pandemic levels by the end of 2022. He expects corporate travel to drive profitability for Thomas Cook in the first half of 2022-23, and international tourism to revive significantly post-October 2022.

The Thomas Cook MD also said that Indian tourists will look to travel to exotic locations in Southeast Asia this year and once visa renewal issues in Europe are fixed people will look to travel to Europe in the second half of 2022-23.

Edited Excerpts:

What are the biggest drivers for the travel and tourism industry that are present at the moment?

Domestic tourism led the revival in the travel and tourism industry throughout most of 2021, and even for Thomas Cook, most of our business in 2021 came from the revival of domestic tourism.

The interesting trend that came out on the domestic tourism front from the pandemic was that people were looking at out-of-station work-from-home (remote work) facilities. They were looking at secluded places in the hills, somewhere near the beach, somewhere in different states, and looking for remote areas where they could go and set up and stay for like a month and even work from there.

Another area that helped in the revival of the industry was the recovery in holiday packages in 2021, when Indians were looking to travel to Dubai and the Maldives for holidays.

At the moment with the opening up of Southeast Asia, we have seen a lot of traction for countries like Cambodia, Indonesia, Bali, Malaysia, Singapore, and Vietnam.

We are also seeing a lot of corporate interest for sports from corporates, which have started making reservations in both Qatar and Australia for the world cup already.

How do you expect your bookings to fare in 2022-23  compared to 2019-20 and 2021-22? The industry expects the recovery to be slow.

My expectation is that for the calendar year 2022, we will be profitable at the EBITDA level. Similarly, in 2022-23 both on a consolidated level and at a standalone level, we expect to be profitable at the PBT level.

I expect all our retail businesses, including our foreign exchange business, the corporate travel business, the domestic holiday business, and the international holiday business, to do well in 2022-23.

The only business that may be slower to recover is our inbound travel business, our subsidiary TCI-SITA which offers long-haul tourism solutions will be slow to recover.

We expect long-haul tourism to restart only by October 2022, which has historically been the time when foreign tourists come to India.

Corporate travel is our fastest growing business at the moment, and we expect our corporate travel and foreign exchange business to contribute towards our profitability significantly. In the second half of 2022-23, we expect international tourism to revive and add to our profitability.

Another factor that has contributed to our profitability is that at the beginning of the pandemic, we took a conscious decision of cutting costs and across the group, we cut up costs by 40 percent. If you look at Thomas Cook, we cut our costs by nearly 50 percent.

Those cost benefits continue and we don't intend to give up on that because we replaced people or the cuts with technology, which has helped us and that will continue helping us.

Whatever upside in terms of the volumes we experience from here on will only improve our bottomline.

With demand now coming back for tourism, has the industry as a whole restarted hiring, and has Thomas Cook started re-hiring the people it had let go at the start of the pandemic?

We took a salary cut in 2020 immediately after the lockdown. As of 1 April 2021, we restored salaries to their normal level. We did not cut any more salaries after that. Yes, we did let go of people because we needed to survive.

However, we've discovered that a lot of people have left the industry altogether.

At the moment, what we are doing is we're going out and hiring fresh college graduates. We are going to train them because we have upgraded our technology, and we now need people who are far more amenable to work with new systems. Therefore, we'll focus on developing those skills.

It is very hard to point out if hiring at the moment is similar to the levels of 2019-20, but the reality is that because we have upgraded our technology, our needs are smaller or lower at this point of time.

We are also looking internally to promote people into higher responsibility.

Having said that, the saving we made in costs by upgrading our technology and needing fewer employees, we are not willing to give up on that.

How much has the rise in corporate bookings boosted your business?

Our corporate travel business has been doing well in the current quarter and has actually exceeded the numbers we were witnessing in 2019.

Before the outbreak of the COVID-19 pandemic, corporate travel was made up of about 40 percent international operations and 60 percent domestic operations.

Currently, 70 percent of corporate travel is domestic and about 30 percent is international. This is mainly because currently international air-fares are high and people are not getting visas easily.

My expectation is that by the second half of 2022-23, we will go back to normalcy. But even if they are slower to recover, higher airfares domestically are covering some of that shortfall in international corporate travel.

Domestic airfares in India have risen considerably in the last year mainly on the back of higher fuel costs. Have higher ticket prices in any way slowed down the recovery of the travel industry? Do you expect ticket prices to fall with the entry of new players in the aviation market?

I don't think the new airlines will significantly impact airfares in the near term because they are in the early stages of growth.

If you look at Akasa, they're talking about getting their first aircraft in June or July, and are planning to add about 15 aircraft by next year.

Jet Airways till now has just flown one aircraft, and their future plans have not been disclosed till now.

My expectation is that as long as ATF remains in the current region, airfares are going to remain high. Higher airfares are something we're going to have to live with in the short term.

But towards the end of the year or early next year, my expectation is that airfares in India will settle down.

However, high airfares have not deterred demand for the tourism industry till now.

If you look at the passenger load factors of airlines, the demand far exceeds supply and this is evident across multiple sectors.

It's not just the tourism industry, if you go to the hotel and hospitality industry as well, the demand-supply imbalance is driving prices higher.

Revenge Tourism is a new term that has come into existence after the outbreak of the pandemic. Do you expect any sudden rise in demand for travel from here on?

Revenge tourism was a big factor for the tourism industry in 2021, and most of our business last year came from that period, when the industry witnessed a burst in travel domestically.

However, with things normalising and the pandemic, hopefully, becoming a thing of the past, I don’t think the industry will witness another surge in domestic tourism like we had witnessed last year.

However, we expect international tourists to return to India in a big way in 2022 and that might be the next big wave of revenge tourism that may be seen in India.

Another trend that emerged in 2021 was that travellers were willing to spend a lot more to travel around the world and luxury segments also saw a lot of traction last year. Do you think this trend will continue in 2022-23?

The reality is that over a period of time, if people try and travel multiple times in a year, they have started to realise that their budgets need to be monitored.

I don’t think the norm of people overspending to travel will continue for long.

I think people will now look to take more holidays in a year, and will look to have better experiences. However budgets will always be a point of consideration. I don't think we can ignore that.

So, my expectation is that as things get back to normal, prices will level out, both in hotels, as well as the airline industry. Things will come back to normal over the next six to eight months.

The Indian government had last year announced a slew of measures to boost the tourism sector in the country, including free visas to tourists and loans to government registered tour operators. Do you think the government’s steps have helped revive the sector?

The loans that the government gave to micro, small and medium enterprises have helped the industry significantly.

Many businesses have been able to recover and restart operations because of the government’s measures.

However, the industry is still in early stages of revival. Those who have stronger balance sheets are able to revive their businesses quicker, but others will take some time.

But, we are an industry where the barrier of entry is low or non-existent. So my expectation is that people will enter the industry sooner or later.

Vaccinated customers are being offered discounts to travel. How long do you expect the industry to offer discounts to vaccinated customers, and will the heavy discounting affect balance sheets in the industry?

I think those days of offering discounts to promote people getting vaccinations are over. Today vaccines are freely available. Anybody who is above a particular age can go and get themselves vaccinated with a booster. So, I don't think vaccination is any longer an issue.