Travel sector recovery faces risks of rising air fares, new Covid-19 wave

The travel and tourism sector in India is bouncing back after two years of tepid business due to Covid-19. Travel and hospitality companies are betting big on the ongoing summer season, a key period for holidaymakers, keeping an eye out on rising air fares and the possibility of another Covid-19 wave.

For now, with Covid-19 restrictions relaxed, demand and booking inquiries are on the rise.

“We have witnessed domestic passenger traffic reaching 86.3 percent in March compared to the pre-Covid levels of February 2020. A major trend is the strong surge in flight and hotel bookings due to the peak summer holiday season, primarily driven by school vacations,” Dhruv Shringi, cofounder of Yatra.com, told Moneycontrol.

He said domestic tourist numbers are expected to increase in line with the overall recovery in the sector.

“There is an increase in bookings related to short-term getaways, especially destinations close to key metro cities. Destinations that are seeing an uptick in demand for domestic tourists include Ladakh, Himachal Pradesh, Northeast, and Kashmir,” said Shringi.

India’s travel and tourism market shrank to $121.9 billion in 2020 from $194.3 billion in 2019 and is expected to reach $512 billion by 2029, according to a report by Anand Rathi Investment Banking.

Short holidays

Travel is expected to surpass pre-Covid levels by end of FY23, with revenue of $200 billion, said Ravi Kumar, founder of udChalo, a travel company catering to defence personnel in India. He said there is demand for short domestic holidays, with long weekend getaways the most preferred.

“More than 50 percent of our enquiries have been for beach holidays, followed by holy pilgrimage sites like Shirdi and Vaishnodevi,” he said.

Pankaj Parwanda, cofounder of goStops Hospitality, the operator of backpackers hostels in India, noted that revenue per available room (RevPAR) reached 90 percent of pre-Covid levels.

“Business travel is the reason for depressed yields. While business travel is almost at 70-75 percent of pre-Covid-levels, leisure destinations have surpassed pre-pandemic levels and have witnessed a 20-25 percent growth in RevPAR,” he said.

Ritu Mehrotra, Commercial Director, APAC, China & Oceania at Booking.com, said domestic travel continues to recover strongly and inbound travel is also accelerating.

“Our data shows that in May-June 2022, Indians are travelling to hill stations and beach destinations – including Goa, Ooty, Manali, Rishikesh, Srinagar, Darjeeling, McLeod Ganj and Gangtok, in addition to metro destinations like New Delhi, Mumbai, Bengaluru, Chennai and Kolkata,” Mehrotra said.

She added that with the borders opening again, Indians are also planning their summer getaways to the UK, France, the US, Switzerland, Thailand, Canada and Italy.

The number of domestic tourist visits grew more than eight-fold to 2.3 billion in 2020 from 270 million in 2002, while the foreign tourist count climbed four times to about 11 million in 2019. However, overseas visitors dropped to 2.7 million in 2020 due to Covid-19 restrictions, Anand Rathi said.

“While there are certain trend shifts, through our consumer survey we observed that 94.8 percent Indians choose to travel within India, showcasing that domestic travel continues to be the most dominant choice,” said a spokesperson for OYO, a hospitality startup.

The spokesperson added that during festivals and long weekends, there was a clear upswing in demand for leisure destinations.

“We have already had two record-breaking festive weekend bookings in April. Over the Good Friday and Vishu week, we received 8 lakh bookings, the highest ever in 2022, surpassing New Year’s (of 2021),” the spokesperson said.

Fewer Russians

Parwanda pointed out that budget trends are becoming dearer.

“This will go higher in the domestic space. When it comes to foreign tourists, the confidence of traveling to India in the luxury segment hasn’t come back. There are budget travellers in that space who are coming back, but the number is small compared to pre-Covid times,” Parwanda said.

Jassin Chattaram, partner at Rainforest and Talisman Property Management Services, expects foreign tourists to return but said it would depend on how the pandemic evolves in the coming months.

“The English and the Russians generally comprise a large chunk. While the English should be back in droves, Russian tourists maybe not be as much with the current war scenario. The rouble has devalued a considerable amount and many Russians won’t be able to afford a holiday to India unless the war ends,” he said.

Yatra’s Shringi pointed out other challenges.

“Owing to the rise in oil prices, there has been an overall increase in fares, lack of capacity on international routes and limited infrastructure in key tourist destinations,” he said.

Airfares have increased 60 percent from a year earlier after the rise in prices of aviation turbine fuel and is affecting domestic air passenger traffic. Between March 1-7 this year, domestic air passenger traffic was 2.31 million, which dropped to 2.21 million in the week ended April 7, according to data released by NetworkThoughts, an aviation analysis platform.

Kumar of udChalo said rising air fares have been a major challenge. “The fear of a fourth wave of Covid-19 combined with high ATF and no subsidies makes this whole situation a bit unnerving,” he said.