Luxury hotels lead industry’s faster-than-expected recovery from Covid


Demand from the hospitality industry has recovered at a faster rate after Covid 2.0 than after last year’s lockdown. Occupancy rates and Average Room Rates (ARRs) have seen a substantial jump, especially in luxury hotels and resort destinations, where they have exceeded pre-Covid levels.

An ICRA report pointed out that the recovery was accelerated by the easing of restrictions in the second quarter of fiscal 2022. The rating agency, however, did not change its negative outlook on the industry because it remains to be seen whether the recovery in demand can be sustained. A potential third wave and its impact on travel and hotel occupancy cannot be ruled out, according to the report.

The partial lockdown along with travel restrictions in a number of states in April-May 2021 after the start of Covid 2.0 led the ICRA sample of companies to report a 56% drop in revenue over a year. QoQ basis, according to the rating agency. estimates. The revenues of these companies, however, are expected to improve 85 to 90 percent sequentially in the second quarter of fiscal 2022, according to the CIFAR report.

Upscale hotel occupancy rates across India picked up in August 2021 to 44-46 percent from 32-34 percent in the first five months of fiscal 2022 (5 months for FY2022) and 13-15 percent in FY5 for 2021. By comparison, the occupancy rate was 46-48% in the fourth quarter of FY2021.

The increased occupancy rate is yet to have an impact on average room rates (ARRs), according to the ICRA report. Pan-India, ARRs were between Rs 3,850 and Rs 3,950 for 5 million for fiscal year 2022, 25 to 30% lower than their pre-Covid levels. The revenue per available room (RevPAR) figures are also still significantly lower than pre-Covid levels.

Some upscale hotels and leisure destinations have turned the tide, however, seeing their ARRs return to pre-Covid levels in August-September 2021. The ICRA report expressed hope that travel during the holiday season year would act as a key demand stimulus for the industry in Q3 FY2022.

Sharing more information, Vinutaa S, Assistant Vice President and Sector Head, ICRA Limited, said: “The first few months have been affected, but the industry has grown faster than expected in the second quarter of fiscal year 2021 due to easing restrictions, higher vaccination rates and pent-up demand, which have resulted in revenge trips. Demand in recent months has come from vacations, weddings and trips to recreational destinations within driving distance, and special purpose groups. There is also the new trend of ‘biscations’ (working from a seaside resort) picking up. “

Continuing with his analysis, Vinutaa said: “The collection of business travel in specific sectors has been done primarily to manufacturing sites and project sites.” In conclusion, she said, “We are seeing a real recovery in demand.”

However, she was quick to add the warning that “the situation is evolving and sustaining demand will depend on the effectiveness of vaccines and a potential third wave of Covid”. She concluded by adding: “The industry is currently cautiously optimistic.

Most markets, including Delhi, Mumbai, Hyderabad, Jaipur and Goa, recorded more than 50% occupancy in July-August 2021, but Bangalore and Pune fell behind. ARRs in leisure destinations were above pre-Covid levels in July-August 21. Going forward, ARRs will depend on how much of this growing demand can be sustained.

The pattern of demand recovery is different from previous crises, with properties affiliated with strong brands and in the luxury segment that will benefit, as trust and security are paramount for customers. Driving hobbies, trips, weddings and special purpose groups are expected to generate income for the coming year at least.

Arrivals of international traffic will take time to recover. In the meantime, demand will be supported by domestic travel. Hotels and cities dependent on business travel and Foreign Tourist Arrivals (FTAs) will take considerable time to recover.

On the supply side, in the immediate future, temporary shutdowns are possible in the affected regions, if there is a third wave. Acquisitions and industry consolidation are the way forward, and rebranding in the mid and high end segments will increase the share of the organized offering. In the medium term, part of the pre-Covid offer could be permanently shelved, while new properties could emerge in leisure destinations.

“The hospitality industry is expected to generate at least 45-50% of pre-Covid revenue in fiscal 2022,” CIFAR’s Vinutaa said. “Additional operating profits for the current fiscal year will be facilitated by improved operating leverage and the continuation of some of the cost optimization measures undertaken during the last fiscal year.”

She added that the industry will likely only be able to reach pre-Covid revenue and profit levels by fiscal year 2024. Also, due to cost saving measures, breakeven time is likely to decline and hotels could see a return to pre-Covid margins of 85-90% of revenue in the future. “Nevertheless, the situation is still evolving and the estimates depend on the timelines linked to the pandemic,” she said.

The debt moratorium and the Emergency Credit Line Guarantee Scheme (ECLGS) provided the financial support the industry needed during the pandemic.

About 70 percent of the entities in ICRA’s hotel portfolio benefited from the moratorium during the first wave, although it only accounts for 39 percent of rated debt. Some companies raised funds through equity and debt reconciliations before the ECGLS announcement. The industry has raised around Rs 660 crore of equity in FY 2021 and has announced plans to raise funds worth Rs 3,300 crore in FY 2022.

CIFAR expects further fundraising and asset monetization to support improved capital structure in the future. Debt measures, however, are only expected to return to pre-Covid levels in the medium term, while the RoCE is expected to remain below the cost of capital at least for the next several years.


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(Only the title and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)

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