Horwath HTL's Hotel Sentiment Updated Survey 2020: Impact of COVID-19

The Updated survey (Part-II) clearly examines the impact of COVID-19 on India's hotel industry, the challenges and also presents a roadmap to the industry to frame its responses to the challenges ahead

Horwath HTL India survey, Sentiment Survey, Hotel leaders, General managers, Hotel Sentiment Survey 2020, Sentiment Survey Updates, Post-COVID-19

The hotel sector has been very severely impacted by the COVID-19 pandemic, with business activity and travel being shut or very materially curtailed during extended lockdown periods.

Horwath HTL conducted a Sentiment Survey among hotel leaders and general managers at the end of March, shortly after the lockdown commenced. Given that, it was therefore an appropriate time to gauge and understand the sentiment among hotel leaders and general managers. Also, during this duration, both hotel leaders and general managers have had greater opportunity to study the crises and its potential impact whilst they are also planning for the re-opening of hotels.

In continuation to the Part-I of the Sentiment Survey of the Indian hotel industry leaders and hotel managers, the Updated survey (Part-II) clearly examines the impact of COVID-19 on India's hotel industry and the challenges posed by it. The part-II of the survey also presents a roadmap to the industry to frame its responses to the challenges ahead.

The new survey presents a comparative study on the results between the first Sentiment Survey (S-1) and the Update Survey (S-2).

Here’s a detailed look at the findings of the survey:

Assessing the influence of COVID-19

How long will it impact the hotel’s operating performance?

There was a significant change noted in perspective between S-1 and S-2, on the duration of impact from COVID-19.

  • 56% participants in S-1 felt the impact would be for 3-6 months; as the lockdown has extended now, this number is now down to 32%.
  • 40% are now expecting the impact to last between 6-12 months, and another 25% expecting the impact to go over 12 months.

In other words, the expectation of a longer term impact has doubled in the last six weeks. More importantly, the leaders are expecting a bigger long-term impact, possibly based on complete uncertainty on the timing and scope of recovery of inbound business and leisure travel.

Post-lockdown, how long will it take for business to be restored to pre-COVID-19 levels?

At a combined level,

  • About 1/7th of respondents expect business to be restored to pre-COVID-19 levels within six months
  • Nearly 1/4th of respondents expect this to happen within 6-12 months
  • But 62% of respondents expect the impact to last over 12 months, with over 1/6th expecting the recovery to take over 18 months.

The leaders have projected a longer term recovery, and rightly so, because inbound leisure and MICE will take that much time; so will the same domestic numbers of MICE and weddings demand – it is also likely that this expectation is predicated on a vaccine coming into play in the next 12-18 months.

Post-lockdown, what % of hotels chain / group will  open for business?

The assessment is very clear and reaffirms the expectation of Horwath HTL India that:

  • About 20k-22k rooms, out of the chain affiliated supply of about 151k rooms will not re-open.
  • The partially open inventory is a large number – it reflects the expected softness in initial demand.

Horwath HTL India also expects a significant slowdown in the supply cycle – project withdrawals, project downsizing and substantial delays.

Segments that will create demand during the initial reopening of hotels?

Segments are given in the order from highest to lowest
1. Corporates
2. Staycations
3. Small / Moderate MICE
4. Leisure FITs
5. Leisure Groups

This order of precedence is interesting. There seems to be good confidence in the return of MICE demand, albeit in much smaller groups – the reduced group size is to be expected.

Staycations are gaining importance, as a concept; and the survey seems to reaffirm that. People will simply want a change of scene and will check into hotels in their own cities rather than risking journeys.
Leisure FIT demand is placed at number 4 – lack of flight options and challenges for interstate travel, combined with the heat, would be a factor for rating this down.

Further, with the monsoon approaching soon after lockdown conditions are gradually eased, the propensity for long-distance road journeys for leisure will be diluted. Of course, leisure destinations in convenient proximity to cities based in liquor prohibition states could see a surge as people set out to quench their thirst.

What rate variations do you expect in comparison to pre-COVID-19 rates, once the hotels become operational?

The rate drop is predominantly expected in the range of + / - 20% and upto 30%. More than 3/4ths of respondents are in this range which means that rate rationalisation will occur but we may not see a ‘race to the bottom’.

This is good. More so when compared to S-1 in which 35% of respondents had anticipated over 30% ADR decline. Thus, with time to plan and strategise, there is a better sense of rate structures that would work – or be needed – in an environment where demand will not be price elastic and added operating costs for hygiene, medical risks and service delivery will need to be compensated.

Percentage growth/decline in Total Revenue in 2020 vs 2019?


This is where reality strikes hard; and where the innovation will come into play. Traditional non-room revenue sources will suffer; combined with rate and occupancy drops the decline in total revenue could be sharp. If MICE picks up soon, the overall impact of COVID-19 outbreak could give lesser pain – but it will not muffle the hard hit, because guest numbers will still be lower due to smaller group sizes. With this kind of revenue drop, debt service will be a major issue – RBI needs to allow banks effect a proper one-time restructure of loans.

Road to Recovery

Services to be adopted by hotels to ensure staff and guest safety?

Hotels are clearly planning health checks and health controls within their premises – covering guests, employees and vendors.

Capex is locked up, but will be unlocked for acquiring equipment needed for specific hygiene and disinfection needs.

While hotels are not portraying significant action towards vendor warehouse sanitation audits, this onus will likely rest with vendors and will likely impact their ability to empanel as approved vendors. In reality however this has limitations, particularly when local meat and perishables vendors are fewer to come by – the hotel will need to up its game in such cases.

Five key challenges to be faced, once the hotels are allowed to re-open?

Cash flow and funding constraints stand out as the most significant challenge for the industry. Cash flow is the ‘oil that lubricates the operating wheels’ in any business, including hotels. This challenge is aggravated due to high fixed costs, lower revenues and additional expenses that will have to be incurred to adapt with COVID-19 related aspects such as increased sanitation.

Owners and Operators will need to work around the difficult business questions of:

  • Declining demand revenues, associated with the challenge of creating customer confidence – taken together, that becomes 1/3rd of the challenge
  •  Cost rationalisation and increased costs to address health and safety of employees and guests – the health and safety factor is, in turn, linked to demand creation efforts
  • HR challenges around the availability of people (who may have gone home) and the need to balance business volumes with staffing levels and needs; combine this with the cultural / moral issue around retrenchment on the one hand, and cash flow challenges on the other – certainly, not a conundrum for the faint hearted.

And certainly a matter that will cause closures.

Were your hotels able to get any moratorium for the lockdown period? Has there been any restructuring of loans?

Last but not the least – and a matter that will have long-lasting effect.

Half the businesses have availed moratorium; and that was a limited period moratorium as announced by RBI. With the kind of operating scenario expected going forward, a significant moratorium will be needed – and hence the argument for debt restructure – for the next 12-18 months.

More concerning is the fact that 42% of respondents have talked about moratorium not being available. In other words, they sought a moratorium but were ineligible for it or were not granted it by their banks.
Debt service challenges are a sectoral issue – and not just for hospitality.

If a meaningful approach is not adopted timely, there will be a lot of red ink flowing over the industry. And when it happens to the sector, there are very few winners – and banks are certainly not among the winners. For the sake of some dry-wood (that needed the ventilator from inception), it is pointless to sacrifice the vast green forest that is revenue parched due to external exigencies.

Conclusion

The sentiment is fairly clear – recovery will take over 12 months, revenues for the rest of the year will decline very materially, cash flows will be deeply constrained and debt service will be terribly inconsistent, likely well-nigh impossible.

The story is yet to fully unfold – likely with some unknown twists. The road ahead is hard but we shall get there, provided the vehicle is not taken away midway.

We urge Mint Street to recognise this challenge – we urge them to enable restructure and recast of borrowings for hotel assets, which carry inherent value and debt-service capability, so that debt failures don’t pile up. This will help unburden the banks as well.

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