India’s biggest hoteliers share their insights on COVID-19 crisis and expectations from the government
COVID19 has rudely pulled the rug from under the feet of the hospitality industry, leaving it in a state of complete disarray
The Novel Coronavirus pandemic has hit 150 countries, affecting over 800,000 people and leaving several thousand dead. And the count keeps goings up, every single day. Even as the world waits for the curve to flatten, for a drug cure to be found and a vaccine to be discovered, many are facing the prospect of unemployment, job loss and social disruption.
The pandemic is uncharted territory for the hospitality industry. While most industries have been badly impacted and world economies are in recession, it is the hospitality and travel industries that have been crippled globally.
Industries that depend on people travelling, for work and pleasure. With over half of the world's population under lockdown due to COVID-19, the crisis that began sometime in early December in China, before spreading its tangled web across the world, will continue to unfold for a while.
The potential losses and disruptions India’s hospitality industry was on overdrive before things went downhill:
■ India is third-largest globally in terms of investment in travel and tourism. In 2018, US$ 45.7 billion was invested in the country, says World Travel and Tourism Council (WTTC).
■ KPMG estimates that the tourism and hospitality sector accounted for 7.5% of the country's GDP in 2019.
■ KPMG expected the hospitality sector to grow at 16.1% CAGR, to reach Rs 2,796 crore in 2022. Now, WTTC estimates up to 50 million jobs in the travel and hotel industry are at risk due to the global COVID-19 pandemic; several of those are likely to be in India.
Hotels have upped their hygiene game, disinfecting their properties and putting in place all the WHO safety protocols, which may continue even after the COVID19 crisis blows over.
The impact of coronavirus is unprecedented. The month of February and March, generally considered peak season for inbound tourism, have witnessed a 70-80%downfall in revenues and if the spread continues for a few months, the holiday season of May-June will be no better, followed by a tepid business cycle of three months.
Travel companies, governments and hotels fear a complete washoutof the summer holidays, which are peak business season. Given the huge potential the industries offer for growth and employment, the Hotel Association of India (HAI) has stated, in the letter to Prime Minister Narendra Modi, that the “potential shock to the livelihood of millions is enormous. We will need to think in terms of forming a task force with the industry and the government to establish a path for normalcy in general, and build confidence in this industry in particular”.
The hospitality industry was among the first to show the big signs of distress, with large global groups such as Marriott International and AccorHotels announcing furloughs of staff, leave without pay, closing of hotels and postponement of new hotel plans. Half of the Accor-branded hotels worldwide have already been closed, and this is likely to increase to over two-thirds in the coming weeks. Many groups such as IHCL have opened its hotels to BMC medical staff, to travellers stuck due to the lockdown, even as they supply nutritious meals to hospitals dealing with COVID-19 patients.
ITC has set up Rs 150 crore Coronavirus Fund for the vulnerable. It will collaborate with authorities to provide assistance to district health and rural healthcare eco-system, to reach out to the weakest sections of society. "The resources under this fund will be channelised towards the protection and well-being of the ground forces, who are doing commendable work to reach medicines, groceries, other essential goods to people across the country during the lockdown, by providing protective personal gear and hygiene products to such frontline warriors," says Nakul Anand, Executive Director, ITC Limited.
Nakul Anand, Executive Director, ITC Limited
HAI’s letter to the Prime Minister not just highlights the impact of COVID-19 on the beleaguered hospitality industry, but also what it would mean to the Indian economy. It is a very telling statement. With no air or road traffic, empty hotels, and all restaurants and recreational facilities shut, “the likelihood of the revival in the short term is uncertain,” states the letter to the prime minister. “The hotel industry is a key pillar of both domestic and international tourism. Globally, it is considered as a major contributor to GDP, foreign exchange earnings, creation of jobs as well as the biggest multiplicator of jobs.”
Neeraj Govil, Senior Vice President - South Asia, Marriott International Inc.
Occupancies have fallen drastically across the board. According to Neeraj Govil, Senior Vice President - South Asia, Marriott International Inc., “Occupancies in March were around 30%, that too as a result of strong occupancies during the first 10 days of the month. April has seen our occupancies in single digits. Many of our hotels have temporarily suspended operations and the remainder is partially operational. Compare this to occupancies of close to 80% that we were forecasting as an average across our portfolio in March and April and you get the severity of the decline.”
Hotels such as MAYFAIR, Sarovar Hotels & Resorts and the Prestige Group have reported steep plummeting of occupancies, hitting an all-time low of 18-22% by end-March.
Vineet Verma, CEO and Executive Director, Brigade Hospitality Services, contends, “The total value of cancellations across our hotels runs into several crores. We expect the pickup to be moderate, if not slow, for the coming few months. It is natural for people to continue exercising caution until the crisis is truly behind us. F&B sales may also continue to be impacted should the restrictions on MICE and banquet events continue.”
Sarbendra Sarkar, MD & Founder, Cygnett Hotels & Resorts
The opinion about which segment of hotels have suffered the most is divided. City hotels are facing bigger losses and cancellations, says Sarbendra Sarkar, MD & Founder, Cygnett Hotels & Resorts. “In February we managed to achieve 97% of the budgeted revenues. After that, we experienced exponential growth in cancellations of about 90% in March, while new reservations were almost zero. April to June looks bleak unless a vaccine is found at the earliest and the lockdown is lifted.”
Ajay Bakaya, MD, Sarovar Hotels & Resorts
However, according to Ajay Bakaya, MD, Sarovar Hotels & Resorts, resort hotels are the worst hit, while city hotels are doing better. “In Baddi in Himachal Pradesh, a pharma and medicine manufacturing hub and Kakinada, in Andhra Pradesh, which is a hub for shipping related businesses, the local admin has supported the business, kept factory production going and encouraged hotels to provide full facilities while taking all precautions.
Our hotels here are operating at 90% occupancies.” But they are exceptions rather than the rule. Since the containment began stage-wise through March, Prashanth Rao Aroor, CEO, IntelliStay Hotels says, “by the last week of March, almost all hotels had been shut down by local administrations and revenues had completely dried up. We are looking at the whole of the next quarter being a washout unless a policy change is seen and/or some new development emerges.”
More than mid-segment or budget hotels, it is the luxury end of the business that is likely to stay depressed for a while. Jaideep Dang, Managing Director- Hotels & Hospitality Group, JLL contends that about 60-65% of a luxury hotel’s business comes from foreign travellers. “Their rates are also likely to decline in both quarter one and two. Most domestic travel locations are seeing de-growth for the moment but may revive if things are brought under control.”
Prashanth Rao Aroor, CEO, IntelliStay Hotels
Aroor agrees that it is luxury hotels that took the biggest hit in the international downturn, due to MICE
cancellations and work-from-home (WFH) directions. “They also handed the biggest inventories and overheads. Mid-market hotels were still catering to stranded domestic travellers and as WFH venues for outstation staff of companies, besides providing hygienic food on delivery to communities and corona warriors.
However, in the third week of March, we saw hill stations and leisure locations quickly shut down, followed by cities a few days later. Now, save for five hotels that had guests checked in when the full lockdown happened or have quarantine services being offered, all others are closed for normal operation.” Verma says that COVID 19 will leave a lasting impression and it may take “us rest of the year and maybe a part of next year before we start seeing a turnaround in the business. It will also offer us valuable lessons that are going to change the way we work in the future. Hoteliers have to deal with the sudden collapse of the business, compromised experience for guests and managing the expectations of the associates in these uncertain times.” A very tall order, indeed!
Rationalising costs, cutting down expenditure
Puneet Chhatwal, MD & CEO, IHCL
IHCL is, right now, operating about 60% of their portfolio, albeit at a low level of occupancy in some hotels. “The period from 1 to 11th March was almost as good as last year; we were registering 65 to 70% occupancy rates at most of the properties. With the shutdown and reduction in travel, our occupancy level has drastically reduced then,” says Puneet Chhatwal, MD & CEO of the group.
IHCL has implemented several cost optimization measures.“Wherever we have more than one hotel in a city, we have tried to move the business to one hotel to minimise the cost of operations. Other initiatives include energy savings, hiring freeze, redeployment of employees, partial closure of hotel floors, partial/full closure of restaurants, minimising room service menus and observing financial prudence,” says Chhatwal.
AccorHotels, in a statement put out, has talked about limiting the impact on earnings and cash. To prepare for the post-crisis recovery, the company has globally implemented a travel ban on its team, frozen hiring, reduced schedules and/or furloughing for 75% of global head office teams for Q2, resulting in a minimum €60m reduction in G&A for 2020; and reviewed recurring investment plan, resulting in a €60m reduction in capital expenditures, besides streamlining all other costs such as sales, marketing and IT.
Sébastien Bazin, Chairman and CEO, AccorHotels
Sébastien Bazin, Chairman and CEO, AccorHotels, says, “We can rely on a strong balance sheet, with more than €2.5bn in cash on hand and an undrawn revolving credit facility of €1.2bn. While much uncertainty remains on the duration of this crisis, we remain bullish on the long-term perspective of the hospitality industry. In these unchartered territories, Accor’s Board of Directors has decided to complement the actions outlined above, by withdrawing its proposal for a 2019 dividend payment of €280m.”
For now, large-scale retrenchment hasn’t begun, though if the lockdown continues for a while, the industry will be left with very little choice. Verma says, “Retrenching people will be the last option we would not want to exercise. However, considering that revenues have dropped to near-zero while the fixed overheads have remained the same, it has become necessary for us to look at an all-round tightening of belts. This includes temporary ‘grade-wise’ rationalisation of salaries and perks.”
Among the measures taken at Brigade Hospitality, he mentions: Requesting employees to use their accumulated leaves during the lean period; restricting operations to a limited number of floors, thus reducing the manpower required and the HLP consumption; the closing down of restaurants and spa; and a relook at the contractual services by carrying out tasks in-house where possible.
Zubin Saxena, MD & VP Operations - South Asia, Radisson Hotel Group
Radisson Hotel Group has begun leveraging the strength of their network by “unlocking efficiencies in our network by ‘clustering’ of resources,” says Zubin Saxena, MD & VP Operations - South Asia. “We are utilising this phase to remap and fastrack our strategy in a way that we can roll out as soon as this is behind us.”
Sanjay Sethi, MD & CEO, Chalet Hotels Ltd., who sees a recovery post-Diwali, claims the group will continue to focus on improving efficiency and come up with property-specific business strategies. “We will also focus on changing customer needs, automation, adoption of technology to improve service levels and lower costs.”
Zaid Sadiq, Executive Director, Liasoning & Hospitality, Prestige Group
Among the measures taken by the Prestige group, Zaid Sadiq, Executive Director, Liasoning & Hospitality, counts “clearing of privilege leaves of our associates to help contain payroll and ensure that we have minimum staffing at our hotels and shutting down restaurants and making one single co-working space for the staff to save on power and human capital. Our associates are multitasking to help us contain cost by cohabiting different departments. Purchases have been halted and we are working closely with our partners/suppliers to help us with discounts and waivers to contain costs.”
Sarovar Hotels & Resorts has scaled down its operations, shut down floors or wings, and stopped operating hotels with aircon plants. “We will continue those with energy-efficient aircon systems. We have also shut down our laundry operations and asked staff to avail of accumulated PL, besides extension of AMC contracts,” says its managing director, Ajay Bakaya.
Cygnett, which had drawn up a focused strategy for 2020 before the pandemic hit, is looking at creating communication and marketing plans that provide a transparent view of their undertakings to potential customers and help them plan economical holidays. MAYFAIR Hotels has deferred most of its up-gradation and renovation work, minimising the use of electricity, temporarily suspending hiring of senior executives for their upcoming properties or vacant positions, and several initiatives to ensure austerity.
American investment bank and financial services company, Baird estimates that businesses will begin exploring opportunities to deploy more capital post-crisis. “The companies that typically play in fragmented sectors in need of consolidation. They are looking to shore-up additional capital to be able to act quickly if needed,” their report states.
Aroor contends that even after the opening of the lockdown, there will be several interruptions caused by the financial and logistical gaps on the supply side. “The government has still not issued a set of measures to offer confidence to industries most affected by the shutdown, especially ones such hotels and restaurants that are manpower intensive and provide a huge percentage of job.
Expectations from the government
In the letter to the Prime Minister, HAI requests for 5-point relief measures, which “are practical and could help the industry to both survive and revive”.
The Top 5 revival plan as per HAI:
- The deferment of all statutory liabilities, including EMIs, to a minimum of 12 months at the centre, state and municipal levels.
- Subsidise employment for three months by the government, contributing 50% of the salary per employee.
- Lease, license, rentals and excise fees, as well as property taxes should be suspended effective 11th March, till the end of COVID- 19 period.
- Enable GST collected to be used as working capital for six months.
- Utility costs such as electricity to be charged on actuals versus the load.
HAI’s letter quotes what other countries are doing (see our next article for details) to bolster their request. “Across the world, the hospitality and travel and tourism industries are considered the backbone of the global economy, creating 10% of total global employment and 1 out of 5 of all new jobs in the last five years. They are expected to create 100mn new jobs in the next ten years and contribute 10.4% of the world GDP. They have the potential of becoming a $13 trillion industry by 2029,” it says.
Among other industry bodies that have written to Prime Minister Narendra Modi is Federation of Associations in Indian Tourism & Hospitality (FAITH). In its letter, FAITH states, “With declining revenues, almost all tourism businesses are running out of working capital. However, with the responsibility of staff and their salary payments, EMIs to service, advance tax, PF, ESIC, GST, excise and other state levies, bank guarantees, security deposits, this industry needs your support now more than ever.”
The revival plan as per FAITH:
- 12 months moratorium on EMIs of principle and interest payments on loans as well as working capital from financial institutions, both banking and non-banking.
- Doubling the working capital limit, to be made available on interest- free and collateral-free terms.
- To prevent insolvency, a deferment for 12 months of all statutory dues such as GST, Advance Tax payments, PF, ESIC, customs duties, the excise fees, levies, taxes, power and water charges, bank guarantees and security deposits, besides deferment of all renewals across the tourism, travel, hospitality and aviation industry.
- A support fund for 12 months on the lines of MNREGA to support basic salaries with ‘direct transfer’ to affected employees.
- To defer or postpone TCS (tax collected at source) on travel, proposed under the Finance Bill 2020 and meant to be levied from 1 April 2020. “This will displace business from India to overseas and lead to shutting down businesses of most Indian tourism companies,” it states.
- Deferment of increase in any insurance premium for 12 months, such as the standard fire and special perils rate for fire, loss or profits.
- A 200% weighted exemption for 12 months on expenses to Indian corporates to host exhibitions, conferences and incentive trips in India.
- To promote foreign exchange earnings when the recovery begins, the restoration of 10% duty credit of SEIS scrips. To kickstart the working capital, previous year’s foreign exchange earnings can be taken as a reference point for credit.
Other hoteliers and industry bodies we spoke to also lay out their agenda for the Indian government. Among them:
Spend on infrastructure: Increasing spending on infrastructure can help rev by the domestic demand. “There are areas where the government needs to improve the infrastructure and last-mile connectivity to open up many more destinations. Domestic tourism alone is worth billions in potential revenues and we must not waste this opportunity,” rues Verma.
TCS exemption in line with GST holiday granted to airline and hospitality sector is also necessary, says Sarkar. “Rollback the new provision proposed in Budget 2020 —TDS under the GST law that enables travel agents/tour operators/OTAs to withhold 1%/5% TDS while remitting payments to airlines and hotels.”
Slash GST rates: Industry body FICCI, in a letter to the PM, has requested that GST rates should be slashed for at least two to three years. “Large hotels are charged a GST rate of anything between 12 and 18% based on room rate charged. Now that hotels are almost empty, the GST rate should be brought down to 5 or 6%.”
Souvagya Kumar Mohapatra, Executive Director, MAYFAIR Hotels & Resorts
A national tourism taskforce: FICCI has asked for a joint centre and state task force, to monitor, strategise and implement a revival plan, continuously. A rationalization of hefty bar license and other taxes: Both Satyen Jain, Director, The Pride Group of Hotels and Souvagya Kumar Mohapatra, Executive Director, MAYFAIR Hotels & Resorts have asked for a rationalization in the hefty fee paid for bar license and other taxes such as property taxes. “The validity period of these taxes and licenses should be extended by at least one year without further payments. The tax should be on sale/purchase of liquor and the fee should be completely waived off,” says Mohapatra.
Jain says that the government should offer a 50% reduction in liquor licence charges. Direct infusion/ investment: KPMG in its COVID19 impact report states that the government should consider implementing a Troubled Assets Relief Programme (TARP) targeted. “Tax- Free bonds could help raise additional resources, apart from revisiting fiscal deficit targets and fast-tracking monetisation of operating assets across the infrastructure sector.”
Simplify visa process: Chhatwal recommends removing, simplifying or reducing cost of the visa process wherever possible. “This could ensure that unnecessary barriers are removed or relaxed to alleviate pressure at ports and airports and implement flexible working visa for the industry; reduce and remove travellers’ taxes, which increases the cost of travel; introduce relief and incentives to support business continuity for companies that have been most negatively impacted by the virus; and support destinations by increasing budgets and assigning resources for promotion, marketing and product development purposes,” he adds.
Despite these concerns, these are the expectations of revival within 2020 itself. While most hotels are still grappling with the sudden tragedy of the situation, we did ask them about what could lead to revival.
Travel for business: Govil contends that going by past economic flashpoints, global travel should take at least a year to get back to ‘normal’. “The economic stimulus packages being announced by several countries will make all the difference in the way the travel and tourism industry bounces back from this severe crisis. There will be an indirect impact on the amount of discretionary spend that the leisure customer will be willing to make, especially in the next six months. International travel will take longer to get back on track. Geographies have to first lift their restrictions, and even when that happens, the willingness of people to travel recreationally will have certain psychological barriers.”
Sethi is in agreement about business travel reviving first. “Leisure travel is a discretionary expenditure and people will want to wait until they are completely sure that there is no health risk involved. A lot of people have already exhausted a large part of their leaves, either during the lockdown or in quarantine. Also, due to the state of the economy, which has resulted in pay cuts and other financial challenges, holidays are going to be pushed further down the priority list.”
Verma adds, “It is likely to be the rooms and related services that will revive first, followed by MICE & banquets. We would like to revive our corporate and contracted business, followed by a thrust on garnering volume business through MICE and banquet events, depending on the situation. A separate focus on F&B revenues will also be our priority.”
Domestic travel: Chhatwal adds that In India, a strong domestic tourism market and a consumer base that enjoys travelling contributes to approximately 9% of the GDP. “Domestic business will be a key factor in the industry’s recovery.”
Sadiq says most hotels will depend on the resilience of the Indian economy. “It will be one of the first uprisers and support the travel industry to get a head-start once the country recovers. The Indian domestic market is large enough to start the business powerhouses until the international markets recover from the aftermath.” If the pandemic is brought under control effectively, mitigating the need for further lockdowns, he expects the hotels to see growth in the last quarter of 2020.
MICE and Weddings: Mohapatra says that his group will focus on MICE and weddings as their top priority. “Apart from focusing on aggressive niche marketing and related activities, we don’t feel that any major realignment of our strategy will be required.”
Jain expects occupancy to go up to 50% between May and June if the COVID-19 cases are controlled. “We are trying to maintain a strong relationship with our corporates and build our pipeline of business for the future months.”
The challenges ahead
Govil says they expect the revival to be slow, as cash flow will be a challenge for most organisations. “The business in the domestic market will depend on two crucial factors — the prevalent demand and economic conditions of that market. A full rebound will take time, as assessing the impact is a challenging proposition given the global scale of this crisis.” Then there is the delicate job of balancing the balance sheet and growth, along with taking care of the well-being of our employees and the P&L of the company, says Sethi. “But we also have to note that these hard times have compelled us to reinvent the way we work.” One of the biggest learning, he says, is how technology can help people work seamlessly, particularly in an industry where personalised service is the norm.
COVID-19 and its aftermath are likely to force the hospitality and travel industry back to the drawing board, to look for more innovative solutions. Baird’s post-COVID analysis states that the crisis will force companies to streamline the expense structure and revaluate growth priorities. “The COVID-19 pandemic will result in structural changes to, or the elimination of, well-run businesses with great products, reputations, and management teams. For highly fragmented sectors i.e., hospitality, tour operators, corporate travel, post-coronavirus will see high M&A activity. Businesses that are well-capitalised or have access to capital will stand to benefit.”
Ankur Bhatia, Executive Director, Bird Group.
Baird predicts that there will be a major push among all travel suppliers such as hoteliers, cruise lines, etc. to acquire customers through lower-cost channels, by having customers book direct or via an agent versus more expensive channels, such as an OTA. “Once the pandemic is over and these suppliers see an influx in bookings, we believe they will continue to push inventory via channels that generate high-margin revenue with a low customer acquisition cost.”
Many hotels, such as Marriott International, will depend on robust hotel specific recovery plans that leverage loyalty program and our relationships with their partners and customers. “These plans will need to be resolutely focused on growing market share for our hotels by building back our occupancy levels at acceptable average rates. Increasing local F&B business will be another key component of the recovery plans that we are presently crafting,” says Govil.
Radisson Hotel Group plans to strongly leverage their India unification plan to tide over these times. “We will fastrack our Focus 40 strategy from a 12-month framework to a 12-week action plan. This will be achieved by implementing a flow through management plan for hotels; expanding clustering exercise to areas such as marketing and sales and instituting subject matter experts, affecting a thorough manning exercise for all hotels, and further streamlining effectiveness of Centre of Excellence,” says Zubin Saxena, MD & VP Operations, South Asia at Radisson Hotel Group.
Not many are up to taking a long-term view of the crisis. Sarkar says, “The business may pick up within a couple of months, or may take up to two quarters to recover completely. On the positive side, once the lockdown is lifted, people will want to travel, cautiously. On the negative side, hospitality is not the only industry that has taken a hit. The economy is at an all-time low and several other industries have also been impacted leading to salary cuts, unpaid leaves, job losses, etc, in turn affecting people’s travel capabilities.”
Satyen Jain, Director, The Pride Group of Hotels
However, a recent study indicated that 50 million Indians fly out of India annually. “There is a good chance to capture a fair portion of that number,” says Sarkar. He says hoteliers need to look at past examples, such as SARS from 2004, for inspiration. Even then, the hospitality industry suffered a blow and bounced back better than before. “In China, life is returning to normal, with domestic flights functioning and reopening of manufacturing units. The lockdown is bound to take a toll on the people and they would want to get out and experience life through travel.”
Chhatwal believes that the situation is dynamic and evolving. “Each day is different from the last, with newer directives being put forth by the government. We would need to wait and watch to see how this plays out before we can comment further on future strategy.” However, he estimates that both domestic and international business travel will come back faster than leisure in the short term. “And things stabilize, leisure will also come back. We do expect to see some amount of pent up and bucket-list travel in the domestic and international leisure segments.”