Hotels across segments to take over 2 years to recover from pandemic: Study

Consulting firm Hotelivate expects daily rates and occupancy to remain depressed

Topics

Hotel industry | hotels | Coronavirus

The operational performance of hotels in India across the categories including luxury, upscale, midscale and economy is expected to remain depressed for over two years and unlikely to touch the FY19 levels any time soon, according to consulting firm Hotelivate’s latest, Indian Hospitality — Status and Pulse Report. This comes even as India battles a rapid surge in the total number of active Covid-19 cases and large swathes of the country remain under localised lockdowns. Therefore, the second quarter of FY22 is likely to remain under severe pressure.

While the economy segment is likely to have closed the Covid year with the lowest occupancy, relatively, the midscale hotels witnessed the least erosion, wrote Achin Khanna, Managing Partner, Strategic Advisory and Kush Anand, Analyst-Strategic Advisory at Hotelivate.

“Confirmed proposed supply across positioning, coupled with the likely resurgence of demand over FY22 and FY23, is intrinsic to our forecast of performance. Recovery is likely to take a little over two years and the pace, across positioning, may appear to be largely similar,” they wrote.

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Credit rating firm Icra too is bearish in its forecasts. The recent second wave/localised lockdowns are expected to have an impact on discretionary travel and occupancy over the next 1-2 months. While widespread vaccination rollout could ease things to an extent, the situation is evolving and remains a monitorable it said in a recent report. Pan-India ARRs (average revenue rate) would still be at a discount to the FY2019 levels in FY2022. “The extent of RevPAR improvement in FY2022 is contingent on timelines tied to the pandemic, and hence can witness downward revision in the coming months. Recovery to pre-Covid levels will take about 2-3 years,” it said.

Interestingly, the decline for hotels on both ends of the spectrum– economy and luxury was the steepest, according to Hotelivate’s research. They are also likely to attain the sharpest improvements. Early signs of this already became visible in Q4 FY 21, as business travel related demand resumed first in the budget/economy hotels on the one end and discretionary transient leisure picked up pace across luxury hotels and resorts.

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Most upscale and midscale hotels are present in urban India and are dependent on corporate transient as well as business MICE (meetings, incentives, conference and entertainment segment) travel to resurge. The absence of meaningful inbound travel (which is largely corporate again) adds to their woes. A majority of the nation’s organized inventory sits in the mid and upscale space and shall witness a recovery that is marginally slower than the hotels at the top and bottom of the pyramid.

The report also underscores the strong correlation between air travel and hotel inventory. The two have been moving in tandem. Consider this: The nationwide inventory for hotels is expected to increase to 1,63,656 by 2023, this will be the highest in seven years since FY16. Air passenger traffic is also expected to rise to a 7-year high of 346 million by 2023. On a similar note, nationwide inventory is estimated to have fallen to a five year low of 102.39 in FY21. Air passenger traffic too is expected to have dropped to the five-year low of 67.37 million in the same period.

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