Can hospitality sector get its mojo back this year?
The last five months of the year generally bring good tidings for consumption-driven companies as the rise in demand due to festivals boosts bottom lines.
The last five months of the year generally bring good tidings for consumption-driven companies as the rise in demand due to festivals boosts bottom lines. This is evident in the performance of the BSE Sensex, the FMCG index, the consumer durables index and the auto index, which have given decent returns in the August-December period. The key therefore lies in personal consumption, which accounts for 57.9 per cent of the GDP, going up.
Worse, as surveys done by the Centre for Monitoring the Indian Economy (CMIE) suggest, private consumption is not likely to pick up significantly over the next 12 months because households are 'in deep despondency.' That should be a matter of worry for the government whose spokesmen are painting a rosy picture and again talking of a V-shaped recovery.
The second wave of the corona virus pandemic has derailed the recovery of the hospitality industry, which is now expected to return to pre-Covid levels only in 2023-24, according to ratings agency ICRA.
ICRA said the pick-up in demand in the second half of 2020-21 was largely led by leisure travel, 'staycations', MICE and higher F&B revenues. Some business travel in specific sectors also aided recovery.
ICRA's industry sample is expected to report operating losses in FY22 as well, although it will be lower at low-single digit, compared to the 23 per cent operating loss witnessed in FY21. This will be supported by better operating leverage and sustenance in fixed cost saving initiatives undertaken in FY21, the ratings agency added. The hotel industry is expected to clock at least 45-50 per cent of pre-Covid revenues in this financial year as demand has recovered sharply post the second wave of the pandemic aided by easing of restrictions during the July-September period, according to a report.
Pre-Covid revenues and profits are likely only by the financial year 2023- 24, as a result of sustenance of some cost-saving measures, the breakeven is expected to reduce and hotels are likely to report pre-Covid margins of 85-90 per cent of revenues going forward.
The situation is still evolving and remains contingent on the efficacy of vaccines and a potential third Covid-19 wave, the Icra report added. Most markets reported over 50 per cent occupancy in Jul-21 and Aug-21, the key markets - Jaipur, Goa, Delhi, Mumbai and Hyderabad displayed healthy occupancies whereas Bangalore and Pune lagged behind.
The demand recovery pattern has different from other crises, with properties with affiliated strong brands and in the luxury segment standing to benefit, as trust and safety are paramount. Drive-to leisure, staycations, social MICE/weddings and special purpose groups are expected to drive revenues for hotels for the next one year at least.