Hotel industry staring monumental wipeout of revenues, high job losses

In the worst-case scenario, the hotel industry - in 2020 - would not be able to claw back even 20 percent of the previous years' revenue as coronavirus takes a toll on business, a top hospitality consulting firm stated.

The hotel industry may see only 15-20 percent of the Rs 37,000-crore annual revenue in 2020. “India's branded/organized hotel market may completely go under in a matter of months, unless several dramatic, atypical and urgent steps are taken immediately,” Achin Khanna, Managing Partner – strategic advisory, Hotelivate, said in a report.

Hotel room occupancies across India slumped 67 percent by March 21 (three days before the three-week nation-wide lockdown was announced). They were down 12 percent on March 7, according to research firm STR.

Revenues fell even sharper. By March 21, revenues were down 73 percent, as against 20 percent recorded on March 7 as earnings from food and beverage and events took a hit.

A senior executive of a hotel company that runs a chain of properties across the country said that business had come to a complete standstill. “If immediate steps are not taken to steady the ship, we are looking at job losses running in lakhs,” said the executive.

India has 125,000 rooms housed by less than 1,000 branded hotels and the organised sector. In addition, there are scores of stand-alone, unbranded hotels mainly of 1, 2 or 3-star category belonging to the unorganized segment. Without working capital or short term loans, such small establishments are at the risk of getting wiped out.

“Salaries, wages, and other direct payroll-related expenses typically end up being anywhere between 17-22 percent of the toplines for most hotels. These costs are largely fixed. Just the branded sector employs close to 200,000 people in India, with millions more being on the rolls of the large mass of unorganised hotels, lodges and guest houses. Hotels are in a pressing need for working capital to ensure salaries continue to be paid,” added Khanna.

Real estate players from the organized hotel sector have taken loans to fund expansion or renovation. As of January 2020, their total debt outstanding stood at Rs 45,000 crore. Further, in the coming months fixed costs for the hotels would be anywhere between Rs 12,000 to Rs 15,000 crore.

“Just the monthly obligation of principal and interest repayments, therefore, runs into thousands of crores. A deferment of these obligations for a six to nine-month period is an urgent need and lending institutions (with the aid and direction of the government) really should give this immediate consideration,” added Khanna.

While the government clarified that it is not considering extending the 21-day lockdown beyond April 14 the industry fears that it will be several months before business gets back on track. Companies in India and abroad would feel the pinch of the slowdown even if travel restrictions are eased.

An estimated 70 percent of the 5.5 crore people employed in the tourism business (hotels, tourism companies, middlemen) could lose their jobs. The effect of job losses and layoffs has already begun throughout the country, a letter from the Federation of Association in Indian Tourism and Hospitality (FAITH), a lobbying body stated.

“We reiterate that hotels are a capital intensive, cashflow strapped and highly volatile business to be in. They serve a key purpose in the economy and society. The impact of cyclicity and a variety of setbacks are second nature to this sector. However, the hotel industry in Indian just cannot sustain an onslaught of this magnitude. There will be almost no revenue for the foreseeable future. When this problem does get extinguished, it will still take a while before travel, trade, and tourism resumes,” Khanna added.

Original Source: https://www.moneycontrol.com/news/business/hotel-industry-staring-monumental-wipeout-of-revenues-high-job-losses-5097691.html