Challenges & Recovery Strategy
Hoteliers, Finance Advisors And Hospitality Business Consultants Share Their Views With Realty+ On Hospitality Sector Trends That Will Ultimately Shape Its Recovery With Initial Rebound In Demand.
HOW CRITICAL HAS BEEN THE SETBACK TO HOSPITALITY?
Saurabh Gupta, Managing Partner – Investment Advisory & Asset Management, Hotelivate: Hospitality sector is intrinsically linked to travel. As a ripple effect when travel halts; hotels immediately lose their transient demand. That’s what happened in 2008/9 crisis also. The difference however is that during that time the hotels continued to do brisk business due to MICE and domestic FIT demand. The pandemic of 2019 has had a sweeping impact on all market segments. So the demand did not reduce, it fell to zero! In the areas where unlock is allowed, hundreds of hotels are witnessing almost a pre-opening stage scenario when demand has to build grounds up.
Jehangir Homi Aibara, Director, Mahajan & Aibara Advisers LLP: The setback has been a major cog in the wheel for hospitality as hotels are capital intensive and fixed costs are high in the industry as a whole. Loss of employment unfortunately will be a great after effect of the crisis.
Zubin Saxena, Managing Director & Vice President Operations, South Asia, Radisson Hotel Group: After over several months, we are witnessing a gradual uptake in business across the country. We firmly believe that the worst is behind us. We have witnessed growth of new segments such as quarantine stay. Overall, tier I cities have shown better pick up, but tier II cities are leading the trend on socials and food and beverage (F&B) related revenue with weddings taking place under strict protocols and necessary precautions.
Ashwin Mehta, Managing Director, Pankti Management Consultancy Pvt Ltd: The setback to the hospitality vertical due to the lockdown has been massive. Normally gross operating margins of hotels range from 30% to 45% from which the hotel company has to fulfil the operator’s fees, finance cost, insurance, property tax, etc. With no revenue these expenses have continued to eat into the available cash of hotel companies. At present hotels are operating at 10% to 20% occupancies which do not even cover the variable cost leave aside the fixed cost. The restrictions of 50 persons maximum for banquet functions, cap of 30% to 50% on operating capacity, fear of pandemic amongst people restricting meetings, parties, etc are taking toll of the restaurant businesses. Entire vacation/wedding/ festival season which this sector banks on has been wiped out. The sector may need 24 to 30 months of normal operations to recover deficit created from March 2020 till at least up to March 2021.
WHAT MORE CAN BE DONE BY THE GOVERNMENT?
Saurabh Gupta: Lots of representations have been made. License renewals can be made free, GST can be removed. A mix of what state and central governments can help with. When markets open up, tourism ministry would have to actively listen to stakeholders to plan for a marketing offensive.
Jehangir Homi Aibara: Government has already extended repayment period but more extension will be required as consumer are still not ready to travel and use hotel facilities. in certain states hotels have still not ben given permission to open. The RBI has allowed for restructuring of loans however, it is still to be seen if banks will favourably restructure loans to the hotel indus
Zubin Saxena: The proposed loan repayment extension can provide much needed relief to business owners in the short term. Further measures like one-time restructuring of the industry and implementing seamless access between domestic markets will go a long way in supporting the industry.
Ashwin Mehta: The RBI could have given 24 months moratorium for servicing of loans interest and principal repayment and reduced GST for 12 to 24 months. Most of the hotels are at least valued at more than 2 times the loan granted. So it is a safe lending. Even if little relaxed norms are made applicable to come out of this situation, no harm will be done as the owner has more to lose than the bank. For under construction hotels which are finding it difficult to get disbursements or need additional funding due to various reasons should be granted such additional loans on similar lines. Proper credit assessment is fine but non decisiveness on the banks part is the major hurdle. Reduce interest rates for next 3 years and grant additional working capital limits to immediately tide over the cash flow mismatch.
Other steps could include, automatic extension of tenor by 5 years to all loans to this sector with accelerated prepayment clause. Instructing banks to give a tenor of at least 15 years at the time of granting loans. Simplify the refinance norms with enough clarity to PSU banks so that they also can refinance.
HOW ARE HOTELIERS CONTINUING THE COMMUNICATION WITH GUESTS?
Saurabh Gupta: Communication is vital. Hotels are trying activities that they never thought of before such as using their infrastructure for incremental activities like laundry service, food delivery, buy now stay later. Packages for small (50 pax) wedding groups are being floated. All inclusive rates in drivable resorts are selling well.Staycation packages are doing well in cities like Gurgaon.
Jehangir Homi Aibara: Hotels are staying in touch with guests via all modes of social media to calm fears and allay concerns of hygiene standards at the properties.
Zubin Saxena: At Radisson Hotel Group, we have found unique ways to extend our service proposition to guests while they continue to stay at home. With #RadissonCares initiative, we leveraged our expertise across a range of service areas to help make a positive difference in the lives of our guests.
In another initiative under the umbrella theme of #RadissonCares, several of our 94 operating hotels in India came together to light up their facades in creative displays such as heart shapes, letters L-O-V-E and face masks. These initiatives have helped us stay close to our guests and deliver our brand promise in times when they cannot stay or dine with us.
We have activated Cross Selling Incentive Program for our pan-India network comprising of more than 500 sales associates, making hotel discovery and booking easier for existing guests in any part of the country.
As people plan to travel primarily domestic for the near future, we have rolled out India Road Trip package that features our hotels within drivable distance from major cities, provide assurance to our guests on safety and hygiene and promote our staycation packages in various cities. This includes our cancellation policy which is constantly updated – offering both leisure and business guest’s utmost flexibility and peace of mind.
HOW ARE HOTELS STRATEGIZING THEIR REOPENING PLANS?
Saurabh Gupta: Reopening is totally linked to plan of local authorities as far as being legally permitted to open is concerned. But whether to open or not is a mathematical call. Hotel owners are estimating demand pick up in H2 for FY21 and comparing it against the incremental cost of opening a hotel/ resort. It’s a call you take basis that judgement.
Operationally, hotels are quite prepared with SOPs and infrastructure to handle demand build up. It’s incredible how that knowledge gap has been filled up by hoteliers. Going forward it is this pedantic approach that will help build confidence in consumers.
Jehangir Homi Aibara: In areas where hotels are allowed to re-open, some hotels have opened considering they feel sufficient demand is available to break even or come close to it. Other hotels have prepared themselves to reopen on short notice when they believe enough demand has returned to begin operations. Larger cities have seen few hotels achieve as much as 30% occupancy but this is restricted to key metro cities. We hope these figures will climb as and when the govt further relaxes lockdown conditions.
Zubin Saxena: Much ahead of the pandemic, we had embarked upon India Unification Plan – our operations blueprint that leverages the strength of our network to deliver efficiency. The blueprint constitutes 20+ initiatives across five key pillars: People, Procurement, Food & Drinks (F&D), Operations and Commercial. This exercise leverages our expertise as a hotel management company to generate value to our owners in the form of reduced costs, better returns and higher efficiencies. During the lockdown period, we put this on fast track to a 12-week action plan. I believe this model is working very strongly for us in these times.
HOW WILL THE HOTEL’S OPERATIONS CHANGE TO NAVIGATE THE NEW NORMAL?
Saurabh Gupta: I think cost reduction is here to stay. Hotels will learn to work with ratios that may be much lower than pre-Covid levels. Wastefulness will be frowned upon whether it is buffets or people or marketing spend. The operational breakeven thresholds have reduced significantly and my guess is that 2 years from now, hotels will show healthier GOP levels than 2019. Resorts based on FTAs will need to focus on domestic leisure since the ecosystem around international group travel movement has got disturbed.
Jehangir Homi Aibara: All hotel companies have adopted new brand standards and sops that shall be followed in order to create strictest adherence to protocol. Continued business will go hand in hand with the same hence hotels are inclined / motivated to follow correct practices.
Zubin Saxena: The value of many other strategic imperatives that we had initiated ahead of the crisis, such as ramping up our focus on F&B and managing hotel flow throughs have been reaffirmed in the current environment. For guest safety, we have implemented a 20-step protocol for hotels and a 10-step protocol for meeting and events in partnership with SGS – world’s leading inspection, verification, testing and Certification Company. In addition to this, an exhaustive set of experience mapping guidelines are being implemented across our hotels which detail out procedures to be observed across a guest’s journey from arrival to check-out and a team member’s journey across various touchpoints such as arrival, housekeeping, kitchen, moving around, offices etc. Our staff has been equipped with resources, educational materials and trainings on effectively handling new situations as they emerge.
HOW SOON DO YOU THINK HOSPITALITY WILL START REVENUE RECOVERY?
Saurabh Gupta: From H2 of FY21, we should start seeing some recovery since corporate travel also has a big pent up demand. A lot also depends upon the availability of a vaccine. MICE needs more time. We believe hotels would manage around 25% occupancy in FY21, 50% in FY22 and should be back in full steam from FY23
Jehangir Homi Aibara: It is likely that the budget / midscale hotels will recover first as they had lowest segment of traffic coming from international and mice travel. Domestic demand in leisure locations could see a positive swing as international locations are not truly accessible and hence we could see a spill over of the outbound (high paying) travel into domestic hotels.
Zubin Saxena: With a robust portfolio of brands under upper upscale and mid-scale segments and presence across 60+ cities in India, we are firmly positioned in India. We have witnessed consistent recovery across all our brands and believe that this trend will stabilize further in the coming months
Ashwin Mehta: I feel that the uncertainty over business / leisure travel within India will persist for few more months after pandemic is perceived to be in control. Period upto March 2021 is likely to a wash out and hotels will have to find ways and means to survive this turmoil, which is not a very easy proposition for quite a few of them. If things stabilise by March 2021, one can see the start of earnings. The budget hotel may not benefit much as currently the 4/5 stars hotel rooms are available at a steep discount and are implementing the stringent SOPs. Having said that the Budget hotels which are run by reputed players and seen to be strictly observing the safety/sanitisation norms will also witness recovery but not at the cost of 4/5 star hote