homehospitality NewsCOVID 19 impact: Hospitality sector's revenue loss estimated at almost Rs 90,000 crore in 2020

COVID-19 impact: Hospitality sector's revenue loss estimated at almost Rs 90,000 crore in 2020

COVID-19 impact: Hospitality sector's revenue loss estimated at almost Rs 90,000 crore in 2020
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By Ankit Gohel  Aug 17, 2020 2:17:00 PM IST (Published)

The COVID-19 pandemic has taken a severe hit on the revenues of the Indian hospitality sector – organized, semi-organized and unorganized. The total revenue loss for the sector in 2020 is estimated at Rs 89,813 crore as against total estimated revenue of Rs 1,58,113 crore in 2019, a report said.

The COVID-19 pandemic has taken a severe hit on the revenues of the Indian hospitality sector – organized, semi-organized and unorganized. The total revenue loss for the sector in 2020 is estimated at Rs 89,813 crore as against total estimated revenue of Rs 1,58,113 crore in 2019, a report said.

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Of this, the revenue loss for organized players is seen at Rs 40,309 crore, semi-organized at Rs 8,379 crore, and unorganised at Rs 41,126 crore.
“The markets were set on a path to recover the grounds lost due to the past disruptive events and supply overhang as the year 2020 started on a positive note with strong performances in the first two months. The onset of COVID-19 and the subsequent travel restrictions and nation-wide lockdown, however, has had an unprecedented impact on the sector,” a report by HVS India and ANAROCK said.
The occupancy rate in 2020 is likely to fall 31.6 percent while Revenue Per Available Room (RevPAR) down by 57.8 percent.
The industry witnessed its largest growth rate in the 2000 decade at 6.3 percent CAGR as the country’s economy opened post-liberalization and demand outstripped supply by a significant margin. Apart from 2017, average rate growth, post the GFC crisis, has been limited in the 2010 decade growing at a CAGR of 1.7 percent.
Demand Outlook
The demand in the hospitality industry has also taken a toll due to the pandemic. The pace of immediate demand growth is correlated to the level of stimulus infused by the government to revive growth, besides the availability of a cure and vaccine.
Corporate: The corporates are expected to put restrictions on non-essential employee travel. Even for the essential employee travel, allowance limits are likely to be reduced. Senior Management travel also expected to reduce in the short term
MICE: The number of International Corporate MICE (Meetings, incentives, conferences and exhibitions) travelers will be significantly reduced. A large number of weddings planned at international destinations have relocated to domestic destinations, the report stated.
Leisure: Domestic tourists will be major demand drivers. ‘Revenge’ travel witnessed in China could foster among Indians too. The around 25 million outbound Indian travelers will also be an attractive segment for the leisure market, the report said.
Outlook on Supply growth
The report also notes the impact on the supply of new hotels in the sector. As of May 2020, supply was forecast to increase at a CAGR of 2.8 percent during the 2020-2024 period. Given the recent events, supply growth is now expected to be lower, and at a slower pace, than previously anticipated.
The labour shortages and issues pertaining to vendors and supply chain may lead to delays in under-construction projects while muted market conditions will likely lead to delayed openings and some projects may be on hold pending recovery.
Further, financing challenges on account of negative sentiment for the sector is likely to delay projects and changes in market conditions may render proposed projects infeasible; as a result, some projects may be postponed or canceled.
Some properties may close on account of financial stress and not reopen for an extended period of time, resulting in negative supply growth while some properties are likely to be repurposed to other asset classes such as Hospital, Student Housing, and Co-Living, the report said.
Additionally, the report anticipates occupancy and ADR to reach pre-COVID levels by 2022 and 2023, respectively.
According to the report, the impact of the situation will be felt differently across segments.
The full-service hotels, dependent on group business, will be more vulnerable. These include gateway markets that depend on international travel, “fly to” markets that depend on air travel, independent non-affiliated properties, Upscale & Luxury Hotels which have over 50 percent international business and international leisure destinations with high FIT or GIT movement.
The secondary and tertiary markets are expected to hold up better. Gateway and the top 10 metro markets will witness short term volatility. Motorable Leisure markets could see a quicker rebound, it said.
However, hotels that primarily rely on transient segments may be less vulnerable. These include economy and midscale business hotels, suburban, small metro town properties, “Drive-to” resorts, extended-stay hotels, drive-to markets, which can be expected to recover faster than those dependent on air travel and properties affiliated with strong brands.
According to the report, Upscale/Luxury Leisure and Branded Economy/Mid-market business hotels are expected to lead the recovery growth in the sector. The transaction market will witness high activity due to likely softening in values and increased availability of stressed assets.
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