Budget 2021: Expectations of the hospitality sector
BW HOTELIER held an online pre-budget panel discussion with hospitality veterans on ‘How to Get Business and Economy Back’. We bring you a synopsis of the ideas put forth in the discussion.
The discussion on the panel was steered by Dr. Anurag Batra, Chairman & Editor-in-Chief, BW Businessworld and Exchange4Media Group. The panel included KB Kachru, Vice-President, Hotels Association of India (HAI); Chairman Emeritus and Principal Advisor, South Asia, Radisson Hotel Group, Mandeep S Lamba, President (South Asia), HVS Anarock, Sanjay Sethi, MD & CEO, Chalet Hotels Ltd, Nikhil Sharma, Regional Director- Eurasia, Wyndham Hotels and Resorts and Bhuvanesh Khanna, CEO BW Communities, BW Businessworld.
COVID-19 and the consequent lockdown in India crippled the Indian economy and disrupted the lives of millions in an instant. Out of the sectors that were the most affected, hospitality and travel and tourism had to face the wrath of the pandemic in the absence of fundamental provisions. The hospitality sector has continuously asked the government for several concessions, 'industry status 'being a continuous demand. Initiating the discussion, answering Batra’s question on green shoots of economy visible through the numbers in hospitality and expectations from the finance Minister, KB Kachru, drew an analogy with the Indian cricket team’s win over Australia despite having many injured players.
Kachru said, “I think we are almost in a situation like that. First, we have to acknowledge fully that our industry is important. We are grateful to our Prime Minister who acknowledged that we are one of the five pillars of the economy. We didn’t get much relief till now. We have to showcase what we are, what we need, and what we need to do, as a community and as an industry.” Highlighting the contribution of the sector to the economy and employment of the country, he said, “We contribute almost 10 per cent of the GDP to the economy and our employment is around 9-10 per cent. So, we need some attention.”
Indicating that the coming days may witness a boost in domestic tourism citing the positive trends in leisure traffic and the closure of international routes as the reasons for the same, he added, “International travel is almost zero in terms of business and MICE. I think we need to focus on domestic tourism.”
Elaborating on the emergence of green shoots, Kachru stated the recent trends in the travel and tourism sector that would help it recover in due time. The recently developed pent up revenge travel that has led people to find their escape in drivable distances. Commenting on the vacations that people are taking to take a break from the monotony of life, he mentioned, “In hotels, the whole travel circuit is doing well. You have seen what has happened in Kashmir in the last two months despite all the problems that has done well, Himachal, Uttarakhand and Goa are doing well currently. If we have to save jobs, over hundred million jobs in our industry, there are almost 30-35 per cent job losses in the industry. So, we need to really focus on that and provide relief to the industry.”
Meanwhile Sanjay Sethi elaborated, “Drivable distance leisure has picked up very well in the last few months. We have seen project-based business travel come back strongly and city-based staycations experiences become very trendy. And therefore, a new segment is getting introduced in the industry which will evolve for good. We are basically coming out of COVID with an added segment or added revenue streams.”
On being asked about the specific demands that can be put forward to the Finance Ministry which can help the hotel owners and operators, Sanjay Sethi suggested key points which included Government giving a 125 per cent of all investment as Capital write back in hotel books which allows the hotel owners to take a hit in year one itself, government allowing land as a part of the Capital Expenditure investment as land is a large component of capital investment in the hotel business. Help is required from the Govt on direct and indirect taxes, as well as the foreign trade policies. This especially includes the SEIS scheme which is a key thorn in both hospitality and travel industry right now. Lastly, the ability to write back or carry forward losses over a 12-year period which is currently only eight years.
Dr. Batra further suggested restructuring of loans to the hospitality sector and doing a special reduction on rates. Carrying the discussion forward, Dr. Batra queried Mandeep Lamba, on his views on the aid required by the sector from the government. Underscoring the two pain points noticed by the sector, Lamba said, “One is of course the industry status which the government of Maharashtra has done. It needs to be done at the national level.”
Supporting the idea of inclusion of tourism in the concurrent list, he added, “I do think that we need to get the industry status which helps in reducing our costs. It helps in making the business more viable and profitable. That is the long-standing demand which we have been seeking. There is so much tourism potential in this country it actually would be simply wonderful if the Govt. considered this and gave the industry this privilege. It would change things considerably.”
Then he commented on the second point that the sector has noticed, “Second point is to get infrastructure lending status with the RBI. We are a very capital-intensive industry as everybody knows and the cost of capital often becomes the big issue. So, if we could get infrastructure status which allows a much larger repayment period and more attractive rates of interest that in itself will be a huge relief for the industry.” He also talked about extending EPCG guarantees, as the foreign earnings will not happen because of the restrictive foreign movement into the country.
“Lastly, the ability for hotels to bill on IGST for corporates for the MICE business. If the government allowed this, that would again bring a lot of cheer to the industry,” he added.
While speaking, he addressed the segment of leisure travel as well. He stated, “There is no doubt it has taken fancy, everyone is travelling just out of fatigue. We are seeing a lot of business coming into leisure locations. Our leisure markets are greatly underserved, the inventories in these markets are very small compared to the large inventories we have in our cities. The corporate movement is slow, and international or inbound travel is going to be slow.”
Dr Batra spoke about the gap between the expectation of customers and the ability of suppliers in fulfilling the same, that should be bridged to achieve harmony.
In December 2020, GST revenues had reached a record high of Rs. 1.15 lakh crore, the highest since the introduction of the GST. Speaking on whether this optimism reflects in the numbers in hotel operations, Nikhil Sharma, said, “Week-on-week we have been seeing occupancies in Tier I, Tier II and Tier III cities rise. Staycations are taking off, People are coming and doing small events whether it is in the restaurants or banqueting. Small is beautiful at the moment. I do see this trend continue and I see hotels filling up faster than what some of us were thinking some months ago.”
Bhuvanesh Khanna, CEO BW Communities, BW Businessworld added, “The challenge for the Hospitality industry is not the occupancies but ARRs (Average Room Rates). This yield is what we want to pull up.”
Dr Batra then went on to ask about the mindset change required as a hotelier from KB Kachru. Commenting on the same, Kachru expressed that the pandemic was unpredictable and it ended up changing the dynamics of the entire business. Underlining the need for everybody to tune themselves to the new normal, he said, “We have to accept that things have changed and we need to change accordingly.”
“And whether the hotels, transport companies or hotelier sector, we collectively need to see what needs to be prioritised. We as an industry have to accept what has happened. Most of us have accepted and are moving accordingly.”
Not just that, Kachru also shed light on the positive side of the previous year, “A lot of good things have also happened. We have addressed issues on wasteful expenditure. We have restructured operations, almost every hotel company hotel operator or owner had a relook at what they are doing. Without reducing brand specs, or the level of operations, we are able to look at things more minutely and positively. People are investing in us and when people are investing in us, we need to be worried about the ROI which we were supposed to give to them. And yes, the mindset has changed and we have to change accordingly.”
On the question of whether the hospitality sector sees F&B revenues going up with rising occupancies or it still being six months away, Nikhil Sharma commented that the F&B revenues are indeed going up. He said, “All brands and all hotels have gone out with their cleanliness campaign and today it is a cleanliness theatre, more visual. People feel safe when they are going to hotels. Hotels have adapted in the sense that hotels which had not started delivery have started the same to ramp up. They are doing their own delivery or have a tie up with Swiggy or Zomato equivalent. People are coming back to restaurants. Numbers aren’t great as they should be but the route to recovery on this seems much shorter than the ARRs.”
Dr. Batra then steered the discussion towards Investment and Demand in the hospitality segment. Sanjay Sethi commented that the key question troubling the hoteliers is whether they should spend three to four years building a hotel or picking up hotels from the market. He said “We will continue to invest either through acquisitions or through development. From a supply-demand situation obviously we will see slowdown in the supply side.”
Sethi said, “New segments have developed over the last 10 months and new revenue streams have developed. I think they will become like the cream on the other regular revenues that we were getting even when good old times are back. I am very confident that by FY’23 the industry will be back to pre-COVID-19 numbers.” Dr. Batra then asked about the structural changes happening in the hospitality sector. Mandeep S Lamba, “It is now more about cop-ability than capability. It is coping with what has happened to us. The silver lining in this pandemic, is that the industry has sat back and looked at its performance metrics. The industry was generous earlier, we were not conscious of our costs as we have suddenly become today. We are doing more with less people. I think that is going to be a structural change.”
He believes that the sector will be looking at reduced manpower ratios and operating costs. He mentioned that in future, capital structures are going to change, hoteliers are planning to make hotels at lower cost. He added, “We are going to look at frugal luxury, and are going to start being more realistic about our spaces. We are going to start looking seriously at ancillary revenue. Something the airline industry has done wonderfully. We have high capital and real estate costs. We need to start rethinking on how we leverage and monetise these areas. Designs are going to change, technology is going to be quickly adopted in hotels, we don’t need many people on the front desk.”
Dr. Batra further asked KB Kachru, about the low hanging fruits or help that can easily be provided by the Finance Minister. Commenting on the government’s inaction, Kachru said, “The government actually needs to execute what they are saying. The problem is everybody is sympathising but not doing. Kudos to the Maharashtra government for they implemented what they said.”
Stressing the fact, Kachru reiterated the pending demand of the hospitality, travel and tourism sector to be granted the industry status. He said, “While we see green shoots at many places, at the key location it is a huge problem. My key submission to the government is to incentivise Indians to travel within India. We need to have policies where business companies, corporates allow their employees, and it is all tax deductible.”
Top Lockdown Lessons
Coming to the last part of the panel discussion, Dr. Batra said that Lockdown has been a time for introspection and asked the panel members to share their insights and learnings. While Nikhil Sharma said that humility has been the biggest lesson of the lockdown, Sanjay Sethi added that one should be extremely close to their talent pool. He said that since physically meeting them is not possible, one should meet them virtually on a day-to-day basis.
Mandeep S Lamba, on the other hand said that the culture of work from home is something that he does not enjoy. However, acknowledging the positive lessons of the lockdown he said, “On the bright side, I got time for a lot of introspection, and time to spend with family. We got to interact like never before.”
KB Kachru concluded, “We have to do more with less.”
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