Hotels across India lost Rs. 4,810 crores in room demand and revenue in Q1 2020 vis-à-vis Q1 2019: Howarth HTL report
The report also stated that there should be significant concern about what will happen to the lakhs of employees that will be stranded job-less because the industry is seeing multiple closures, lack of resources and abandonment of new projects.
According to the report published by Howarth HTL, the severity of impact for India’s hotel sector is best reflected by lost rooms demand and revenue. The aggregate loss for March to June 2020, compared to 2019, is Rs. 48.1 bn (Rs. 4,810 crores). Note that mid- March 2019 to May 2019 was impacted by the elections, so that the effective loss in 2020 is likely a larger number. Note also that several hotels saw demand decline in February; some even from the last week of January –losses in those months would add to the revenue dilution for H1-20. Further, the revenue loss estimate is based only on hotels participating with STR (mostly chain-affiliated hotels); the loss will be larger when independent hotels are also considered.
The demand decline in the March to June period for the luxury-upper upscale, upscale and up-mid, and midscale- economy segments was 49per cent, 46per cent and 44per cent respectively. Room revenue loss for these segments, compared to 2019, is estimated at Rs. 27 bn, Rs. 15 bn and Rs. 6 bn respectively.
The report stated that if 2019 was the best performing year for India’s hotel sector, 2020 has been the worst in living memory; unfortunately, it appears likely to continue down the negative path for the rest of the year.
Hotel revenues also comprise F&B income from restaurants and outlets, from banqueting and meetings and other operating income. F&B and banqueting have been devastated during the lockdown period – the summer wedding season vanished, conferencing and events demand disappeared, and F&B spends from leisure and entertainment have yet to reappear as governments disallow normal functioning of restaurants and bars. Horwath HTL estimates the F&B and other operating revenue decline in this period (March through end June) at about Rs. 32 bn (Rs. 3,200 crores).
In aggregate therefore, the revenue loss for the March to June period is a massive Rs. 80 bn (Rs. 8,000 crores); this loss could likely increase by 180 per cent to 200per cent when non-chain hotels are also included in the estimation. At 30 per cent EBITDA margin, the loss is more than the interest burden on outstanding loans of the industry – Rs. 420 bn (Rs.42,000 crores), borrowing per estimates by the banking sector and another Rs. 50 to Rs. 80 bn from NBFCs, ECBs and other sources. If the sector has been so severely impacted at an aggregate level, the impact on debt service by individual borrower entities is even more massive.
Several hotels have temporarily closed down; others have significantly scaled down operations. Full or partial closures continued as lockdowns were extended and divergent travel protocols inhibited resumption of operations even in June (in fact, even to date in several key markets). Lockdown period demand has been a mix of quarantine support, healthcare persons, international travellers awaiting repatriation, some corporate demand for critical employees, and some long-stay custom. A smattering of demand for senior citizen support, crew rooms and some personal travel in June added nominally to occupancy. The expectation of demand for staycations and leisure has materialised, but only in August, as varied travel regulations and state policies discouraged travel in June.
At the city level, H1-20 demand for six major metros declined 50-55 per cent compared to H1-19; Gurugram demand declined by 57 per cent, Pune by 63 per cent and Ahmedabad by 42 per cent. The smaller decline for Ahmedabad is mainly due to a tepid performance by that city in H1-19. The leisure markets of Goa and Rajasthan suffered 83 per cent and 62 per cent demand decline, respectively.
The magnitude of the challenge grows when we note that Q2 is typically the second slowest quarter every year; continued business softness for Q3 and lack of positive outlook for Q4 can only amplify the criticality of the issue – unfortunately, there is lack of recognition that the industry is capital intensive by nature and yet very perishable as room nights lost every day are lost forever.
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