Strong momentum in travel and better performance to drive improvement in credit profiles

Leading operators in the Indian tours and travel sector are set to report operating profits in fiscal 2023, after having reported losses for the past two fiscals due to pandemic induced travel restrictions, according to CRISIL Ratings. While operating profitability is expected to check in at 6-7%, revenue should drive past 90% of pre-pandemic levels, buoyed by strong recovery in both, corporate and leisure travel segments in India and abroad.

CRISIL Ratings expects operating margins to sustain at these levels next fiscal, due to implementation of cost optimisation and automation initiatives undertaken by travel operators commencing from the pandemic period, even as revenues are expected to pass pre-pandemic levels next fiscal.

This marks a significant turnaround from operating losses of 25.8% and 2.7% in fiscals 2021 and 2022, respectively.

The improvement in operating performance, together with healthy liquidity and net debt free balance sheets, will help strengthen credit profiles of the players. An analysis of four major travel operators accounting for over 60% of the domestic sector’s revenue, indicates as much.

Poonam Upadhyay, Director, CRISIL Ratings, said, “Rising business travel, along with increasing return-to-office and preference for face-to face meetings besides increasing consumer preference for short breaks will push revenue past pre-pandemic levels in fiscal 2024. Interestingly, preference for short holidays is seeing momentum, especially within India and Asian destinations. With revival in European visa issuances, forward bookings for the upcoming summer holidays have also risen. Recovery of leisure travel to the US, however, may take longer.”

Says Shounak Chakravarty, Associate Director, CRISIL Ratings, “The implementation of cost optimisation and automation initiatives has substantially reduced the proportion of fixed cost to ~33% of total revenue from over 60% before the pandemic, ensuring better operating profitability on a sustained basis. The improvement in operating leverage will help sustain profitability even as marketing spend is seen increasing next fiscal.”