Hospitality sector could recover this fiscal year: Experts

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It is expected that the recovery in the hospitality segment will be driven by the arrival of foreign tourists when the country opens up for international tourists. 

With large corporates asking employees who have completed their vaccinations to return to office, domestic corporate travel is likely to return in the next couple of quarters and the recovery will also be aided by demand from domestic travellers also. As per a report by Motilal Oswal pent up demand for business travel (domestic and international) has not happened for the last 1.5 years. 

The Motilal report points out that foreign tourist arrival increases occupancy and yields higher ARRs (Average Room Rate) given their propensity to spend higher. The second COVID-19 wave had delayed the recovery in the hospitality sector by a couple of quarters. However, the impact this time around was less severe and the recovery has been quicker versus last time—the report states. As per the report, while earnings were weak in FY21, a gradual or sharp recovery is expected in FY 22 and FY23 on a low base. An improvement in ARRs can be seen once things normalize as well as improved occupancies and positivity in cost rationalization efforts in FY21. Further, an increase in food and beverages is expected to boost incomes as banqueting and conferences resume and management contracts also dole out higher incomes.

As per the JLL’s Hotel Momentum India (HMI) Q2 2021 the hospitality industry in India had witnessed a growth of 84.7 per cent in Revenue Per Available Room (RevPAR) during Q2 2021 (April-June) as compared to Q2 2020. However, on a pan India level, there has been a decline by 53.9 per cent in Q2 2021 RevPAR as compared to Q1 2021, because of the restrictions imposed due to the second wave of the pandemic. The Year on Year (Y-o-Y) growth witnessed in the sector during Q2 2021 was primarily due to the low base effect of the complete nationwide lockdown in Q2 2020. 

April and May saw the imposition of full and partial lockdowns as well as travel restrictions in many states. However, as restrictions were eased between the end of May and June there was a sharper recovery in leisure demand in comparison to the same period last year. 

The JLL report observes that the recovery of the sector has been primarily driven by branded chains in the leisure segment performing notably well. It was observed that guest preferences have changed significantly, and people are preferring to stay at secluded low-density properties. JLL expects the leisure and weddings segments to continue to drive the sector in the short to medium term. The report points out that as offices open and travel restrictions ease further, along with the rise in the pace of vaccination, corporate travel is expected to gain momentum towards the end of 2021. 

The total number of signings in Q2 of 2021 stood at 20 hotels comprising 2,100 keys, which is three times the number of rooms signed in Q2 2020. Furthermore, domestic operators dominated signings over international operators with a ratio of 60 to 40 in terms of inventory volume. As per the JLL report, Goa had emerged as the RevPAR leader in absolute terms in Q2 2021 with a growth of 360.1 per cent as compared to the very low base of Q2 2020. Additionally, Mumbai witnessed the highest growth in occupancy level registering 17.7 per cent increase in Q2 2021 over the same period last year. Chennai witnessed 99.6 percent growth in RevPAR followed by Hyderabad with 89.6 per cent increase compared to the same period of the previous year.  

The report found that the demand and supply of operational inventory in six major cities increased by 186 per cent and 14 per cent respectively in the second quarter of 2021 as compared to the same period last year.

“Whilst Q2 2021 has been extremely hard on the hospitality sector given the brutal second wave, we take some encouragement from the way business has resumed. Flights are filling up; holiday destinations are running a full house and we have witnessed pick up in wedding bookings too. Food and Beverages dining though remains slow and continues to be driven by home delivery orders. Operations have become a very tricky affair with managing employees and costs given sudden demand fluctuations,” said Jaideep Dang, Managing Director, Hotels and Hospitality Group, South Asia, JLL. 

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