Revenue Loss due to Covid-19 in Travel, Tourism and Hospitality Sectors

Gedalia Dkhar and Aerex Nameirakpam

Introduction

The travel and tourism industry in India accounts for 9.2% of the country’s GDP and employs 8.1% of the population with our total contribution of forex approximately US $28 billion. The Corona virus pandemic has dealt a crippling blow to the Indian travel and tourism industry and the entire value chain linked to the sector is likely to lose huge lakh crore. (CII and Hotelivate, 2020)

Methodology

Secondary data was collected from published reports on travel and tourism sector including lose Rs 5 lakh crore due to Covid-19 crisis. Further, secondary data was also collected on the impact of Covid-19 pandemic on the revenues of the Indian hospitality sector.

Result

• Travel and Tourism Sector likely to Lose Rs 5 Lakh Crore due to Covid-19 Crisis

The Corona virus pandemic has dealt a crippling blow to the Indian travel and tourism industry and the entire value chain linked to the sector is likely to lose around Rs 5 lakhs crore or US $65.57 billion. (CII and Hotelivate, 2020). The shutdown and slowdown which was initially expected to affect revenue streams till October, 2020 have now indicated otherwise, the trends are currently indicating only 30% of the occupancy in hotels till the start of 2021 with hotels seeing 80% erosion in revenue streams. The monthly occupancy was at its peak in January, 2020 at 80% followed by February, 2020 at 70% dipping to 45% in March and then to the lowest at 7% in April, 2020. In May, June, July and August, 2020, occupancy was at 10%, 12%, 15% and 20% respectively. The study projected that in September, the occupancy will be at 25%, 28% in October, 30% in November and 35% in December, 2020. (Table 1)

Table 1. Monthly Hotel Occupancy Percent by the Guests during Corona Virus Pandemic, 2020

January 2020	February 2020	March 2020	April 2020	May 2020	June 2020	July 2020	August 2020	September 2020	October 2020	November 2020	December 2020
80	70	45	7	10	12	15	22	25	28	30	35

Source: CII-Hotelivate, 2020

The estimate loss in Hotel both branded and unbranded segments in 2020 were US $19.31 billion (Around Rs 1.42 lakh crore). However, in the best case scenario, industry revenue will improve by 10-15 % to which online travel service make my trip (2020) also contributed.

• Revenue Loss in Hospitality Sector during Covid-19, 2020

The revenue loss for organized players is seen at Rs 40,309 crore, semi-organized at Rs 8,379 crore and unorganized at Rs 41.126 crore. The onset of Covid-19 and the subsequent travel restrictions and nationwide lockdown. However, has had an unprecedented impact on the sector. The occupancy rate in 2020 is likely to fall 31.6% while Revenue per Available Room (RevPAR) down by 57.8%. The industry witnessed its largest growth rate in the 2000 decade at 6.3% CAGR as the country’s economy opened post-liberalization and demand outstripped supply by a significant margin. Apart from 2017, average rate growth, post of GFC crisis has been limited in the 2010 decade growing at a CAGR of 1.7%.

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 the government to receive growth, beside the availability of cure and vaccine.

Outlook on Supply Growth

The impact on the supply of new hotels are taken into consideration in this section as of May, 2020, supply was forecased to increase at a CAGR of 2.8% during 2020-2021 period given the recent events supply growth is now expected to be lower and at a slower pace than previously anticipated. The financing challenges on account of negative sentiment for the sector is likely to projects and changes in market conditions may render proposed project infeasible. As a result, some project may be postponed or cancelled. 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. (Gohel, 2020). Additional, Gohel, 2020 anticipates occupancy and ADR to reach pre-covid levels by 2022 and 2023 respectively.

Discussion

The impact of the situation will be felt differently across segments and will be more vulnerable. These include gateway markets that depend on Air Travel, independent non-affiliated properties, upscale and luxury hotels which have over 50% 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 (Ten) metro markets will witness short term volatility. However, hotels that primarily rely on transient segments may be less vulnerable. These include economy and mid-scale business hotel, suburban, small metro-town properties, “Drive To” resort, extends stay hotels, drive to markets which can be expected to recover faster than those dependent on Air travel and properties with strong brands. Upscale or 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.

Summary

The organized sector alone is likely to lose US $billion. The figures are quite alarming and the industry needs immediate measure for survival.

The revenue loss for organized players is seen at Rs 40,309 crore, semi-organized at Rs 8,379 crore and unorganized at Rs 41,126 crore.

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