Mumbai, October 10th (IANS) The demand from the hotel industry has recovered more strongly for Covid 2.0 than after the lockdown last year. Occupancy and average room rates (ARRs) have increased significantly, particularly in luxury hotels and resorts where they have exceeded pre-Covid levels.

An ICRA report indicated that the relaxation of restrictions in the second quarter of FY2022 accelerated the recovery. However, the rating agency did not change its negative industry outlook, as it remains to be seen whether the recovery in demand will last. According to the report, a possible third wave and its effects on travel and hotel bookings cannot be ruled out.

The partial lockdown and travel restrictions in a number of states in April-May 2021 after the Covid 2.0 outbreak resulted in the ICRA sample of companies reporting a 56 percent decline in sales on a QoQ basis, in line with the rating agency’s estimates . However, revenues from these companies are likely to improve 85-90 percent quarter over quarter in the second quarter of FY2022, according to the ICRA report.

Occupancy at premium hotels across India increased in August 2021, increasing to 44-46 percent, compared to 32-34 percent in the first five months of FY2022 (5M FY2022) and 13-15 percent in 5M FY2021). In comparison, the occupancy rate in the fourth quarter of FY 2021 was 46-48 percent.

According to the ICRA report, increasing occupancy rates will still have an impact on average room rates (ARRs). Across India, ARRs for 5M-FY2022 ranged from Rs 3,850-3,950, which was 25-30 percent lower than their pre-Covid levels. The figures for sales per available room (RevPAR) are also still well below the level before Covid.

However, some high-end hotels and vacation destinations bucked the trend as their ARRs returned to pre-Covid levels from August to September 2021 Q3 FY2022.

Vinutaa S, Assistant Vice President and Sector Head, ICRA Limited, said, “The first few months were hit, but the industry saw faster than expected growth in the second quarter of FY2021 due to the easing of restrictions. the higher vaccination rate and the need to catch up, which led to vengeance trips. In recent months, the demand has come from stays, weddings and trips to mobile leisure destinations as well as from special groups. In addition, there is the new trend “biscations” (working from a resort), which are on the rise. “

Vinutaa continued her analysis, “Business travel pick-up from specific sectors was mainly to production sites and project locations.” In conclusion, she said: “We are seeing a real recovery in demand.”

However, she quickly added the caveat that “the situation is evolving and maintaining demand will depend on the effectiveness of the vaccines and a possible third wave of Covid”. In conclusion, she added, “The industry is cautiously optimistic right now.”

Most markets, particularly Delhi, Mumbai, Hyderabad, Jaipur, and Goa, reported over 50 percent occupancy from July to August 2021, but Bangalore and Pune lagged. The ARRs in leisure destinations from July to August 21 were above pre-Covid levels. Going forward, ARRs will depend on how much of this increasing demand can be sustained.

The pattern of recovery in demand is different from previous crises, with properties with strong brands and in the luxury segment benefiting, as trust and security are paramount for guests. It is expected that recreational trips, stays, weddings and special purpose groups will increase revenue for at least the next year.

For international traffic arrivals, the pick-up takes some time. In the meantime, domestic travel is supporting demand. Hotels and cities that are dependent on business travel and foreign tourist arrivals (FTA) will take a long time to recover.

In the case of a third wave, temporary standstills are possible in the affected regions in the short term. Acquisitions and industry consolidation are the way to go, and rebranding in the mid-range and upscale segments will increase the proportion of organized supply. In the medium term, part of the pre-Covid offer could be permanently discontinued, while new properties could be added in leisure destinations.

“The hotel industry is expected to generate at least 45-50 percent of pre-Covid revenue in fiscal 2022,” said Vinutaa of ICRA. “Further operating profits in the current fiscal year will be supported by improved operational leverage and the support of some of the cost optimization measures implemented in the past fiscal year.”

She added that the industry will likely not be able to hit pre-Covid sales and profit levels until fiscal 2024. Due to cost-saving measures, the break-even time should also be shortened and hotels could return to pre-Covid margins of 85-90 percent of sales in the future. “Even so, the situation is still evolving and the estimates depend on the schedules associated with the pandemic,” she said.

The debt moratorium and Emergency Credit Line Guarantee Scheme (ECLGS) provided the financial support the industry needed during the pandemic.

Approximately 70 percent of the companies in ICRA’s hospitality portfolio took advantage of the moratorium during the first wave, even though it was only 39 percent of the debt assessed. Some companies raised funds through equity and debt commitments prior to the ECLGS announcement. The industry raised approximately Rs. 660 billion in equity in FY 2021 and announced plans to raise capital worth Rs 3,300 billion in FY 2022.

ICRA expects that further raising of capital and monetization of assets will support the future improvement of the capital structure. However, the debt ratios will only return to pre-Covid levels in the medium term, while the RoCE will remain below the cost of capital for at least the next few years.


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