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Indian hotel sector disrupted : HVS Anarock
Friday, 02 April, 2021, 08 : 00 AM [IST]
Our Bureau, Mumbai
The year 2020 will go down in history books as the year that shook the world – economies, businesses, organisations, and people – out of its comfort zone with a multitude of radical disruptions, which were both painful as well as opportune. The Indian hotels sector has not been any different.
After a successful 2019, the year 2020 was expected to be the year that finally set the pace for a consistent upward performance trajectory for the sector. There is no denying that the year broke several records but not the kind that the sector players were hoping for as the onslaught of the Covid-19 shock pushed the sector off its growth path.
Despite the mayhem caused by the pandemic, it has also accelerated certain much-needed transformations, which will help in the sector’s growth in the future. After reaching record-low occupancy in April 2020, the sector closed the year with an India-wide occupancy in the range of 33-36 per cent, reflecting a decline of 31-33 percentage points.
In the wake of falling demand and occupancies, hotels reduced tariffs significantly to attract business, thus pulling down revenue per available room (RevPAR) to a dismal low of Rs 1,500 – Rs 1,800 in 2020 - reflecting a decline of 57-59 per cent. Our estimates indicate that the sector (including organised, unorganised, and semi-organised segments) has incurred a total revenue loss of approximately Rs 900 billion in 2020.
In the aftermath of the ongoing pandemic, brand signings by keys witnessed a year-on-year decline of 40 per cent in 2020. Signings were especially low in the first half of the year due to the uncertain market conditions and challenges related to closing deals on virtual platforms because of the Covid-19 lockdown and restrictions. During the year, 100 new hotels entered the branded hotels market, while an additional 35 hotels were rebranded.
Tier 3 and Tier 4 cities continued to show aggressive growth as brands tried to spread their distribution based on steadily improving demand from these cities.
2020 was a challenging year for hotel transactions as well, which declined by 50 per cent compared to 2019 but was still much higher than the previous peak achieved in 2015, showing the resilience of the sector.
2021 will be a crucial year for the hospitality sector as it emerges from the disruptions and embarks on the path to gradual recovery.
Due to the evolving nature of the pandemic, not only many countries but even states in India are now reintroducing travel restrictions and lockdowns. At the same time, the gradual rollout of the Covid-19 vaccine across the globe and in India is expected to help restore consumer confidence and help ease these restrictions during the year ahead. We expect demand to improve considerably in 2021, driven by strong economic growth, corporate performance, and people making up for the lost time by giving in to their pent-up desire to travel.
However, hygiene, cleanliness and safety will continue to remain top priorities in the post-Covid world. Domestic leisure travel, particularly to motorable destinations, will continue to show a steady increase in 2021. Meanwhile, corporate demand will remain subdued, at least in the short term, as the convenience of virtual meetings overshadows travel. We expect India-wide occupancy to improve to 56-59 per cent in 2021, which will push RevPAR to Rs 2,500 – Rs 3,000 during the year. Rate pick-up for luxury business hotels is likely to be the slowest, and for luxury leisure to be the fastest.
The sector expect mergers and acquisitions (M&A) activity in the industry to accelerate in the second half of the year, with hotel transaction volumes exceeding $ 1 billion in 2021, as several assets and asset owners come under financial stress and look for exit.
Though the 2021 Union Budget failed to provide any direct and immediate support to the Indian hospitality sector, the fillip given to other sectors such as healthcare and infrastructure will indirectly help in the tourism and hospitality sector’s growth in the long-term.
Furthermore, India’s economic fundamentals continue to be strong, and the country is expected to bounce back to reclaim its title as the world’s fastest growing major economy in the next fiscal with 11.5 per cent growth, as per the International Monetary Fund (IMF). This bodes well for the Indian hospitality sector and will help in its sharp recovery during the next couple of years.
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