Starting on a positive note, tourism gets green signal from major governments across the globe and in India as well. Under the phased resumption of businesses across the nation, travel and hospitality industry have got a thumbs up from the Government to partially restart business with a set of new guidelines. The entire industry is bullish on the domestic tourism which is expected to restart soon and will act as a cushioning for the unfortunate losses made during the lockdown period. Despite all these efforts from the government as well as the industry, will travel be the same, ever?
As per a recent report from ICRA, the Indian hotel industry is going through its worst performance phase ever following the economic slowdown, the outbreak of Covid-19 pandemic in Q4 FY2020 and subsequent lockdowns. These led to significant decline in occupancy and average room rates (ARR) as also revenues, operating margins and credit metrics. The pan- India average occupancy during FY2020 declined sharply and the same is abysmally low in YTD FY2021. Occupancy in FY2020 was down to around 65 per cent from around 69 per cent in FY2019; and in 2M FY2020, it drastically declined at 8-12 per cent.
ICRA further states that the industry is expected to witness over 90 per cent revenue contraction during Q1 FY2021 leading to severe cash bleed. Going forward, FY2021 revenues and margins are expected to witness sharp decline and the industry will take over two years to reach pre-covid revenue levels.
Another major challenge which the industry may face in the time ahead is managing the operational costs. Hospitality business has always been synonymous with safety and hygiene in the past, yet the industry will now need to make it more visible to win customer confidence. To retrieve the business, industry should look at more innovative and sustainable models of doing business leaving the inevitable apart. The first segments to witness some demand will be the out of city hotels and the car rental business.
In the initial reopening phase the hotel and car rental businesses are in a Catch-22 situation, where on one hand the operational costs have gone up with increase in the new SOPs in place and the sanitization frequency, and on the other front need to welcome customers at a value which may be lesser than the pre-covid era.
Speaking about the operational costs increase, Rajiv K Vij, Chairman & Managing Director, Carzonrent India, states, “Safety and hygiene have become very critical and we look at this additional operational cost of 5 per cent to 10 per cent as an investment into our business as we believe this will help us acquire more customers and help us move faster on our growth journey ahead. The industry is going through significant stress in terms of perishable unutilised inventory. However, we have found our customers appreciative of the efforts that we have put in to offer completely sanitized cars, drivers using global standards of sanitization material and processes on a daily and every transaction basis, which give them confidence in using our cars. These customers are also willing to pay for same.”
The hotel chains as well see the increase in the operational costs as an investment to woo more guests. But the discounting strategy should be dealt with cautiously as this may have a long-lasting impact.
Zubin Saxena, Managing Director and Vice President Operations, South Asia, Radisson Hotel Group explains, “We believe there is a need to earn the trust of guests and assure them of their safety as the industry resumes operations. Brands are therefore coming up with various marketing offers to win the consumer back. While, these are critical steps towards business recovery, it is also important to be cautious of a discount-led strategy. Rate cuts in the longer term may lead to an adverse impact on market competition and erode brand equity. The industry will have to reestablish itself through innovative initiatives that can be alternate revenue drivers and focus on sustainable practices that will stabilise income in the long run.”
Another cost for the industry in the coming period will be the safety and hygiene protocol trainings. Some of the businesses will also require additional human resource to maintain the hygiene standards as per new SOPs. Akanksha Lamba, Senior Vice President Operations, The Postcard Hotel adds, “At the Postcard Hotel, we have always taken safety and hygiene extremely seriously. Our properties are small and intimate which means that our operations are contained and eﬃcient. Moreover, each hotel is spread over signiﬁcant open area, so social distancing is naturally inbuilt in the way our properties are designed. While of course there has been an additional cost from these, the overall operational cost hasn’t been signiﬁcantly impacted because of our pre-existing detailed standards and the boutique nature of our properties.”
The tourism and hospitality have been worst hit sector by the pandemic. Today, the consumers have a fear psychosis of travel and instilling confidence should be the main focus of the industry. One of the major features for any hospitality or car rental business would be to make their customers feel safe and secure.
Punish B Sharma, Vice President – Operations, The Fern Hotels & Resorts says, “All hoteliers are grappling with the changed scenario. The pandemic has brought modifications and adjustments in the way the hotels used to run earlier. At the Fern Hotels and Resorts, we have introduced Staygiene – A new normal. These are basically the set of guidelines which all our 80 plus hotels are following across the country. The idea is to make the guest feel that he is in safe hands as long as he is with us.”
The business will further witness certain short-term implementations and some permanent changes created. As a historic reference, the hospitality industry has tightened their security post 9/11 and this has continued till date. Similarly, hygiene and sanitization will now be the priority.
Seema Roy, Area Managing Director for South Asia, Middle East & Africa, Preferred Hotels & Resorts adds, “The industry’s approach to hygiene and sanitation practices will be forever changed in terms of visibility. Back of house is the now the new front of house. What was once behind the scenes will now be proudly displayed on hotel websites. We can expect consumer travel trends to change, at least in the short to midterm future. After months in lockdown, people are thinking differently about travel and they are prioritizing quality over quantity. As travelers tentatively make travel plans, they are choosing destinations close to home that don’t require air travel and provide natural landscapes for active breaks with family and friends. An appreciation for domestic travel will create significant demand, steering money back into local and national economies.”
Another major move to win the customers confidence will be to increase flexibility in the bookings and altering cancellation policies.
Sunil Gupta, MD & CEO, Avis India said, “Safety and hygiene will remain a priority, we will need to continue to reassure travellers and respond to any new demands and needs. As we are seeing currently, offering increased flexibility in bookings will also be required to help provide customers with confidence and trust in these uncertain times, and may be required looking forward. Car transport currently offers a private, safe and clean alternative to other modes of transport. The safest and cleanest means to travel, and there will be increased incidence of last-minute leisure bookings and people will tend to travel for shorter distances preferably in their own vehicles.”
Future of MICE and f&b
Social distancing has played a major spoilsport for the hospitality industry. Covid-19 pandemic has not only impacted the peak season but has also put a halt to the complete wedding and MICE business. Hence, hotels are now looking to maximize F&B revenue with innovation.
“We are seeing a slow yet consistent demand for small-scale corporate gatherings, social functions and weddings at our hotels. As the situation normalizes, we are looking with optimism to the recovery of the wedding market – including celebrations that were previously planned for international locations that will move to local settings. Hybrid events could surface as a new trend, and we are enthusiastic to offer innovative solutions to the changing market demand,” Saxena says adding that food and beverage is one of the most critical revenues drivers for us. “We have reinvented our offerings and enabled food deliveries as well as safe takeaways for our guests. Through these services, we are able to serve 20 signature dishes from our 94 operating hotels on a pan-India basis. We have also reimagined our concierge services and introduced ‘Take home a Chef’ which allows our guests to book from a range of professional F&B services like cookery lessons, catering for special occasions and expert guidance on preparing healthy meals at home. We are also looking at reinventing our outdoor catering services to leverage on the opportunities of this segment,” Saxena adds.
Industry experts feel that hotel may have to do away with the buffet concept, where social distancing is a major issue. Hotels need to look at more sustainable models for an efficient f&b business.
“Concern around the hygiene of buffets might be difficult to overcome in the short term without offering viable alternatives. Luxury hotel dining outlets will provide more table-side service in intimate, socially distanced restaurant spaces with guests more likely to choose a la carte dining and room service options. This shift in food and beverage offerings intersects with a more engaged pursuit of sustainable practices in the luxury hospitality sector, creating less food waste and increasing the use of locally sourced, organic produce,” Roy opines.
Hotels see the loss of MICE business as a temporary phase and believe that the business will be reinstated in the mid- to- long term. One of the major challenges for the hotels will be to churn out major profits from the banquets where they would have to operate with restricted capacities.
“MICE segment will be impacted from a short to medium term perspective. Once things fall in place, a new normal will set in. The functions surely will be less crowded, however as someone who comes from F& B background, I see an opportunity there as well. We will come out with some excellent banquet menus which will offer a lot of exclusive food items. The idea will be to raise the revenues by providing top class services keeping the best hygiene standards. The restaurant business is going to bleed badly. But the f & B business in the hotel is largely dependent on the occupancies. There are very few walk-ins anyway in any outlet,” Sharma says.
The pandemic has created more scope for technological advancements. One of the most talked about change the industry is witnessing is the contactless service.
Speaking about the strategies for a viable business, Vij says, “The pandemic and consequent focus on health and hygiene has made “Contactless” services a very critical component of all businesses including travel and tourism. The industry provides services to the travellers and must not take the role of providing credit/ working capital to customers .While some parts of the travel /tourism industry have dealt with trade credit issues over the years, the cash flow challenges during the pandemic will force the other parts of the industry to also work on dealing with this issue for future. Heavy fixed costs in a business which has its own seasonality has kept many parts of travel /tourism/hospitality industry dependent on seasonal revenue. The industry must innovate and implement actions for rationalization of fixed costs including work from home option which works very well for many parts of the industry with even better productivity.”
Indian travel and hospitality industry must have a strategy to tap the domestic market and look at attracting the large chunk of outbound travellers into the domestic segment.
“It is our strong belief that things will improve soon and the high-end leisure market for smaller luxury hotels will be amongst the ﬁrst to recover. The reason for this is simple- there are about 26 million Indians who usually travel outside India every year. At present, they do not have the option of international travel and will therefore start looking for holiday destinations within India,” says Lamba.
Echoing similar opinion Gupta adds, “We see an opportunity to reassure customers of the benefits of car rental during these uncertain times, and in the future as people will look to change the way they travel because of Covid-19. Domestic travel is expected to be on the rise as restrictions slowly ease. We have the most complete offer to satisfy our clients’ needs whether they need a car in the short or medium term or for longer period of times, including services such as our Secure Shuttle Service, self-drive or chauffeur driven services.”
Reinventing business is the way forward. Controlling costs and overheads without impacting the experience for guests will be a major target for businesses. The post covid-19 era will run majorly on the ‘who’s safer and more hygienic?’ model rather than ‘Who is ready to give a huge discount?’. Competition post resumption will be cutthroat, but businesses must ensure that they stick to the guidelines and SOPs for a successful reopening, else it may rather become the breeding grounds for the second wave as people are keen to travel and travel will happen soon.
“As we focus our efforts on restoring the business, it is essential to acknowledge that hospitality, as we know it, will not remain the same – at least not in the short- to medium-term. The revival of every industry is interdependent on various other trades and sectors. At Radisson Hotel Group, we have prepared a comprehensive revival plan that’s based on taking concrete steps towards the ‘new normal’, whilst also being flexible enough to respond to new developments,” Saxena concludes.