Luxury Hotels and Resorts Have Seen A Faster Recovery Rate After Covid-19 Second Wave

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After the second wave of coronavirus, the hotel industry has recovered at a rapid pace. There has been a substantial jump in occupancy and average room rates (ARRs), especially in luxury hotels and resort destinations, where they have breached pre-Covid levels. Compliance with social distancing reached a new low

An ICRA report pointed out that the easing of restrictions in Q2 FY2022 had accelerated recovery. The rating agency, however, did not change its negative outlook on the industry as it remains to be seen whether the uptick in demand can sustain. According to the report, a possible third wave and its impact on travel and hotel occupants cannot be ruled out. Also Read – Modi Government Allows Export Of Russian Sputnik Light Kovid-19 Vaccine Made In India

The introduction of COVID 2.0 following partial lockdown as well as travel restrictions in several states in April-May 2021 has resulted in an ICRA sample of companies reporting a 56 per cent drop in revenue on a QoQ basis in line with the rating agency . an estimate. However, the revenues of these companies are likely to improve by 85-90 per cent sequentially in the second quarter of FY 2022, said the ICRA report. Also Read – Is The COVID-19 Pandemic Over? Experts Answer

Premium hotels across India grew in August 2021, rising to 44-46 per cent, as compared to 32-34 per cent in the first five months of FY 2022 (5M FY2022) and 13-15 per cent in 5M FY2021. In comparison, the occupancy level in Q4 FY2021 stood at 46-48 per cent.

As per the ICRA report, rising occupancy is yet to impact the Average Room Rates (ARRs). Pan-India, ARRs were in the range of Rs 3,850-3,950 for 5M FY2022, 25-30 per cent lower than their pre-Covid levels. The Revenue Per Available Cells (RevPAR) figures are also still much lower than the pre-Covid levels.

Some high-end hotels and leisure destinations bucked the trend, however, as their ARRs returned to pre-Covid levels in August-September 2021. The ICRA report expressed hope that the festive season travel will act as a major demand booster for the industry. Q3 FY2022.

Sharing more details, Vinuta S, Assistant Vice President and Sector Head, ICRA Ltd. said: “The first few months were affected but the industry witnessed a faster ramp-up than expected in Q2 FY2021 due to easing of restrictions. High rates of vaccination and lack of demand, resulting in a journey of revenge. In the past few months, there has been a demand for accommodation, weddings and travel destinations from leisure and special purpose groups. The new trend of ‘biscation’ (working from a resort) is also on the rise.”

Continuing his analysis, Vinuta said: “Business travel pickup from specific regions has been primarily to manufacturing locations and project sites.” In the end, she said, “we’re seeing a real demand pickup.”

However, she was quick to add the caveat that “the situation is evolving and the sustenance of demand will depend on the efficacy of the vaccines and a possible third COVID wave.” He concluded by adding: “The industry is currently cautiously optimistic.”

Most markets, especially Delhi, Mumbai, Hyderabad, Jaipur and Goa recorded over 50 per cent occupancy in July-August 2021, but Bangalore and Pune were left behind. ARRs in holiday destinations were above pre-Covid levels in July-August 21. Going forward, ARR will be a function of how much of this rising demand can be sustained.

The pattern of improvement in demand is different than in previous crises, with properties affiliated to strong brands and the luxury segment standing to benefit, as trust and safety are paramount to guests. Drive-to-leisure, lodging, weddings and special purpose groups are expected to drive revenue growth for at least the next year.

International traffic arrivals will take time to pick up. Domestic travel will support demand in the intervening period. Hotels and cities dependent on business travel and foreign tourist arrivals (FTAs) will take a long time to recover.

In terms of supply, temporary shutdowns are possible in the affected areas in the immediate period when the third wave hits. Acquisitions and industry consolidation are the way forward, and rebranding in the mid-tier and upscale segments will add to the share of organized supply. In the medium term, a part of the pre-Covid supply may be permanently suspended, while new properties may come up in leisure destinations.

“The hotel industry is expected to account for at least 45-50 per cent of the pre-Covid revenue in FY22,” said Vinuta of ICRA. “The operating profit going forward in the current fiscal will be supported by better operating leverage and sustenance of some cost-optimization measures taken in the previous fiscal.”

He added that the industry is likely to be able to reach pre-Covid revenue and profit levels only by FY2024. Further, breakeven time is likely to come down as a result of cost-saving measures and hotels may see a return to pre-Covid margin of 85-90 per cent of revenue going forward. “Nevertheless, the situation is still evolving and estimates are contingent on the timelines associated with the pandemic,” she said.

The Loan Moratorium and Emergency Credit Line Guarantee Scheme (ECLGS) provided much needed financial support to the industry during the pandemic.

Around 70 per cent of the entities in ICRA’s hospitality portfolio availed the moratorium during the first wave, though it was only 39 per cent of the rated loans. Some companies raised funding through equity and debt tie-ups before the announcement of ECLGS. The industry has raised equity of around Rs 660 crore in FY21 and has announced plans to raise equity/funds of Rs 3,300 crore in FY 2022.

ICRA is expected to support capital structure reforms by further equity fund raising and asset monetization. Debt metrics, however, are expected to return to pre-Covid levels only in the medium term, while ROCE is likely to remain sub-par cost of capital for at least the next few years.

(with inputs from IANS)

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