Ray of hope for the hotel industry

The hospitality and tourism industry continued to suffer from the impact of the slowdown, which had set in from October-November 2008, for most of the past year. Its woes were further escalated by the after effects of the Mumbai terror attacks in November 2008.

The industry sulked that the government did not extend a relief package despite several appeals to the commerce and finance ministries.

The industry had a pretty bad time till October 2009. “Revenues on average were down 40% for hospitality players over the same period the year before. The average profit after tax (PAT) was down 75% for the sector while the average room rates (ARR) took a 40% hit,” says Vivek Nair, vice-chairman & managing director, Leela Hotels & Resorts and honorary secretary, Federation of Hotel & Restaurant Associations of India (FHRAI).

But the last four months have showed some positive signs. Players are seeing a year-on-year rise in occupancy levels by almost 85% across hotels in business destinations.

Pradeep Kalra, senior vice-president, marketing, Sarovar Hotels & Resorts, however cautions that recovery in terms of revenue has not been in tandem with the rise in occupancy levels. In an industry where the topline is decided by the occupancy and ARR, the latter has not pulled up to the previous peak levels.

“In this industry, supply is perishable… when the drop occurs, it is a sharp plunge, but the rebound is a slow process,” he rues.

For instance, ARRs, which had been ruling at around Rs 18,000 per night in the premium segment in the metros at the peak, had crashed to Rs 10,000 per night during the slowdown. But, they have recovered to around Rs 13,000-14,000 levels now.

In the mid-segment, ARRs had gone down to around Rs 3,500 from Rs 4,000-6,000 levels and above. But these have recovered by around 30%.

The mid-segment fared relatively better because, in a time of crisis, companies tend to cut costs and scale down from luxury to affordable room tariffs.

Thus, if the shrinkage in the luxury space was around 25-30% during the first half of the current fiscal, it was around 15% for the mid-segment.

Meanwhile, hotel majors are confident that the buoyancy felt over the last four months will sustain through 2010, but with riders:
a)   The political situation remains stable. The US has of late issued a caution advice that may deter its citizens from travelling to India.
b)   Airfares, which had nosedived, don’t go up any further. They are already up around 15% over their lowest rates.
Though the increase in the number of domestic tourists is encouraging, here too fare yields have been lower.

According to the Travel Agents Federation of India (Tafi) president Pradeep Lulla, domestic tourism surged 25% in calendar 2009 compared with the previous year. Even international travel, figures of which have not yet been released, is expected to have seen a growth of around 15%. But fare yields have been 15-20% lower in the domestic sector and flat in international travel due to lower fares offered by carriers.

But the travel industry is bullish on 2010. Agents across the country are witnessing a 10% rise in bookings for the April-June period. Moreover, many international and domestic airlines are offering advance bookings. Say, if a passenger buys a ticket in January, 2010, it will be valid till March and till May in certain cases.
“Advanced tickets are being offered at a discount of 15-20% and this should push up sales,” said a travel industry expert.

Again, the travel industry is praying for economic and political stability. “Look at what’s happening in Australia or Goa,” said Lulla.
“Developments such as these prove highly negative for the travel industry since people start looking upon these places as unsafe. Now, even domestic tourists are wary of visiting Goa,” said a Kolkata-based travel agent.