India’s huge home market underpins rebound
 
India’s huge home market underpins rebound
14 MAY 2020 7:38 AM

India’s domestic travel markets, which normally equate to 85% of demand, has India well-positioned to recover occupancy, but the rebound will require empathy, flexibility, tough decisions and government help.

GLOBAL REPORT—India, the world’s largest democracy and second-largest population, enjoys a very large domestic travel market, and its hoteliers are confident but stress the need for state and federal help to get their industry and the economy back on track, according to sources.

Speaking at the online conference Hospitality Tomorrow Episode 2, the second COVID-19-era virtual conference organized by Bench Events, Neeraj Govil, SVP of South Asia for Marriott International, said the Indian hotel industry is in for a rough ride.

“To offset the long-term impact of debt, it is important the government considers a one-time waiver to restructure business, to help take the pressure off,” Govil said. “It’s an important ask, but one hopefully under consideration to ensure the long-term viability of assets.”

Govil added there is also a need to formulate “soft capital-flow programs to sustain us over the medium term … while (hoteliers) need to take a look at the medium- and long-term prospects of demand and to right-size our businesses to fit in with the next 12 to 18 months. Then we can grow from there.”

Vijay Thacker, managing director at business advisory Horwath HTL India, said Indian banks have announced a three-month moratorium on all term loans outstanding as of 1 March and that there is the possibility that period could be extended.

Puneet Chhatwal, CEO of Indian Hotels Company and the current chair of the Indian Hotel Association, said he is asking for a 12-month moratorium on interest payments.

Initiatives also are in place for the subsidizing of labor costs, Chhatwal said, who added he has asked for 50% of those costs to be paid by the government. Given the size of the Indian hotel industry, this would benefit the entire economy, even if the percentage agreed to was 33%.

“During the period of lockdown, we ask that some statutory obligations are not charged, such as property and excise taxes—which, for example, have been waived in the United Kingdom—if hotels are closed down by government decree, all the features of a force majeure,” Chhatwal said.

He also has suggested Goods and Services Tax payments should be returned to hotels as working capital if the crisis continues for six months.

“This is the ideal time to push to recognize the industry as a key industry, so as it can obtain cheaper debt and utility costs,” Chhatwal said. “All of this will help as it will provide the liquidity that is needed.”

He added hoteliers still needed to adjust their cost structures accordingly.

“(Hoteliers) have to understand how much debt, a decent debt-coverage ratio, you can maintain over a specific period, as if that does not happen the industry will get a bad name,” he said.

Owner-operator relationships
Govil said it’s incumbent on hoteliers to make the necessary and extraordinary decisions, such as offering their own moratoriums on fee payments.

“Fundamentally, I do not see major changes, but what I do see is a little more flexibility, especially flexing fixed fees to see if they can be done in a more variable model,” he said. “Most fees come from revenue, and there is no revenue. I think we have been more aligned now than we have for a long time.”

Chhatwal said that amounted to a global approach as international brands cannot have different models in different markets.

“Emotions play a very important role, and the foremost is to have a feeling for the owner,” he said. “We might not have had those emotions during normal times, but now they might be on the verge of losing everything.

“Is there any way you can help other than (furniture, fixtures and equipment)? Could we renegotiate contracts, maybe by securing a higher piece in the share of the upside when it does come?”

The panelists said undoubtedly there would be some owners looking for shortcuts, with the crisis really bringing out the relationship and characteristics of any partnership, but that discussion as to survival might also develop additional revenue streams and business opportunities.

“Be genuine and empathetic, clear, and have transparent communication,” Govil said.

New shoots
Thacker said every crisis brings opportunity, and the opportunities in India have come from government repatriation and quarantine schemes.

Big groups are still booking, and that’s encouraging, Chhatwal said.

“Suddenly booked are blocks of 100 rooms,” Chhatwal said. “May has shown some positive green shoots in the last few days, from nurses, doctors, and some real business in secondary markets at the level of our Ginger brand, rather than Taj. It is encouraging and positive, and it has happened in the last 48 to 96 hours.”

Thacker estimated between 12,500 and 14,000 rooms are being employed in this initiative, which is approximately 8% to 10% of the supply.

But despite these flickers of hope, 30% of hotels in India have temporarily suspended operations and are in survival mode, Govil said.

“This will only turn when travel restrictions are lifted and guests feel safer,” he said. “Some reports say globally the peak will not be seen until June, so recovery can only start in July, and for every few steps we make in the right direction, we will take one back.”

If and when that happens, the recovery comes with another major barrier: the monsoon season.

“We have an aggregated portfolio of 20% to 30% occupancy, and for after October to around 50%. That is how we are looking at our business,” Govil said.

Chhatwal said India, as with many other markets, looks to domestic trips to kick-start hotels.

“We might see people taking vacations in their same cities, fed up being locked up in their homes,” he said. “A ‘delight vacation,’ a ‘heavenly escape,’ if you do not call it a secret escape or a staycation.”

Govil said some guests are looking to let their hair down but in the right environment, and that would be followed by short-haul flights, even short-haul regional ones.

“They will make a beeline to brands and destinations that have shown they have the situation in control,” Govil said. “Tier-2 locations will rebound quicker, (such as) industrial and spiritual destinations.”

Chhatwal said another group eager to visit Indian are those holding Overseas Citizenship of India cards.

“There will be a lot of movement, as weddings have been postponed, they’ve not seen the children or grandchildren. There is dissatisfied demand building up,” he said, although he government calls demanding travelers quarantine for 14 days at both ends of their international trips might see such demand being blunted.

“And some Indian states have banned the sale of alcohol,” Thacker added.

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