Tourism is a robust and powerful engine driving a country’s economic, social and cultural functions. Having contributed 9.2% to the GDP in 2018, tourism has been an important earner for the Indian economy, which was down to 6.8% in 2019. Across the globe, the tourism industry appears to have taken the hardest hit due to the COVID-19 pandemic. The impact has been felt across various associated sectors as well, such as travel agencies, tour operators and transportation services to name a few.
According to the World Travel and Tourism Council (WTCC), the COVID-19 pandemic is likely to cost the tourism industry almost $22 billion and a loss of almost 50 million jobs worldwide. Destinations across the world welcomed 900 million fewer international tourists between January and October 2020 when compared with the same period of 2019 as per the latest tourism data from the World Tourism Organization (UNWTO).
The tourism industry incurred a loss of $935 billion in export revenues from international tourism translating to more than 10 times the loss witnessed in 2009 under the impact of the global financial crisis. The Confederation of Indian Industry (CII) has estimated the Indian tourism industry to lose around INR 5 billion during this period, with job losses estimated at 40-50 million. As per official government statistics, less than three million foreign tourists visited India in 2020, a dip of around 75% as compared to 2019 owing to the coronavirus pandemic.
The Tourism mMinistry launched SAATHI (System for Assessment, Awareness and Training for Hospitality industry) in October 2020, an initiative to assist hospitality industry to continue to operate safely and instill confidence about safety of the hotel/unit in view of COVID-19 induced disruptions. It also launched the National Integrated Database of Hospitality Industry (NIDHI) as a joint initiative of the central and state governments in partnership with the hospitality industry. This is a digital platform for stakeholders in the Hospitality Industry to ideate and share best practices as well as act as a tool to connect with government agencies on matters such as ease of doing business. With international travel expected to remain challenging, domestic travel will continue to grow strong.
The current crisis may provide more focus and structured investment to further promote domestic tourism. The informal sector is likely to see a boost with a growing preference for small boutique properties. This may be the best time to focus on key issues of hygiene, service, safety and supporting infrastructure. The next couple of years may help bring a dramatic and much needed change to the domestic travel market. Home to over 200 beaches, 38 UNESCO World Heritage sites and 668 protected areas, India has immense potential.
2020 HOTEL BRAND SIGNINGS
The industry was drastically hit by the pandemic towards the end of the first quarter of the year, leading to Q2, which recorded the least number of signings for the year. In line with previous year’s trends, Q4 2020 saw a significant increase in the signings over the dismal Q2 and slightly improved Q3. But, overall Q1 recorded the highest number of signings for the year 2020.
In 2019, JLL had tracked 208 hotel brand signings amounting to 19,400 keys, which was the highest in the past 5 years. However in 2020, we witnessed a 38% decline in branded hotel signings with 125 hotel comprising of 12,050 keys, against the compound annual growth rate (CAGR) of 7% witnessed between 2016-2019.
One in almost every five hotels signed in 2020 was a converted hotel
Hotel conversions had seen a consistent increase, nearly doubling from 33 conversions in 2016 to 65 in 2019. However, the conversions plummeted to just 29 hotels in 2020 under the impact of the COVID-19 pandemic. Greenfield hotel signings formed the majority of the signings, re-iterating the belief in line with the key industry stakeholders that the investments in the greenfield stage would be least impacted, given the predictions that Revenue per Available Rooms (RevPARs) are likely to return to pre-COVID levels by the time the current greenfield projects would reach the operations stage. International hotel chains came at par with domestic chains in terms of converted hotel rooms, stacking at 50:50, showing increased flexibility to sign smaller sized hotels.
Portfolio deals took a back seat
2020 witnessed a slowdown in hotel signings and a number of deferred openings, with hotel owners focusing primarily on keeping existing hotels afloat. There were no large portfolio conversion deals, unlike previous years. However, the Ambuja Neotia Group signed 3 hotels (a conversion of the Swissotel Kolkata and 2 greenfield hotels in Kolkata and Patna), adding in to their existing planned projects of two resort projects in Darjeeling and Gangtok under the Taj brand.
The extended uncertainty in the market led to a more cautious approach on large scale investment decisions in the year. Breaking up the signings for the year, domestic chains signed a higher number of hotels while in terms of total number of keys, international chains just fell marginally behind. The average number of keys per hotel signed by the domestic operator was 87 higher than 68 in the previous year, while international operators averaged 108, much lower than 140 keys in the year prior. This once again reflects increased flexibility from international chains to sign smaller sized hotels to increase their penetration in the industry.
Traction spreads to tier 2 and tier 3 cities
In line with a growing trend over the previous years, tier 3 cities have seen the maximum number of brand signings. The average keys signed per hotel are 137, 97 and 79 in tier 1, 2 and 3 cities respectively. In terms of the geographical preference in the 2020 signings among the domestic and the international operators, the ratio is 48:52, 43:57, 61:39 inventory volume-wise.
Domestic chains dominated tier 3 cities, while international chains lead the way in tier 2 and marginally in tier 1 cities too. International chains have further become more flexible in their product offerings to focus on gaining larger penetration in the Indian hospitality market. Other than the various soft brands launched in 2019, 2020 witnessed the launch of more curated brands to appeal to the wider owners as well as the guests’ spectrum such as Radisson Individuals by Radisson Hotels Group, Novotel Living by Accor Group, Zone Connect by Zone by The Park of Apeejay Surrendra Park Hotels.
Hotel management agreements maintained the lead as the most preferred route of operation, by accounting for 70% of the hotel brand signings in 2020, followed by franchises for 26%. While leases comprised only 4% of signings, we are now seeing certain operators restructuring their models and exploring various formats such as revenue shares, rather than just the traditional fixed lease model.
Leisure destinations saw significant traction in 2020
Commercial destinations dominated hotel brand signings constituting approximately 51% of the total signings inventory-wise, recording a downfall of 48%. Leisure destinations comprised 37% of the total signings in 2020, with just a 22% decrease in comparison to the previous year.
The interesting finding is that the signings in the religious destinations increased by 25% in comparison to an year ago. Religious destinations contributed 11% of the total signings. Developers are increasingly looking at emerging leisure and religious destinations- Haridwar, Rishikesh, Jaisalmer, Bodhgaya, Katra, Amritsar, Udaipur, Shimla, Dharamshala, Ayodhya, Dwarka, Mussoorie, etc. Even national parks such as Jawai, Tadoba Andhari, witnessed increased traction over the previous years.
Gradual return of confidenceÂ
Overall, development activity had stalled for most parts of the year in 2020 but the gradual return of activity is anticipated each passing quarter in 2021. The healthy improvement in occupancies of key markets in the first two months of the first quarter is the most trustworthy indicator of return of demand and confidence in the hospitality sector in India.
The deferred opening of hotels earlier planned to have opened in 2020, may result in staggered opening of hotels with partial inventory keys and F&B facilities over the next couple of quarters in 2021 to keep costs under control and benefit from the shoulder and peak seasons of room nights and social MICE (Meetings, Incentives, Conferences, and Exhibitions) demand.
Hotels in leisure and religious destinations will remain in more demand than the destinations that are purely driven by the business segments alone. It may happen that the number of already stalled projects may get delayed further, with the need of change of ownership or debt restructuring. Looking ahead, demand fundamentals across leisure and religious destinations chart a positive momentum for hotels and we expect developers will take an optimistic approach towards new development in such destinations.
