Battles
The most memorable battles in history have been won not by the strongest, not by the largest, not even by the smartest. The victors of epic wars have been those who fell down and then got back up. Those who were bruised, but not broken. The might it takes in rising after one has been brought to their knees is herculean, and not everyone has the mettle to bounce back. Those who do possess this strength, those rare few, they write history!
The past fifteen months have witnessed a rollercoaster of events, with circumstances never imagined and a plethora of unthinkable situations. The pandemic has very likely left no human being on the planet untouched. From global lockdowns (many of which continue to this day), to multiple waves of mutated virus strains that have already taken almost three million lives, COVID-19 has definitively altered our societies and economies.
As a species, we have all experienced shock, awe, despair, helplessness, exasperation, even resignation to the fact that this state of affairs may well last indefinitely. The loss of life has been heartbreaking. The loss of livelihood has been immense. Tens of thousands of enterprises, big & small alike, have folded. Supply chains have been disrupted, currencies impacted, all industries, sectors, professions, and crafts brought to varying degrees of ruin.
Among those that plummeted the most are the travel, trade, and tourism industries. Aviation and Hospitality have borne a kick to the shin that was extremely painful and debilitating. While many businesses in the Indian hotel sector have been pushed to their knees and some have indeed suffered far too much to expect a recoup, efforts by others have not only displayed the true meaning of perseverance, but also reinforced the belief that the battle, no matter how impossible it may seem, is not lost until you choose to give up.
Malleability, or the presence of mind to acknowledge a change in circumstances and to then alter the game plan swiftly, and decisively, has almost always been key to survival. India’s hospitality sector has, with little to no help from external bodies, worked towards adapting. It was punched in the gut, it got back up and it is continuing the bout.
Through both primary and secondary research, Hotelivate has gathered performance trends for more than
140,000 existing, organized rooms as well as a confirmed supply pipeline for almost 35,000 rooms across the country. This comprehensive publication, a first of its kind, sheds light on the facts that have defined the last four quarters during the pandemic; it compares various trendlines against pre-COVID years and it tables our estimation and objective view on the recovery path ahead. This report provides perspective on how performances varied by positioning as well as by markets. Data driven analytics form the basis of this publication and we hope to aid the industry’s recovery process by sharing insights that may prove useful in defining the path forward.
The Big PictureÂ
FIGURE 2. NATIONWIDE OCCUPANCY % AND AVERAGE DAILY RATE
This macro chart provides the broad metrics of nationwide total rooms available, total rooms occupied, average rate and the occupancy percentage across several years. The up cycle of FY16 through FY20 displays a linear growth across all parameters, typical of maturing markets where supply and demand grow in tandem. A marginal dip was witnessed in FY20, owing to the early impact of COVID in February 2020, followed by the sudden and abrupt drop in occupancy through March, culminating eventually in the nationwide lockdown of March 23rd, 2020.
The story of FY21will remain one for the books, of course. It is our estimate that the year would have closed with a nationwide occupancy of 33.8% and an average rate of Rs 4013, representing a close to 50% decline in occupancy and a 33% decline in ADR over FY20. All organized rooms available (even if they were closed during the lockdown) have been accounted for in the arrival of this estimate. It is noteworthy that over 5000 new rooms opened across the nation in this fiscal. A more detailed scrutiny of the four quarters of FY21 is presented later in this report.
Hotelivate has also performed a logic driven forecast of the next two years, with an aim to approximate the likely nationwide occupancy and average rate. Both demand re-growth as well as new supply (much of it being pushed out due to the pandemic) have been assessed. Nuances and peculiarities of the various markets across the country have been appraised. Inbound as well as domestic travel ramp-up has been weighed. It is our opinion that FY22 shall clock about 52.7% occupancy at an ADR of Rs 5016, while these numbers for FY23 are likely to be 64.9% occupancy at Rs 5618. These estimates, especially for FY22, may need a downward correction if the recent surge in COVID cases witnessed over the past 10 days continues through Q1 of this new fiscal.
Pertinent to note here is also the fact that while the FY23 occupancy may appear to be lower than the pre-COVID occupancy of 65.4% (FY20), the absolute amount of room nights sold will be higher, given the new supply that is probable to open between now and the end of FY23. Overall, we are expecting the occupancy to breach the 65% threshold only by FY24, while we are of the view that pre-COVID ADRs may be achieved by FY25.
We looked at two data points, closely related to each other in terms of their patterns of performance. Air traffic across the country (both in absolute & percentage growth terms) and occupancy growth (in percentage terms) in the organized hotel sector have been plotted in Figure 4. While air passenger traffic grew between 11% to 18% (or between 33 million to 44 million passengers annually) from FY16 to FY19, it decreased by 1.1% in FY20. Lockdowns across the globe through the first half of FY21, followed by a slow-paced revival of air traffic during the second half of the fiscal year have led to a decline of 70% in air passenger traffic (almost 240 million fewer passengers) during the COVID year. While over two thirds of this decline is expected to be reversed in FY22, we expect the number of passengers to reach pre-COVID levels only by the close of FY23 or mid FY24.
This data, when plotted against the year-on-year change in nationwide occupancy, throws out two observations. While air traffic was growing faster (in percentage terms) because of the fast-growing aviation sector, the hotel industry was in a relatively stable state of performance and new supply kept a large percentage occupancy growth at bay. Conversely, the aviation sector saw a bigger plummet than room night demand during FY21, with the hotels being somewhat aided by quarantine guests and frontline workers related business as well as Vande Bharat related demand during the first half of the fiscal followed by drive-to destination leisure travel that witnessed a surge during the third and fourth quarters of the fiscal.
Going forth, in our view, both aviation demand as well as room night demand are likely to revert to normalcy in a similar time period of two to three years from now.
Figure 5
As is evident from Figure 5, while India’s Top-10 hotel markets represented almost 70% of the nation’s organized inventory just five years ago, the trendline shows a steady year-on-year decline in this percentage, with a 10 percentage points drop expected over a 10-year period, by FY26. Again, to be clear, the absolute number of rooms will have certainly increased (from 76,743 to 107,644) in this period. However, the fact that they would represent a lower percentage of total rooms highlights the continued growth of organized supply in the nation’s secondary and tertiary markets. In fact, if one were to calculate the percentage of new, confirmed supply opening doors for business in the top-10 cities over the next five years, it would be just 40.1% of the total new supply coming up.
Performance by Positioning
Figure 6 presents the nationwide performance of organized supply, by positioning. Luxury hotels have their own graph. Upscale and Upper Upscale hotels have been displayed together, as is the case with Midscale & Upper Midscale as well as Budget & Economy hotels. While the economy segment is likely to have closed the COVID year with the lowest occupancy, midscale hotels witnessed the least erosion, relatively speaking. Confirmed proposed supply across positioning, coupled with the likely resurgence of demand over FY22 and FY23, is intrinsic to our forecast of performance. When viewed in these four graphs, recovery is likely to take a little over two years and the pace, across positioning, may appear to be largely similar. However, a more relevant scrutiny of how occupancy and ADR shall change is presented in Figure 8.
It is interesting to observe that hotels on both ends of the spectrum (Economy & Luxury) bore witness to not just the steepest declines but are also likely to attain the sharpest improvements. Early signs of this already became visible in Q4 FY 21, as business travel related demand resumed first in the budget/economy hotels on the one end and discretionary transient leisure picked up pace across luxury hotels and resorts. Most Upscale and Midscale hotels in India are present in urban environments, many of them dependent on corporate transient as well as business MICE travel to resurge. The absence of meaningful inbound travel (which is largely corporate again) adds to their woes. A majority of the nation’s organized inventory sits in the Mid and Upscale space (as displayed in Figures 9 and 10) and shall witness a recovery that is marginally slower than the hotels at the top and bottom of the pyramid.
Performance of the Top-10 citiesÂ
Figures 15, 16 and 17 on the next page provide the five-year historical, COVID year as well as the two-year forwardlooking performance of India’s top 5 largest hotel markets. The gateway cities of Mumbai and New Delhi are most likely to rebound faster than the highly IT business dependent Bengaluru. That being said, Mumbai (and Maharashtra at large) is dealing with a sudden and rather massive surge of COVID cases in recent weeks, thereby dampening the chances of a recovery in the immediate months ahead. Goa benefited from a promising winter in 2020/21; however, fear of a prolonged second wave may impact the performance in the first half of the fiscal year.
Overall, the major markets have a two-to-three-year recovery cycle ahead, which is in line with our view on the larger nationwide forecast.
Figures 18, 19 and 20 provide similar data points for the next five biggest markets in India. Kolkata has long been a relatively stable market with minimal crests and troughs. As it heads back towards recovery, we expect it to reach pre-COVID performance numbers faster than its peers in the graphs above. Pune and Hyderabad, much like Bengaluru in the previous graphs, would have to contend with a slower and more prolonged recovery period.
Gurugram is also expected to have a slower paced bounce back, especially when compared to New Delhi, attributable partially to new supply pressure over the next two to three years. Lastly, Jaipur’s loss of Inbound travel is being somewhat compensated by the expected rise in social MICE demand, which may be its saving grace till such time it is able to welcome guests from other countries again.
Taj Rishikesh
