Union Budget 2022
The Union Budget 2022 considered some of the recommendations made by industry
stakeholders to the government at various forums, among which the extension of Emergency Credit Line Guarantee Scheme (ECLGS) till March 2023, and the expansion of the guarantee cover by INR 50,000 crore to INR 5 lakh crore, with the additional corpus
exclusively earmarked for the hospitality and related segments, will bring some much needed but short-term respite to hospitality players.
Moreover, the government’s greater focus on large-scale infrastructure development,
including roads, railways, airports, ports, and waterways, will aid long-term growth
in the tourism and hospitality sectors. For instance, the introduction of 400 new Vande Bharat trains over the next three years, as well as the development of 25,000 km of new
highways this fiscal year, will improve last-mile connectivity to several tourist destinations in the country.
Furthermore, infrastructure development in northeast India is a focus under the new Prime Minister’s Development Initiative for Northeast plan, which aims to encourage the region’s growth. Meanwhile, the proposed development of eight new ropeways under Parvatmala
scheme as an eco-friendly alternative to regular roads, will increase connectivity in hilly areas, which are seeing high demand from tourists.
Hotel transaction volumes are expected to pick up pace in 2022
As lenders seek recourse under the National Company Law Tribunal (NCLT) due to an increase in non-performing assets (NPAs), we expect to see greater deal activity in 2022 and
onward. Due to the rapid recovery in domestic leisure demand, interest in acquiring assets in leisure markets will surge, especially as supply remains restricted in this segment.
Investors are likely to prefer operational assets or portfolio of assets to expand their footprint rather than greenfield or brownfield projects. Also, value deals where the lender and owner have both taken haircuts are the most likely to find buyers.
The Way Forward
As the sector continues to rebound in 2022 and beyond, here are a few trends we anticipate hotel operators will give greater attention to, in the year ahead.
The ancillary revenue revolution is here to stay
The hotel sector’s focus on ancillary revenue will gain momentum, with more radical revenue generating avenues gradually finding favor. There are numerous ways to use existing infrastructure to create new revenue generating opportunities, ranging from monetizing parking spaces, deploying electric vehicle (EV) charging stations, creating dedicated areas for co-working, leasing kitchens for cloud kitchen requirements during non-peak hours to even developing hotel’s signature merchandise and souvenirs.
Diversified revenue streams will enhance customer engagement and brand loyalty, boost real estate revenue per square foot and safeguard the property’s revenue generating capabilities from unexpected events in the future.
Partnering with branded restaurants
especially for midscale and upscale hotels.
Restaurant operators can benefit from the hotel’s captive clientele, location benefits and brand image, while hotels get an opportunity to elevate customer experience by becoming a ‘destination’ for hotel guests and locals, resulting in higher food and beverage revenues and profitability.
Attracting and retaining the right talent will become a priority
The hospitality sector has long struggled with a shortage of trained workforce and high attrition rate, with the situation getting worse post the pandemic. Skilled and trained manpower will be a growing challenge both in terms of availability and cost.
To attract and retain talent and improve ROIs, hotel management teams will be forced to redefine SOPs, cross-train and multi-skill employees, improve remuneration standards, enhance staff facilities, adapt flexible engagement norms, and work toward delivering
more with less and increase the usage of technology.
Hotel designs will undergo changes
Hotel designs, especially in midscale and lower segments, will align towards a more modular structure that can be efficiently partitioned into smaller operating units in the event of any disruption from pandemics or similar events in the future, resulting in lower operating costs during the disruptive period.
However, we expect hotel designs in luxury segment to become more bespoke and
boutique, especially in leisure destinations.
Moreover, future hotel designs will also be influenced by the advancement of smart tech and other technological aspects.
Debt rationalization will be a key focus area
Hotel owners and operating companies will revisit their debt liabilities and strive to rationalize and reduce the same, having learned the hard way during the pandemic, when
companies with the largest debt servicing liabilities were impacted the most and struggled
for survival.
Soft brands will become a norm
Soft brands that can comfortably accommodate conversion of unique, experiential independent hotels that do not comply to traditional hard brand standards will thrive, as the opportunity to grow through conversion gathers momentum.
An increasing number of standalone hotels are keen to join larger chains to not only recover from the disruption caused by COVID, but also to leverage their global distribution channels, marketing platforms, and high-tech booking systems. Moreover, regional boutique brands will also gain prominence and expand their presence.
Alternative accommodation will disrupt the hospitality industry
Alternative accommodation products such as homestay or villa rentals will grow exponentially, as these have piqued the interest of travelers who are opting for smaller, more intimate places for their getaways.
Travelers benefit from greater privacy, flexibility, and convenience, especially when traveling in small groups or with families and pets.
