Keshav Baljee, MD, Spree Hospitality shares his insights on the post Covid-19 scenario in India
Just like you I’m fed up of reading articles on COVID. I decided to step away from the deluge of Whatsapp forwards, news alerts and TV news circuses, and take a few days to think about how this crisis will impact our industry, especially right here in India.
Our industry is one of the largest employers in the country, and also the world. This is despite us not punching anywhere close to our weight in global tourism. Still, we have crores of employees whose future is now at risk due to Covid-19 and the lockdowns.
We have come out of a long slowdown extending almost since the Lehman crisis of 2008. We have had a massive amount of supply hit the market, and this was followed up by disruptions by OTAs and aggregators. In addition, a deluge of illegal guest houses, apartments, villas, and the like have massively raised the supply of available rooms in each city, thereby impacting rates. This has also made the organised industry suffer due to our higher costs of compliance.
We had started to see some green shoots in a few cities, as the supply started to get absorbed, and we also started to notice the RBI reducing its rates. The hope was that EMIs for existing hoteliers would soften, room rates would harden, and we would finally start getting better margins.
On the F&B side, we have seen a trend of consumers preferring stand-alone restaurants to those in hotels. In addition, delivery services, with their huge wallets have pumped discounts into the market, taking share from restaurant dining. VCs and foreign funds were pumping in capital in F&B, technology, hospitality, and the ordinary industry was getting disrupted. But now that the tide is out, the hoteliers are still around, and it seems like a few of these so-called disrupters may need emergency cash infusions else they may perish.
Hoteliers, by nature, are passionate about their business. Why else would we be in an industry that delivers sub-par returns for decades? We just love all that hospitality entails, and we are not going anywhere. It will take a lot more than a virus to get us out of this industry.
With that being said, our industry is going to change quite dramatically, just like it did after 9/11. The post 9/11 world made hoteliers invest in baggage scanners, door frame metal detectors, bomb sniffing dogs, and in more security cover.
What will the post Covid-19 world look like?
The kind of investments we may have to make for the physical aspects of our hotels:
- Temperature Scanners at our door, to complement our door frame metal detectors
- Masks being worn by all frontline staff, at least for the near term, and for the long term by security / valet staff who are greeting customers before they have been scanned
- A focus on hygiene, and sanitisation of all surfaces, possibly even multiple times a day. Hotel design changed after 9/11, and material selection may also change after Covid-19. We would like to see materials that can be sanitised easily to ensure we don’t spread viruses.
- UV sanitising may start getting popular. All guest luggage will have to be sanitised before entry to the hotel. Will the baggage scanner get an attachment for this?
- In addition to guests, staff will have to be screened more carefully in future. Staff with colds, coughs or running temperature will not be allowed on the premises until they get well. Housekeeping staff may also have to wear masks and gloves all the time while cleaning as they could be exposed otherwise.
- Laundry will have to incorporate more intense cleaning. This might affect our linen shelf lives, or we may have to change our linen standards.
How travel will change post Covid-19
Domestic airports will open first, with social distancing being followed in airports and within aircraft. I am unsure how airlines will be able to survive on such low load factors, as they are already quite cash strapped. Unless there is some sort of bailout, we may first see the grounding of one, or even two airlines.
If there is a grounding of an airline, a lot of UDAAN based destinations, or single-airline destinations will lose their air connectivity, and that will have a direct impact on hotel bookings. The fall of Jet Airways drastically affected a few cities’ occupancies last year, and we need to brace for something like this happening again.
If the airlines somehow survive, their throughput will be quite low due to social distancing, and also the fear factor amongst consumers. In addition, pockets of the country will continue to be locked down as they still be battling the virus. Therefore demand is unlikely to come back in a hurry for some months, if not at least a year, or more.
Business travel is likely to start first, as pending business trips, business deals, and face to face meetings that needed to occur will happen. I myself have so many cities to visit, new employees to meet and on-board, and deals to sign. None of this can be done offline, no matter how good video conferencing has gotten so far. I’m hoping that business travellers will travel to restart their businesses, and this will lead to occupancies in mid-market and business hotels. Luxury hotels with their international traveller bias might be slightly hit, and they might lower their prices to compete with the mid-market sector for a bit.
International business may restart shortly, hopefully with the intent to establish new manufacturing bases out of India, as a means to diversify companies’ supply chains. We think this might happen, and we are hopeful for a pick up after January.
Domestic tourism might pick up aggressively. Locations which are a short drive from a large city should benefit first. People have been cooped indoors for months (by the time the lockdown ends), and will head for the hills, or the beach. I doubt large theme parks, and crowded destinations will benefit at first. The crowded destination that will definitely be recession proof will be the temple towns and religious destinations. Airline dependent domestic destinations will benefit next. Goa may actually gain share which it has lost over the years to Sri Lanka, Thailand and Dubai. As international travel will be onerous due to restrictions, and likely more expensive in a year where everyone has taken a financial hit, I feel Goa may actually start to pick up a little bit. The flip side is that a lot of people will be conserving cash, and licking their wounds, if they have been laid off, or had a pay cut.
International tourism is likely to recover last, and with a lot of restrictions at first. Visas may become onerous, and difficult to get. People may need to show antibody tests (to show they are Covid-19 free, and unlikely to infect others, or get infected themselves), possibly just like the yellow fever shots one has to take before going to some parts of Africa. Will Visa on arrivals survive Covid-19? I’m not sure. The only silver lining here is that India has not relied too much on international tourism to fill our hotel rooms.
Airports will likely be a difficult place to get through. With security we may also now have medical checks. With social distancing, the airports will have to reduce their capacity, and with all airports already capacity constrained, this will be an interesting sector to watch. Will this lead to a different type of airport being built?
One other point to make – cruises are likely to be unpopular for a while, which is another possible international holiday off the table for our consumers. This may mean the opening of new domestic tourism destinations.
New hotel projects
In all this, I truly feel for those who are constructing hotels with debt. With the outlook changing so dramatically, I would not be surprised if a quite a few under-construction hotels decide to shelve the project. If a hotel is nearly ready though, it’s likely to be too late for that, and they will have to plough on and open with different return expectations.
For those who are leasing hotels, Covid-19 is likely to result in a hectic period of negotiating with one’s landlord. People are in hectic parlays with lawyers, trying to see if Force Majeure or the Doctrine of Frustration applies to their particular case, and if so, how they can benefit from the same. I’m sure landlords won’t want their hotels going empty at this point of time, but there are quite a few of them who will be happy to be rid of their current tenants, so this is likely to be an interesting time. There is also a flood of hotels which have been built for aggregators’ minimum guarantee model, and with this assurance now going away, these hotel owners are looking for new operators, or will likely self-operate, or re-purpose the hotels for other uses. Co-living may be a beneficiary of all this, as landlords will prefer the stability of long-term rentals to the vagaries of the hotel leasing market. As it is, most of these hotels are built under residential use zoning, so co-living could be a natural option. In the end, a lot of landlords and operators will lose money, and quite a few lawsuits will come out of this. I am hoping the government steps in and helps before this, but it looks unlikely as of now.
The question then begs to be asked: Who will build a hotel again, if there are limited folks out there who can pay a fixed lease. The returns over the last decade have been abysmal (sub FD rates), and the risk has been off the charts. This is a losing proposition as of now, and everyone in the eco-system will be scratching their heads to try and discover a business model that makes sense.
For branded operators and chains, this is likely to be a testing time! A lot of purpose built hotels for operators have been built, and a lot of chains will be unable to fill these hotels. Chains are likely to be safeguarded by Force Majeure though, and while they may have to forego fees and trim their corporate staff, they will certainly gain market share in this carnage. These days everyone is asset light, and it seems like that trend will continue.
The cash flow
How will hoteliers now look at leverage and risk? A lot of conservative groups keep 6-12 months of cash flow in the bank at all times. This hurts your return ratios in good times, but prevents business failure in times like these. I am hoping our industry becomes more conservative and stocks up on cash in good times, as bad times seem to check-in without any warning!
We may also review our cash conversion cycle. For too long we have been giving credit for months to our clients. We can scarcely afford this at this stage, as all of us are running pillar to post to collect during the lockdown. Clients who haven’t paid despite having the cash should hopefully be put on cash and carry basis post the lockdown. The industry will need to band together on this to survive.
Organised hotels can use this time to focus on hygiene and sanitation. This is the brahmastra to fight the unorganised sector. Will someone taking their first post-Covid-19 vacation trust an unlicensed apartment, or go for a hotel which has clearly publicised their cleaning and sanitary processes? Hotels, focus on training your staff, and hopefully we shall all gain new customers who are now connoisseurs in the importance of hygiene!
The impact of the pandemic on our consumers
I believe there will be a general wariness of public spaces for some time. This feeling will be enhanced due to the fact that people will be wearing masks, and there will be all kinds of testing going on at all entry points to public places. Will restaurants suffer due to this? Sadly, of course. Delivery may benefit for some time, but I am hoping that people will return to their favourite bars and restaurants soon!
People have also gotten used to using video conferencing and are getting business done during the shut down. This has caused people to even question why they need office space when they can have their workforce work from home, and instead have temporary all hands meetings each month. Is this a business opportunity for us?
The fear is that non-essential travel will be indefinitely put off once people get used to video conferencing, and once collaboration apps are in everyone’s cell phone. This is a valid fear, and business hotels must be on their guard. I feel luxury hotels are more insulated in this regard, as decision makers and deal makers will need to have face to face meetings, plant and office inspections, and the like. I still believe that face to face meetings have serious value, and that business travel is not going away any time soon.
Banqueting has been a saviour for a lot of hotels over the last few years. My fear is that no one will want to wear a mask along with an Achkan, and dance in a baraat. Will this make weddings family-only affairs for a short while? Possibly. But hotels can also cater to these smaller functions as no one has the bandwidth to cook at home for a wedding. The wedding market may temporarily shrink, but it will come back with a bang soon. It might need a Manish Malhotra designed mask to match the Achkan, but it will be back!
We are hopeful that the government will intervene soon with a large financial package for our industry. We have high hopes, and yet the government has never really prioritised hotels for some reason. This is the time to set the past wrongs right!
I think there will be significant pain in the next year for those who work in the hotel industry. This is heart breaking, but a likely outcome of crisis, and the poor near term outlook for hotels. The good news is that the trained hospitality cadre is always going to be in demand, whether in hotels, retail, facilities management, real estate, or even abroad. I do hope the state and national governments come out with a package for our industry soon to shield the workforce from pain.
These are some of the thoughts I have about the hotel industry post-Covid-19. I was speaking with my family about what they wanted to do once the lockdown was lifted, and nearly everyone said they wanted to go on a vacation! This made me smile, and I’m hoping all our troubled hoteliers will have a smile on their faces soon.
My sincere appreciation for the hoteliers who are doing their best in this time of need by cooking food for migrants, sheltering doctors, extending their hotels for quarantining travellers, and trying whatever they can to be useful. It just shows our mettle. We shall overcome!