Hospitality: Is the Turnaround for Real?

Despite the Omicron Caronavirus scare in January 22, the bounce back across hotels has been nothing short of spectacular. While leisure properties have continued their remarkable turnaround, city hotels have picked up on the back of a massive rebound in air travel and the return of business travel. by Gagan Randev

For all of us, Covid was a once in a lifetime event which changed the way we lived, interacted, and worked. For the Hospitality and Travel industries, this was all this and so much more. In 2020 and large parts of 2021, it seemed that these sectors (which according to some sources employed 55 million people directly and indirectly in India), were in for a perpetual slowdown. Hotels – which on an average clocked about 65% occupancy in India in 2019 were down to 30% occupancy levels in 2020 and slightly higher in 2021. Airlines had benched 60-70% of their fleets. International travel was dictated by Government mandates. Travel as we knew had ceased to exist.

Despite the pandemic blues, there were a few bright spots in 2020 and 2021 – Resorts and holiday destinations clocked their best-ever seasons as lockdowns receded. The hills, holiday locales and ever favourite beach destination, Goa, saw bookings through the year and resorts in holiday destinations clocked their best average room rates (ARR) and occupancy rates. Business hotels in the cities though, continued to feel the heat, averaging 30% occupancy rates and ARR’s which were 50% and even lower of pre-Covid levels. This meant cost cuts across the board,

| Sikar Fort 200-year-old fort in Sikar, Rajasthan, exudes luxury coupled with rustic charm in every inch of 24,280 (approx.) plot size.

Property ID: P7YRS2 on SIR.com

staff layoffs and furloughs. It seemed at that time, that any meaningful recovery in this segment would happen gradually and only by 2023 and beyond.

The recovery, however in 2022, has been incredible, proving the best of pundits wrong. Despite the Omicron covid scare in January 22, the bounce back across hotels has been nothing short of spectacular, and its accelerating month on month since then. While leisure properties have continued their remarkable turnaround, city hotels have picked up on the back of a massive rebound in air travel and the return of business travel. A world that got used to working and socializing on zoom and google meet, was itching for physical handshakes, and meaningful travel with family and friends. The Ministry of Civil Aviation indicates that domestic passenger departures have almost reached pre-Covid levels and the queues to get into the Airports, to check in and at the Security remind us of the pre-Covid days.

Latest industry figures on city hotels reveal that occupancy is back to pre-Covid levels on a month- to-month comparison vs 2019. While average ARR’s are slightly lower than pre- Covid levels, these are catching up fast. For luxury leisure hotels though, the average rates have shot up to exceed pre-covid levels, such is the pent-up demand. The big Indian weddings slightly curtailed in size, have also made a comeback as have conferences with banqueting demand, all which augur well for the hotel industry. A recent report from JLL “Hotel Momentum India” shows operating revenues of Hotels in the top 5 metros 40% higher and ARR’s 70% higher in Q2 2022 vs Q1 2021 showing the strength of the rebound.

Our estimates basis hotels that we work closely with indicate, that city hotels will log 2019 and higher revenue

levels in 2022 with lower cost, making the bottom-line at a gross operating profit level, superior to 2019.

Here’s a quick look at some of the trends we foresee:

l Business travel and business conferences will stay robust and city hotels will keep improving all three vectors – occupancy, average room rent (ARR) and profitability l The average business trip is becoming longer while less frequent – the overnight trip will stretch to 2 nights. People will club travel, to ensure they do more on a single visit. l The occupancy levels over weekends for city hotels will see a marginal rise thanks to the new trend of staycations and evergreen weddings. l Leisure destinations will continue to do very well but prices will moderate given the great overseas outbound travel we are seeing, though the experience of excruciating delays for a Visa, the harrowing experience at European airports are souring some of the excitement. l Hotels are finding it difficult to hire back staff quickly and train them. So be prepared for short staffing and some indifferent service and some frayed nerves. l We will see an upgrade everywhere – Travellers will by and large upgrade their hotel choices for hygiene reasons; Hotels will upgrade facilities and invest in high tech safety measures to manage customer perceptions. l International business travel will be the next big ARR bumper, as business travel into India picks up pace. September to March have always been peak travel months for international travellers to India as the weather turns pleasant. l We will see more confidence in large gatherings which will bring back large MICE/Conference bookings.

All these portend good tidings for hotels in India. Barring another severe Covid variant and wave (which seems more and more unlikely), we are excited by this asset class and the investment opportunities in it. Hotels are making a comeback as an investment class and there’s a spurt in M&A activity – in fact investment managers at an ANREV (Asian Association for Investors in Non-Listed Real Estate Vehicles) conference in Asia, have voted for hotels as their most preferred investment choice for the next couple of years, even more than warehousing, data centers and offices. They see a strong growth in the sectors’ profitability. We expect accelerated new hotel signings and the emergence of new themed hotels as a segment. Chains are looking at bringing lifestyle brands to their portfolio offerings in India. According to us, 2023 should be a bumper year for hotels in India.

Sikar Fort

This 200-year-old fort in Sikar, Rajasthan, exudes luxury coupled with rustic charm in every inch of 24,280 sqm (approx.) plot size. Located in the historic Shekhawati region, this property has stood for over a century.

Abundant living spaces with intricately designed & restored sections of the home take you to a different era, while maintaining all modern amenities. There are 10-bedroom suites which are graceful and breath-taking in their pristine white themes and vintage furniture. There is also a private wing with 3 bedrooms with en-suite bedrooms to ensure further privacy.

A meticulously maintained garden with plenty of outdoor seating options overlooks the 18-meter swimming pool. An organic vegetable garden and orchard adds to the appeal.