India Lodging Industry shows strength in adversity

Indian Hospitality industry surprised us in the second half of 2020

India as a country thrives on a strong domestic travel market. It is this domestic demand that has been a lever of growth for hotels in the last many years. The one thing that the pandemic has changed, is the mix of this demand. The majority of India’s domestic demand through the growth years was driven by corporate business, but tables turned in the second half of 2020 with a growing number of Indians traveling interstate for leisure. This trend was seen around the world and is not exclusive to India travel patterns during the pandemic.

The government’s first phase of unlocking the country in June 2020 was met with a sharp increase in hotel occupancy in select gateway markets on account of the repatriation flights and increased quarantine business. This fuelled hotel demand in metros such as Mumbai, New Delhi, Chennai and Kochi. Given this type of demand, we first saw lower class hotels outperform higher classes. This again was a common trend witnessed in other global regions such as the US and China.

With leisure business returning, the higher priced segments eventually began leading recovery and luxury and upper upscale hotels have been driving growth in the last few months of the recovery cycle.

STR data shows that regional destinations attracting leisure travellers were the first to recover, leisure MICE demand was also growing steadily up until recently. To date, metros have lagged some of their regional peers given the lack of corporate business that impacted hotel performance in these cities. But beyond the initial leisure travel, certain tier I and tier II cities such as Vishakhapatnam, Chandigarh, Lucknow and Jaipur have progressively shown strong demand as travellers gained more confidence.

In fact, last year’s festive period spanning Diwali, Christmas and New Year saw hotel demand peaking. This peak was witnessed not only in hotels in Rajasthan, Goa, Punjab and Kerala, but also in the Maldives. Given the easing of travel and the inherent nature of what the Maldives offers, the market saw an influx of Indian tourists in the last two quarters.

Now in the beginning of the second quarter of 2021, sentiments are changing with restrictions due to a new wave of cases mounting on the country presently and the situation remains uncertain.

Vaccine rollout will play a big part in travel and tourism recovery both globally and in India

A successful vaccine rollout will give individuals cushion to travel and start to ease recurring restrictions. The UK and US are on their way to inoculate their population and have streamlined the process to meet specified timelines. India too is on a schedule to make the vaccine available to its people.

Interestingly, there is a dichotomy in the role India’s demographics play in her fight against the pandemic.

On the one hand, socially distancing and vaccinating a population of 1.3 billion is always an uphill task. On the other hand, it is this same population that will boost consumer demand and travel sentiment. What’s encouraging to know is that majority of India’s population is young, more than 50% is below the age of 25 years, and that youth can be a clear advantage for India in its recovery cycle.

Most of us anticipated that 2021 would be the year for recovery, but we saw more skeletons come out of the closet. While there is a syringe at the end of the tunnel, it is early days to predict success.

Current Covid-19 wave in India will impact outlook trajectory, but we are likely to see faster recovery than in 2020 – and long-term India has strong fundamentals 

The present situation in India may seem like déjà vu. Very high number of virus cases in India continued before this surge, yet Indians were still traveling. Yes, sentiments continue to gyrate, but that’s the case in many places in the world. It is possible that the present situation creates another dent in the overall recovery graph for the industry, but this chart will differ for every country. Pent-up demand for travel is mounting and recovery is around the corner.

STR provides quarterly forecast reports together with Tourism Economics for many markets around the world, including Mumbai. Combining those views with our historic experience from previous shocks to the system and recovery patterns in 2020, as well as our growing dataset of future data and Occupancy on the books, we can both say that the proven pent-up demand will continue to assist recovery but also that even if domestic demand will bring business back to many hotels, it will take quite a few years before Average Daily Rates and thus RevPAR will be back to 2019 levels. We would currently expect similar levels in 2024 – but possibly already in 2022 have markets where hotels see manageable bottom-line numbers.

We do however remain bullish about travel and tourism broadly returning after the pandemic.

All stakeholders will need to stay more alert during the long recovery period – the legacy business plan is not valid for a while

STR data showed that particularly regional leisure hotels were able to capture demand quickly, and wedding venues also saw a rise in revenues.

India’s strong domestic travel market will continue to play an important role in this upcycle. What is important for hoteliers is to understand that different segments of demand will react differently and all of it will depend on how the virus is contained locally in each region.

Success for hotels will depend on their ability to track the different segments of demand and harness data to make more informed decisions. Agile cost control, strong relationships between owners and operators and an ability to remain creative will continue to be important in 2021.

India markets are improving their resilience – that’s good news for the future

Total India monthly occupancy crossed the 50% mark in February this year, a first since the pandemic struck in 2020. Recent daily data from STR is showing that the 50% occupancy shelf held up very well until three weeks into March, after which the average dropped down to 40%, as the new wave of cases with pending restrictions are affecting progress. As seen last year, weekends still prevail. In fact, all India daily occupancy crossed 40% on weekdays and 50% on the weekends in March.

If this new-found resilience can continue – India would be poised to come out of the gates well enough to leverage that domestic engine. With vaccine progressing so many parts of the world, and conversations about travel-enabling collaboration for global travel, there are signs that the second half of 2021 can provide a decent baseline from which to grow.