Looking Back on 2020 and Forward to 2021

2020 – the year that was

2020 has been a year unlike any other, a roller coaster ride with several troughs and few highs. COVID-19 has been by far the worst crisis that the world has ever faced in living memory, as the unprecedented loss of lives and the enormity of the economic devastation caused by the crisis has changed the world forever. 

The travel & tourism, aviation and hospitality industries have been amongst the biggest casualties of the pandemic as over 200 countries worldwide imposed travel restrictions, and partial or complete lockdowns to curb the spread. International travel restraints at such a global scale were unheard of before this pandemic.

The Indian hotels sector sailed smoothly into January 2020, after a record year in 2019, with 2020 set to be ‘even bigger’, however, the onslaught of the COVID-19 shock pushed the sector off its growth path. Nevertheless, the pandemic has also accelerated certain much-needed transformations, which will help the sector’s growth in the future.

Let’s look at some of the key highlights of the year gone by.  

* COVID resulted in unprecedented downturn in the Indian hotels sector: India like most other countries went into a lockdown towards the end of March 2020. The Indian hotels sector was hit hard, as hotels across the country were partially or completely closed due to the lockdown. The only demand during the prolonged lockdown period stemmed from the ‘Vande Bharat Mission’, government’s quarantine requirements, international travelers awaiting return to their home countries, and corporates operating small business continuity teams from hotels. During this period, hotels and restaurants also worked tirelessly to provide fresh, packed meals for the needy and frontline workers. The government started easing lockdown restrictions in June, however, hotels were one of the last businesses allowed to reopen.  

Our estimates indicate that the Indian hotels sector (including organized, unorganized, and semi-organized segments) has incurred a total revenue loss of approximately INR 90,000 crore in 2020. Hotel companies were also forced to resort to cost-cutting measures, including job cuts and furloughs, to stay afloat. As per our estimates, 40-45% of direct employees in the organized sector have lost their jobs and a similar number has been impacted by salary cuts during the year. 

* Hotels implemented best-in class sanitization and cleanliness measures akin to hospitals: From using hospital-grade disinfectants & PPE to safety accreditations, hoteliers have leveraged various methods to reassure guests and rebuild traveler confidence in the COVID era. Some hotel companies even collaborated with healthcare and pharma companies and medical institutions to ensure the safety of not only their guests but also their employees.

* Hoteliers readjusted strategies to survive during the uncertain times: The silver lining during these uncertain times was that hoteliers had to think unconventionally and fast-track changes that had been perpetually put on the backburner. For instance, technology adoption was fast-tracked because it became the key enabler during the COVID era, as keyless check-in and digital menus, that were once considered luxuries, suddenly became necessities for hotels to remain relevant. Hoteliers also tried to adapt to the evolving market dynamics, by thinking out of the box from design to operations on lowering their costs, proactively implementing cost optimization techniques, making changes wherever possible.

* Newer revenue streams and ancillary revenues to the rescue: As occupancy reached an all-time low during the year, hoteliers were forced to find innovative ways to utilize their assets to stay afloat, in the process opening newer revenue streams. From food delivery, DIY signature meals, providing laundry and housekeeping services and more outside the hotel, hoteliers have reimagined ‘hospitality’ by extending their services to guests in the comfort of their offices and homes. 

* Green shoots were visible towards the end of the year, as domestic leisure tourism became the knight in shining armor: With international tourism on a standstill, domestic tourism became the industry’s only hope for revival post the lockdown. The onset of the festive season brought some much-needed cheer as people started travelling again to beat the lockdown and work-from-home fatigue, especially to motorable leisure destinations, indicating the first signs of a gradual recovery in the sector. Meanwhile, ‘staycation’ packages helped in shoring up the occupancy at city hotels. The pro-sector policies and relief measures by some state governments have also helped the sector to stay afloat during the difficult times in 2020.

Looking forward to 2021 

2021 will be a crucial year for the hospitality sector as it emerges from the disruptions and embarks on the path to recovery. We expect demand to improve considerably in 2021, as people make-up for the lost time and give-in to their pent-up desire to travel. However, hygiene, cleanliness and safety will continue to be their top priorities, as it has become a way of life in the post-COVID world. 

Domestic leisure travel, particularly to motorable and previously unexplored destinations, will continue to show a steady increase in 2021. Meanwhile, corporate demand will remain subdued, at least in the short term, as virtual meetings have become a norm and corporates will continue with their cost-cutting measures, including reducing discretionary travel. We expect India-wide occupancy to improve to 55-58% in 2021, which will push RevPAR to INR 2,500-3,000 during the year. Rate pick-up for luxury business hotels is likely to be the slowest and for luxury leisure will be the fastest. 

Here are the key trends that are likely to shape the industry in 2021. 

* Hotel supply trends: Prior to COVID-19, over 11,500 rooms were expected to be added to the supply in 2021. However, it is unlikely that hotel projects will be back in full swing in the near term, resulting in subdued supply growth. Some stalled projects are likely to start gradually and we now expect only 20-25% of the anticipated supply to come into the market, with the rest being postponed to 2022 and beyond.

Having said that, we expect branded supply to grow as an increasing number of independent hotels are likely to join brands to leverage their guest confidence & trust in the COVID era. Franchising is expected to see more traction, as it provides a win-win growth model with lesser risk for both hotel brands as well as asset owners.

A few hotels may also consider repurposing as co-working and boutique office spaces.

* Mixed-use developments: This is going to be the most sustainable model for hotels going forward as they leverage the best of each asset class, while hedging the risks for the investors and enhancing the overall experience for the guests. These projects provide better returns to investors by maximizing land-use efficiency, utilizing FSI optimally and lowering capital costs, thus, improving the viability of the hotel project. 

* Ancillary revenues will be a key focus area: The hotels sector – having finally realized the true potential of ancillary revenues in improving the topline – is likely to follow the aviation industry’s lead, making every enhancement in customer experience payable and not gratis, as the industry has been providing for time immemorial.

* Outsourcing of F&B spaces in hotels to independent operators to increase: Hoteliers will reimagine F&B by outsourcing hotel outlets to standalone marquee restaurants that had made their mark in the pre-COVID era but are now facing an existential crisis post-COVID. This model can be beneficial for both the stakeholders, as hotels get an opportunity to win-back the customer share they lost to standalone restaurants over the last few years, while the restaurants get an opportunity to renew operations on a revenue share model and benefit from captive clientele as hotels get back to normalcy.

* Vacation Home Rentals to become one of the fastest growing segments: Traveller & guest preferences have evolved significantly in the last one year, with hygiene, cleanliness, safety, and privacy becoming their top priorities. People will prefer smaller, independent, and contained spaces, which will be considered ‘safe havens’ for travel, specifically in the upper-upscale category. These evolving preferences will lead to the growth of Vacation Home Rentals in the country, especially when the segment develops and professionalizes further, as they provide guests additional privacy and better value compared to a hotel. 

* Technology will bring in fundamental changes in hotel operations: Technology adoption for hotels post the COVID impact will be at a much faster pace than witnessed earlier by the sector. Efficient usage of technology will be the new focus as it helps in reducing both capital and operating costs, improving profitability, and streamlining processes, while enhancing guest experience and personalization.

* ‘More with Less’ to be the new staffing mantra: Staff to room ratios are expected to reduce going forward. Hoteliers were forced to resort to job cuts in 2020 to reduce costs and have realized that the earlier staffing ratio may no longer be needed to operate efficiently. Moreover, almost every aspect of ‘guest service’ is now available through the guests’ mobile devices and hotels are also likely to increase the usage of predictive data analytics to personalize guest services in the post-COVID era.

* Design changes: Going forward, we expect the industry to embrace substantial design changes in hotels – smaller lobbies, keyless check-ins, lesser number of specialty restaurants, etc. – by incorporating some of the best practices followed in more mature hospitality markets. Overbuilding and overspending on hotels has been a perennial problem in the sector, which we now expect will be corrected. 

* Hotel REITs: Hotel REITs are also likely to be launched as several assets and asset owners come under financial stress and look for exit. M&A activity in the industry is expected to increase in the second half of 2021 due to the same reason. 

* Rethinking the future with greater focus on sustainability: Last but not the least, sustainability will become more than a buzzword going forward as the only silver lining during the lockdown was the positive impact it had on the environment. Adopting eco-friendly practices will not only help hotels win over travellers, who will increasingly prefer ‘green’ holidays in the COVID era but will also help in reducing costs and improving the bottom line in the longer run. The current crisis has been an eye-opener of sorts for all of us and it is imperative that all the stakeholders collaborate to increase the sector’s focus on sustainability by adopting greener practices as we gradually embark on the path to recovery.