Pivoting the Hospitality Industry in Response to COVID-19
This article is authored by Manav Thadani, Founder Chairman, Hotelivate with contributions from Achin Khanna, Managing Partner, Hotelivate.
THE COVID-19 crises can’t be compared with any other crises in history. This is unprecedented and we have never had world economies come to a grinding halt due to lockdowns all over the world. This is why these events are called ‘Black Swan’ events. Something which is unknown and doesn’t happen in normal situations. In my personal opinion, we are in a ‘New Normal’ that indicates that the entire industry is at a ‘Pivot’ point. The solutions for post-COVID-19 will be different from those in the past. Business models and value propositions will also change. So, it may be important not to necessarily follow what worked during SARS, 9/11 or for that matter 26/11. Further, the global airline industry has also been impacted severely and will directly affect hotels until planes and people start flying again.
The industry will continue to expand albeit a bit slowly. We, at Hotelivate, are still getting new assignments for feasibilities even while we remain on lockdown mode. These are strategic assignments in some new sectors which have not been explored before. There will also be some buying opportunities and there are clients of ours who have deep pockets and will be ready to invest in opportunities at lower valuations.
COVID-19 IMPACT
Hotelivate has been diligently working alongside the Ministry of Tourism, the Ministry of Finance and the Confederation of Indian Industries (CII) over the past few days. We were asked to help these bodies realistically qualify and quantify the loss of revenue that our sector may witness, as well as a detailed breakdown of the kind of fixed costs these hotels may have to bear through the months ahead. It is our estimate that just the fixed costs would amount to anywhere between INR 12,000 to INR 15,000 Crore over the months ahead. For an industry that collects about INR 37,000 Crore in a good year and may see only 15 per cent to 20 per cent of that amount clocked this year, India’s branded/organized hotel market may completely go under in a matter of months, unless several dramatic, atypical and urgent steps are taken immediately.
We are currently building into our model two scenarios – the first and best-case scenario, we start seeing some business activity from June onwards and for the first quarter where occupancies maybe around 35 to 40 per cent. And then towards the end of the year get to 50 to 60 per cent in the best case.
The second scenario is that this gets prolonged much longer in which case there may be no consultants or magazines to worry about and this lockdown or a closely similar situation carries on beyond October with the end unknown.
There is a reset of the global order across industries and there is a possibility that the fittest and sharpest will come back sooner than the others, but it depends on cash flows and leadership of companies. I also think it will not be business as usual for a lot of sectors which may actually throw up more opportunities.
RECOVERY PLAN
At this stage, we are putting together a detailed paper on this subject and see changes taking place under the following six boxes:
1. Operations
2. Human Capital
3. Product changes
4. Food and Beverage
5. Relationships between OTA’s and Hotels
6. Operator and Ownership relationship.
Hotels have high fixed costs. The following main heads provide context:
* Salaries & Wages
* Provident Fund – Employer Contribution
* ESIC – Employer Contribution
* Property Tax & Insurance
* Annual Licenses, Permits & Renewals
* GST liability (for the little business that does get realized)
GOVERNMENT INTERVENTION NEEDED
Hotelivate and CII have presented a detailed write-up on ways and means to either mitigate or defer these costs. Click here https://www.linkedin.com/pulse/cost-closure-indias-hotel-industry-achin-khanna-mrics/ to read the detailed information on the same.
Hotels owe over Rs 45,000 Crore to various banks and lending institutions. With zero revenues now (and in the foreseeable future), this burden is impossible to bear. A six to nine months’ moratorium on all working capital principle, interest payments on loans and overdrafts bringing in liquidity allowing for business continuity, without categorizing the companies as NPAs is recommended.
Short term interest-free or low-interest loans for rebuilding the business and immediate transmission to all industry segments viz., Hotels, Travel agents (online and offline), Tour operators and any other ancillary entity that is supporting the industry on term loans and working capital loans would be very useful.
Existing overdraft limits can be doubled for the industry and immediate cash relief to be given to avoid mass lay-offs of employees.
Our recommendations have reached the eyes and ears of the powers to be and it remains our earnest hope that the sector shall receive the helping hand very soon. We reiterate that hotels are a capital intensive, cash flow strapped and highly volatile business to be in. They serve a key purpose in the economy and society.
ROAD TO RECOVERY
Digital media will have a big role to play in the short to medium term. The hotel industry is generally perceived to be cleaner, safer and with more space over the free-standing restaurants and free-standing banquet halls. Don’t be surprised if they are able to attract some of this business faster than the other comp free-standing space.
Firstly, be safe at home and enjoy this moment with the family as much as possible. Those who have time can and should re-tool and learn new things over on-line. From a professional perspective, many companies are putting emergency plans in place, small task teams are being set up to activate different scenarios. As a consultant, I am doing a lot of calls with my clients and am enjoying writing articles or answering questions in general.
There is going to be a lot of pain ahead on human capital and on a serious note, those things are never pleasant. But that is a fact of life and for some time you may even see people leave the hotel space to go and work in other sectors. Having said that we will bounce back at some stage. The road to recovery will be more W shaped than say V-shaped or U-shaped.
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