Resilience and diversity in the face of adversity

ANTICIPATION AND hope were aplenty as India’s hospitality industry entered 2021, but all of the optimism was challenged during the first half of the year when the country faced its most devastating wave of the pandemic. The first three months of the year saw India’s revenue per available room (RevPAR) indexed above 40 per cent of 2019 levels (pre-pandemic). There were visible weekend spikes, gateway cities were performing better than the year prior, and leisure travel continued. There were also solid expectations around business travel, and things were seemingly approaching the path to normalcy. The Delta variant of Covid19 first emerged in India around October 2020, and by the middle of February 2021, Covid19 cases were on the rise. Although more gradual until mid-March, the rise soon turned into exponential growth. India’s hotel RevPAR showed the same speed in its development, just in the opposite direction as occupancy declines pushed the country to barely 20 per cent of pre-pandemic RevPAR levels in May 2021.

Fortunately, that devastating Delta wave eventually subsided. Likewise with improving vaccination rates, freedom of travel and the ability to reconnect, hotels saw a steady and clear V-shaped recovery that produced consistently higher levels month on month until the end of the year.

Leisure, leisure & leisure!

Leisure travel was without a doubt the driver of hospitality performance recovery in 2021. With traveller confidence boosted by vaccination rates, pent-up demand found an outlet via consistent vacations in most leisure destinations within the country. Weekend spikes in occupancies seeped into weekdays as well — “work-from-the-hills” was a reality for many.

If you are a hotel in Uttarakhand, Himachal, Goa, Jaipur, Udaipur, or any other leisure destinations, chances are you’ve already surpassed 2019 RevPAR levels for certain months. Some of you may even be outperforming at a full-year average. 

Not only did hotels welcome the spurt in leisure demand with open arms, they took advantage of it—and rightfully so. We witnessed significant gains in average daily rate (ADR) following the Delta wave, with many leisure markets displaying the industry’s high potential. 

 Confidence brings business and business brings confidence

Business travel was globally muted in comparison with leisure travel given source markets, international border closures and general consumer sentiment. Globally, gateway cities that have historically relied on business travel have been the furthest behind in recovery. Only a handful of these markets recovered occupancies at more than 80 per cent of 2019 levels.  

In India, however, we saw a turn of tales in 2021. While leisure locations aided a more rounded recovery through rates and by taking advantage of pent-up demand, there were signs of a return of domestic business demand following the Delta variant. In aggregate, metro location occupancy jumped above that of the leisure destinations on multiple occasions in 2021. 

Within those metro locations, we witnessed increased recovery in markets that have historically enjoyed a higher share of domestic demand and aren’t so reliant on international inbound travel. For example, Delhi and Mumbai showed improved recovery over Bangalore, Hyderabad and Pune.

What’s done is done. What’s in store?

Most of the world is coming to terms with the fact that Covid19 is here to stay in some capacity—perhaps more as an endemic and no longer a pandemic. With an increase in travel confidence, international borders reopening, and higher immunity level through vaccines and previous infection levels, there is plenty of reason for optimism. Maharashtra for one, ended Covid19 restrictions throughout the state from April 2, 2022.

We are already witnessing strong signs of business demand returning. Improved weekday occupancies and lead times are reassuring. Profitability has shown a larger impact in many locations over the past couple of years, but proper realignment of cost structures can enable a return to normalcy sooner than later.

Supply incoming over the next two years is quite significant in some locations. This may create more pressure on occupancy and ADR in the short-to-medium term.

Demand is bound to increase with a few assumptions of normality prevailing—domestic leisure, domestic business, international leisure and international business. This has been the normal order of recovery.

Leisure locations, especially those that are in season now (read: the hills), continue to see a huge demand influx. Some of these locations are currently experiencing record-breaking ADR. That said, stabilisation of segment mix and competition from international alternative destinations are sure to bring in some amount of rate dilution.

AUTHOR BIO: Karan Mahesh is Account Manager, Central & South Asia, STR