REVIVING HOTEL INDUSTRY IN INDIA

Overview

Over the last decade, India has emerged as a popular tourist destination with >2x international tourists visiting between 2010 and 2019. Foreign tourist arrivals increased from 5.78 million in 2010 to 10.93 million in 2019.

The hotel industry is largely dependent on the tourism sector, as it is driven by domestic and foreign tourists arriving for business or leisure trips. Over the decades, the industry has transformed in line with the changing behaviour of customers; inclusion of newer technologies such as online booking systems and digital payments; and demand for heritage & boutique hotels.

The?travel & tourism industry?contributed ~6.9% to India’s GDP and accounted for 40.1 million jobs in 2019. In 2020, the contribution to the GDP was 4.7% and accounted for 31.8 million jobs. This decline was due to lockdowns imposed during the COVID-19 pandemic, which negatively impacted the hotel and tourism sectors.

Overview

Over the last decade, India has emerged as a popular tourist destination with >2x international tourists visiting between 2010 and 2019. Foreign tourist arrivals increased from 5.78 million in 2010 to 10.93 million in 2019.

The hotel industry is largely dependent on the tourism sector, as it is driven by domestic and foreign tourists arriving for business or leisure trips. Over the decades, the industry has transformed in line with the changing behaviour of customers; inclusion of newer technologies such as online booking systems and digital payments; and demand for heritage & boutique hotels.

The?travel & tourism industry?contributed ~6.9% to India’s GDP and accounted for 40.1 million jobs in 2019. In 2020, contribution to the GDP was 4.7% and accounted for 31.8 million jobs. This decline was due to lockdowns imposed during the COVID-19 pandemic, which negatively impacted the hotel and tourism sectors.

Impact of COVID-19 on the Indian Hotel Industry

COVID-19 has adversely impacted industries and led to plummeting revenues. But the primary focus of the Indian government was safety of people and hence, it took some major steps. International borders were sealed and international & domestic flights were suspended to contain the spread of the virus.

As per the Ministry of Tourism, there were 1,838 approved hotels with 99,424 rooms as of September 2021.

In FY21, the hotel industry recorded one of its lowest performances ever, with limited revenue, massive operating loss and soaring debt levels. According to the Federation of Hotel & Restaurant Associations of India, in FY21, the hotel industry incurred losses of >Rs. 1.30 lakh crore (US$ 17.65 billion) in revenue. The industry witnessed the worst phase since the 2008 financial crisis as the revenue was almost zero.

The indication of loss can be ascertained from the following table. Three major KPIs of the hotel industry witnessed significant declines in 2020 over 2019.

Strategies Adopted by the Hotel Industry

In order to survive, the hotel industry adopted several strategies during the pandemic. Consumer behaviour and expectations have changed amid the pandemic and are more focused and demanding on safety, hygiene and health during their stay. The industry is largely focused on prioritising the health and safety of consumers. Employers have prioritised immunisation of staff by providing vaccines and displaying the status of vaccinated staff on their website and other forums to regain confidence of travellers across the country.

The hotels are more thoughtful about the hotel design and space management. The prime focus is on cleanliness, sanitising and reduction of non-essential elements such as decorative elements. Hoteliers made these changes with focus on social distancing and contact-free systems.?

Besides cleanliness and precautions, hotel players were more innovative in developing sales & marketing strategies to boost revenue. To attract new customers, new business model strategies were adopted, such as day room rentals, co-working areas and space for commercial shooting and even, renting spaces for educational purposes. Staycations also recorded a surge in demand due to the dire need for vacation from the working class and hygiene standards assured by hoteliers.

Increase in the use of technology has changed customer expectations and behaviour, as they expect personalised, simple and engaging experiences. Following this trend, hoteliers have understood the importance of technology and started deploying it to manage their services such as mobile check-in, digital payments, ordering food via app, voice control and biometrics. The hotel industry tried to cover up losses by providing home delivery of food through in-house delivery or in partnership with third-party vendors such as Zomato and Swiggy. Besides this, hoteliers also offered virtual assistance in pre-planning weddings, decor, food menus and gifts in response to rising demand and social distancing norms.

Initiatives by the Indian Government

The hotel industry is highly dependent on the tourism sector as a source of revenue, as ministries such as tourism, railways and civil aviation play an important role in the sector's growth. The government has taken several initiatives to boost the hotel industry.

In June 2021, the Indian government introduced a scheme to boost the tourism sector by providing one-month free tourist visas to 5 lakh tourists until March 31, 2022. This move is expected to fuel the number of foreign travellers visiting India, which will help revive the hotel sector.

The Ministry of Tourism launched the?DekhoApnaDesh?initiative in April 2020 to provide information on many cultural destinations and the heritage of Incredible India. In September 2021, the Indian government also started drafting a tourism policy to attract more visitors into the country.

The Ministry of Tourism launched the National Integrated Database of Hospitality Industry (NIDHI) scheme, an initiative to use technology to empower hotel businesses. The aim of this scheme is to collate information on accommodation available at each tourist destination, share best practises, and connect with the government for ease of doing business. The government also launched a portal System for Assessment, Awareness and Training for Hospitality Industry (SAATHI) to promote safety & hygiene in the hotel industry. The initiative aimed to assist the hospitality industry by creating awareness & training programmes and preparing hotels to carry out operations safely during the pandemic. Besides these initiatives, the Indian government also launched several schemes such as SWADESH DARSHAN (Integrated Development of Tourist Circuits around specific themes), NABH Nirman, UDAN - Ude Desh ka Aam Nagrik and Vision 2040 to encourage domestic tourism.

Outlook

With safety & hygiene as the foremost criteria, the pandemic has forced the hotel industry to come up with innovative ways to utilise their assets by opening newer revenue streams such as coworking space, use of technology, redesigning hotels and others. Though the flow of international tourists is low, hoteliers have started focusing on attracting domestic tourists.

The second wave of COVID-19 affected tourist numbers and led to a dip in air passengers. The hotel occupancy rate, which crossed 50% in early 2021, came down to 18% in May 2021. However, in July 2021 and August 2021, the number of air passengers increased and showed signs of improvement. The rising number of vaccinations and safety precautions in the country are helping the industry revive. With new announcement from the Ministry of Aviation, airlines can operate at 85% of the pre-COVID capacity at domestic levels instead of 72.5% in September 2021. The increase in flight operating capacity and upcoming festivals such as Dussehra, Diwali and Christmas are likely to boost the number of travellers. These factors are expected to drive growth in air passengers and subsequently, boost tourist stays in hotels.

In order to revive the hotel industry, the government should outline a robust growth roadmap. Focus of the hotel industry should be on refining guest experience. This will help the hotel industry to expand at a promising rate.

Note:

• Occupancy Percentage: It is the percentage of occupied rooms in a hotel on a given day
• Revenue per Available Room: It is a performance measure calculated by multiplying a hotel's average daily room rate by its occupancy rate
• Average Daily Rate: It is the average revenue earned for an occupied room on a given day

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