Budget 2021:Hotels industry expects policy incentives to promote domestic travel in the upcoming budget
Budget 2021:Hotels industry expects policy incentives to promote domestic travel in the upcoming budget
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The global outbreak of Covid-19 and the consequent imposition of travel restrictions adversely affected the performance hotels industry that is closely associated with the travel and tourism sector. A complete ban on international travel led to nil foreign tourist visits in Q1FY21. This coupled with the nationwide lockdown led to a sharp decline of 83.4% in overall occupancy rate across hotels as it fell from 70.5% in January of CY20 to as low as 11.7% in April. Average Daily Rate and revenue per available room also witnessed a decline. Restrictions on inter and intra state travel led to people being confined to their homes and companies started conducting their business through online video conferencing calls. As restrictions were lifted in a phased manner, occupancy in hotels began improving on a monthly basis from the month of May. This improvement was on account of VandeBharat mission flights and quarantine business as demand from leisure and business user segments remained muted even after Government of India (GoI) gave permission to operate hotels & restaurants and resume domestic flights in May-June. The demand was subdued as Covid-19 cases were increasing and Covid-19 induced restrictions including quarantine rules differed across states.

However, from the month of September, 2020 domestic leisure travel has started showing signs of recovery as people who were at first cautious of stepping out of their homes to travel are now willing to do so. In addition to this, ease in some restrictions on social gatherings like weddings is somewhat aiding the occupancy in hotels. On the other hand, demand from business user segment has not picked up yet. The occupancy rate was in the range of 35-37% in the month of November, 2020(m-o-m increase of 17-19% and y-o-y decline of 49-51%).

Outlook for CY2021: The occupancy rate across hotels declined on a yearly basis in CY2020 due to Covid-19 outbreak and the consequent ban on foreign tourist arrivals (FTAs) which is not expected to be lifted in the near future. In addition to this, the government of India in October, 2020 has permitted visa relaxations for all purposes except for tourism which in turn is expected to further affect the recovery in FTAs. Also, night curfew in some states and the spread of a new variant of coronavirus is adding to the woes of the industry.

For the occupancy rates to reach pre-covid levels, it depends on the containment of the virus within the country and across the globe and how restrictions are eased accordingly. Meanwhile, although the occupancy rate is expected to improve on a quarterly basis in Q1CY21, for the period of Q2-Q3 CY21 hotels will face muted consumer demand on account of lean business season. However, from the last quarter of CY21, the occupancy rate is expected to start gaining traction.

In addition to the above, restriction on outbound tourism is leading to people exploring destinations within the country. With the easing of travel restrictions, people have started stepping out for weekend getaways and staycations and are also using hotel facilities as their workstations. All these factors in turn will support the recovery of hotels industry.

In line with the expectation that domestic tourism will be the key user segment to revive this sector, the industry expects policy incentives to promote domestic travel in the upcoming budget. It also expects more funds to be allocated for the tourism sector. Also, the industry continues to maintain a long standing demand from the government for Infrastructure & Industry status for projects with investments over Rs 50 crore.

Trikha is Research Analyst, Industry Research with CARE Ratings Ltd

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