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Mumbai, Oct 10 The hotel industry demand has recovered at a sharper pace post Covid 2.0 than it did after last year's lockdown. Occupancies and average room rates (ARRs) have seen a substantial jump, especially in luxury hotels and resort destinations, where they have breached pre-Covid levels.An ICRA report has pointed out that the recovery was hastened by the easing of restrictions in Q2 FY2022. The ratings agency, though, did not change its negative outlook on the industry because it remains to be seen if the demand pickup can be sustained. A potential third wave and its impact on travel and hotel occupancies cannot be ruled out, according to the report.The partial lockdown as well as travel restrictions in a number of states in April-May 2021 post the onset of Covid 2.0 resulted in the ICRA sample of companies reporting a 56 per cent decline in revenues on a QoQ basis, in line with the ratings agency's estimates. The revenues of these companies, though, are likely to improve by 85-90 per cent sequentially in Q2 FY2022, the ICRA report said.Occupancy in premium hotels across India picked up in August 2021, rising to 44-46 per cent, compared with 32-34 per cent in the first five months of FY2022 (5M FY2022) and 13-15 per cent in 5M FY2021). In comparison, the occupancy level was 46-48 per cent in Q4 FY2021.Rising occupancies are still to impact the average room rates (ARRs), according to the ICRA report. Pan-India, the ARRs were in the Rs 3,850-3,950 range for 5M FY2022, which were 25-30 per cent lower than their pre-Covid levels. The Revenue Per Available Room (RevPAR) figures also are still significantly lower than pre-Covid levels.Some high-end hotels and leisure destinations bucked the trend, however, seeing their ARRs return to pre-Covid levels in Aug-September 2021. The ICRA report expressed the hope that festive season travel would act as a key demand booster for the industry in Q3 FY2022.Sharing more insights, Vinutaa S, Assistant Vice President and Sector Head, ICRA Limited, said: "The first few months were impacted, but the industry witnessed a faster-than-expected ramp-up in Q2 FY2021 because of the easing of restrictions, the higher rate of vaccination and pent-up demand, which resulted in revenge travel. Demand in the last few months has come from staycations, weddings and travel to driveable leisure destinations, and from special purpose groups. There is also the new trend of 'biscations' (working from a resort) that is picking up."Continuing with her analysis, Vinutaa said: "Business travel pickup from specific sectors has been mainly to manufacturing locations and project sites." In conclusion, she said, "We are seeing real demand pickup."She was quick, though, to add the caveat that "the situation is evolving and sustenance of demand will depend on the efficacy of the vaccines and a potential third Covid wave." She concluded by adding: "The industry at present is cautiously optimistic."Most markets, notably Delhi, Mumbai, Hyderabad, Jaipur and Goa, reported over 50 per cent occupancy in July-August 2021, but Bangalore and Pune lagged behind. The ARRs in leisure destinations were above pre-Covid levels in July-August 21. Going forward, ARRs will be a function of how much of this rising demand can be sustained.The demand recovery pattern is different than in the case of previous crises, with properties affiliated with strong brands and in the luxury segment standing to benefit, as trust and safety are paramount to guests. Drive-to leisure, staycations, weddings and special purpose groups are expected to drive revenues for the next one year at least.International traffic arrivals will take time to pick up. In the intervening period, demand will be supported by domestic travel. Hotels and cities dependent on business travel and foreign tourist arrivals (FTAs) will take considerable time to recover.In terms of supply, in the immediate term, temporary shutdowns are possible in affected regions, if there is a third wave. Acquisitions and industry consolidation are the way forward, and rebranding in the mid-scale and upscale segments will add to the share of organised supply. Over the medium term, a part of pre-Covid supply may be permanently shelved, while there could be new properties coming up in leisure destinations."The hotel industry is expected to clock at least 45-50 per cent of pre-Covid revenues in FY2022," Vinutaa of ICRA said. "Further operating profits in the current fiscal will be aided by improved operating leverage and sustenance of some of the cost-optimisation measures undertaken in the last fiscal."She added that the industry is likely to be able to reach pre-Covid revenue and profit levels only by FY2024. As a result of cost-saving measures, moreover, the breakeven time is likely to come down and hotels may see a return to the pre-Covid margins of 85-90 per cent of revenues going forward. "Nevertheless, the situation is still evolving and the estimates are contingent on timelines tied to the pandemic," she said.Debt moratorium and the Emergency Credit Line Guarantee Scheme (ECLGS) provided the financial support that the industry needed during the pandemic.About 70 per cent of the entities in ICRA's hospitality portfolio availed of the moratorium during the first wave, though it was only 39 per cent of rated debt. Some companies raised funding through equity and debt tie-ups before the ECLGS announcement. The industry has raised about Rs 660 crore of equity in FY2021 and has announced equity/fund raising plans worth Rs 3,300 crore in FY2022.ICRA expects further equity fund raising and asset monetisation to support capital structure improvement going forward. Debt metrics, however, are expected to return to pre-Covid levels only over the medium term, while RoCE is like to remain sub cost-of capital at least for the next few years.Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor

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