Coronavirus effect: Hospitality sector revenue to take $4.7 billion hit in 2020

The Indian hospitality sector is staring at a loss of $4.2 billion to $4.7 billion in revenues due to coronavirus outbreak, as per hospitality consultancy Hotelivate. The loss to the organised market, which is about 5 per cent of the total lodging sector in the country, is estimated to range between $1.3 billion and $1.55 billon. This amounts to an erosion of 27-32 per cent of the overall revenues as compared to the previous financial year.

"The hospitality sector is entirely dependent on travel, trade, and tourism for its sustenance. The massive spate of cancellations in recent weeks has largely eroded the ability of hotels across India to operate without piling up worrisome losses. The absence of new business on books is only adding to the grim story ahead," says Achin Khanna, Achin Khanna, managing partner (strategic advisory) at Hotelivate.

The devastating impact of coronavirus could result in 18-20 per cent erosion of nationwide occupancy across the sector, and 12-14 per cent drop in average daily rates (ADRs) for the entire 2020. The large-scale cancellations and drop in room rates are also going to wreak havoc in the hospitality sector. At present, about 15-25 per cent of the employees in the branded hotel chains are either contracted or casual staff. Under the current circumstances, these people would be first to be laid off by the hotel companies. "From a human resources and unemployment standpoint, that is a serious crisis in the making," says Khanna.

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In India, 95 per cent of the hospitality market is unorganised that includes guest houses, unbranded rooms and bread and breakfast while the organised segment has a room inventory of about 1,40,000.

According to Hotelivate, the early signs of reduced travel became evident in the middle of February but the biggest shock was felt in March when large-scale cancellations across the corporate, MICE and leisure segments happened. The loss of business has been largely seen in the top eight markets such as Delhi, Mumbai, Bengaluru, and Hyderabad whereas the tier-II and tier-III towns have witnessed a small erosion of business. "Established leisure markets have received a spike in cancellations as well as a significant drop in both booking pace and BOB while smaller and more remote destinations have seen little impact. Unfortunately, business for the second half of March seems to have dropped off a cliff, pretty much across the board," says Khanna.

The situation is likely to remain grim over the next two-three months with companies adopting "work from home" and "no travel" policies, says Khanna who expects the impact of the virus to begin waning by June-July, and business to pick up in the second half of the year. "It is also our assumption that as the last few months of 2020 come by, it is likely that inbound travel may still be a fraction of what India gets in typical years," says Khanna.

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Hotel, aviation, and Food & Beverage (F&B) sectors are the biggest sufferers of the outbreak caused by the coronavirus. With the current crisis in the tourism sector, which contributes roughly 10 per cent to India's GDP (about $275 billion), the impact on the macro-economy is expected to be huge. "It may not be an overstatement to assert that almost all of this revenue may dwindle to a painfully negligible amount if COVID-19 does not come to a halt this year," says Khanna.