Travel industry on cloud nine as more Indians queue up for overseas trips, short getaways
- New report projects significant boost for travel industry exceeding pandemic peaks riding a growth in domestic and outbound tourism this financial year and the next
India’s travel and tourism industry is poised for significant growth this financial year as more people travel overseas or make time for short getaways despite rising airfares, as per a new study.
Collectively, revenue is expected to increase by about 30% in the ongoing financial year, and by about 18% over pre-pandemic peaks, ratings agency Crisil said in a statement. For 2024-25, however, growth in India’s travel and tourism industry is expected to moderate at 12-14%, given the high base of FY2024.
The agency has based its report on an analysis of four travel operators that account for 60% of domestic sector revenue–Thomas Cook Ltd, MakeMyTrip India Pvt Ltd, Yatra, and EaseMyTrip. These companies provide air or bus ticketing as well as hotel-bookings for leisure and corporate travel within India and abroad.
Despite challenges such as the recent tax hike on overseas travel packages and visa-related delays for long-haul travel, the overall outlook for the travel and tourism industry is positive, Crisil said.
Operating margins are also projected to remain strong at above 6.5% for both the current and the next fiscal year despite higher spending on marketing promotions, it said. The agency attributed this to operating leverage benefits and cost-optimization initiatives implemented since the pandemic when strict restrictions were in place.
Operating leverage, in the context of the travel and tourism industry, refers to the ability of a company to increase its profit at a faster rate than its revenue by having a high proportion of fixed costs compared to variable costs.
Poonam Upadhyay, director at Crisil, said the impact of the tax rate hike will be limited as the expenditure per individual per trip for over 80% of tour packages falls well below the Rs7-lakh threshold.
The government has increased the tax to be collected at source for tour packages costing above Rs7 lakh per customer in a financial year to 20% from 5%, effective 1 October. Travel operators, however, might face challenges in monitoring the individual limit.
Overseas leisure travel is expected to be dominated by short-haul trips, as was the case in the previous fiscal year. This segment primarily includes destinations in the Middle East, parts of Europe, and Southeast Asia.
Long-haul travel, particularly to the US, is expected to see a recovery with easing visa-related delays, according to Crisil. Nonetheless, this segment will take longer to reach pre-pandemic levels, except for students pursuing education in the US, for which visa processing is prioritised.
The domestic leisure segment is expected to maintain its strong growth trajectory, driven by increasing preference for short breaks and improving infrastructure and connectivity.
This, coupled with the already high-performing corporate and MICE (meetings, incentives, conferences, and exhibitions) segments, paints a positive picture for the sector, Crisil said.
Travel operators are likely to increase promotional spending by 100-150 basis points (as a percentage of total revenue) to capitalise on the demand across segments. The larger scale will help maintain operating margins at 6.5-7% in both the ongoing and the next financial years, Upadhyay said.
But she cautioned that the sector’s growth would depend on several factors, including expansion of commercial air fleet, air fare fluctuations, changes in tax structure, and inflation trends.
While not highlighted in the Crisil report, India’s inbound travel is yet to return to pre-pandemic levels. India had about 109 million visitors in calendar 2019, but only about 3.1 million between January and April this year.
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Business NewsIndustryTravel industry on cloud nine as more Indians queue up for overseas trips, short getaways
First Published:11 Dec 2023, 03:25 PM IST
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