9 min read.Updated: 17 Nov 2020, 01:37 PM ISTGoutam Das
Given that most business has vaporised, hotels are exploring revenue streams that didn’t exist earlier. Will it work?
Whether these pivots can help hotels tide over the next 24 months is uncertain. Is the staycation a sustainable trend?How many holidays can India’s middle class afford in a year?
NEW DELHI :
On a pleasant Sunday afternoon in October, Ravitej Nath stood at the entrance of the cafe at boutique resort Karma Chalets, turning away guests. The resort is an hour’s drive from Delhi. Staycationers, or those who holiday near home, have come visiting with remarkable enthusiasm; the cafe’s 16 tables are buzzing with holiday chatter.
Over the weekends, the resort’s 31 rooms are nearly all booked. The occupancy drops to a third on weekdays. It has been this way since August. When the resort restarted after the lockdown in June, the rooms were discounted. A confident management firmed up prices over the next several weeks. Now, a room can cost ₹10,000 a night over the weekends.
“We have recruited 13 people since August 15. We declared a bonus for the months of July and August for every employee, right from the gardener to the vice president," Nath, a director at Karma Chalets said. “However, we still haven’t prepared a budget for the year. We are just going with the flow," he added.
The resort may seem like an aberration, but it is not. Resorts and branded hotels that are at motorable distances from cities are seeing a huge spike in demand driven by a phenomenon called ‘revenge tourism’. After being locked up for six months, people want to splurge -- in places that are perceived to be safer.
So, WelcomHeritage’s resort in Coorg, Ayatana, about five hours drive from Bengaluru, is running at 80% occupancy. Aurika, Udaipur, a resort by Lemon Tree Hotels, has good demand from denizens of Ahmedabad. Resorts run by The Indian Hotels Company Limited (IHCL) in Rishikesh, Jaipur, Goa, Madh Island (Mumbai), and Lonavala have gained as well.
City hotels have no such luck. There are no international tourists and no corporate travellers. Conferences and exhibitions haven’t re-started yet. And while occupancies and room rates are improving every month, they are still several notches below what it was in the same period last year.
Hotel occupancies averaged about 65% in 2019, a report from Noesis Capital Advisors, a hotel transaction advisory company, and Ngage Hospitality stated. The average occupancy dropped to 9% during the first half of 2020-21. Between March and June, branded hotels lost ₹80 billion in revenues, the report added.
Leisure destinations seeing demand spikes post the lockdown also have many miles to go. Take Goa and Jaipur, two popular leisure destinations, for instance. Hotel occupancy in Goa averaged about 26% in September 2020 versus 61% in the year ago month. Occupancy in Jaipur averaged 27% in September this year compared to 66% the year ago, data from HVS Anarock, a hospitality advisory group, showed.
To survive, branded hotels are picking up all sorts of business and are exploring revenue streams that did not exist earlier. Milking domestic tourists is high on the agenda. So is monetising real estate, focusing more on high-value Indian marriages, making digital pivots when it comes to food services.
All five-star hotels were wary about home delivery of food. The lockdown has changed all this. Luxury hotels now have their own food delivery apps. Some have opened the doors to laundry services for anyone in the city, even.
Meanwhile, undercutting of room rates is rampant in city hotels. All of a sudden, those who could afford three or four-star hotels in good times are booking holidays in five-stars, shoring up occupancies for top chains in a few cities.
The share of four- and five-star hotels in Delhi NCR is 74% of all hotel bookings made between March and September 2020, data from RateGain, a travel and hotel software company, stated. Apart from Delhi, Mussorie (88%), Thiruvananthapuram (83%) and Goa (67%) are seeing the ratio of bookings tilt towards four-five stars.
Whether these pivots can help hotels tide over the next 24 months is uncertain — McKinsey recently stated that tourism revenues may not fully recover until 2022-23. And there are question marks on if staycations are a sustainable trend. How many holidays can India’s middle class afford in a year?
“Domestic tourism is not the solution to other segments of travel. Outbound and inbound (tour) companies have nothing; conferences and meetings are floundering; social events are floundering. You can’t replace these with Gupta-ji and Singh-saab who want to go on a vacation," Rajeev Kohli, joint managing director of Creative Travel, a destination management company, said.
India’s six large metros, he added, has a large number of hotels that are running empty. “You have geared these properties to operate at 70-80% occupancy and have staffed them accordingly. Till such time you get to that 70%, you are running at a loss," Kohli said.
The morning this writer came to The Roseate, a luxury resort in Delhi, workers were busy removing leaves from the surface of water bodies that snake around the property. Its banks are used for events. The resort staff were prepping for an event later in the day. Soon, vendors started to arrive. Their equipment is sanitized, for a price — if it’s a marriage, the sanitization charge is ₹25,000.
The Roseate’s management is making trips to cities such as Kanpur, Agra and Ludhiana to tap high net worth individuals. The idea: every small city has at least 50 such individuals who travel abroad. Now they can’t.
“The middle class and the upper middle class have been travelling to Dubai and South-East Asia. Since these destinations are closed, the other alternative for them is to use resorts in the city. There is a large population we still need to address," Ankur Bhatia, executive director at the Bird Group, which runs Roseate Hotels & Resorts, said.
Hotels have therefore re-oriented their sales and marketing efforts to tap this population. But the focus still remains a drivable distance to the hotel.
IHCL, whose brands include Taj, SeleQtions, Vivanta, Gateway and Ginger, started promoting what they called a ‘4D travel experience’ — dream, drive, discover, delight. Such promotions have resulted in reasonable business, the management said.
“Everyone understated the potential of domestic travellers in large cities to move out of their homes and stay in hotels for two-three days in the same city. That demand is tremendous," Gaurav Pokhariyal, senior vice president, Operations - North at IHCL said. Taj Palace, New Delhi, a 400-room hotel, is averaging 50% occupancy. Vivanta New Delhi, Dwarka, is averaging between 50-60% occupancy, he informed.
“Initially, we thought this was a temporary phenomena and that people are staying out of revenge. But you will be surprised—I have now started raising my rates," Pokhariyal added.
One big catch in the domestic business are weddings. Hotels always tapped this but weddings in the post-pandemic world are a tad different. The big fat Indian wedding is no longer possible because of government restrictions on gatherings. However, this does not mean that the fat small Indian wedding isn’t doable. From large hotels, the weddings business could be tilting towards more boutique ones.
“Weddings were not a big thing for our hotels earlier. Most weddings are 100-room affairs. Now that people are preferring smaller weddings, our hotels are in focus," Abinash Manghani, chief executive officer of WelcomHeritage, said. WelcomHeritage is part of ITC’s hotel group and includes palaces, havelis, forts and resorts. These properties don’t have more than 50 rooms.
“Marriages didn’t contribute to more than 10% in previous years. That number would go up substantially this year. There are a lot of direct bookings and some come from marriage planners," Manghani added.
Top hotels have started offering ancillary services to increase the billings. Wedding flower arrangements, for instance, were outsourced by the hotels. Now, they do it themselves. Hotels also charged a per person rate for large weddings. Since the number of guests could be as low as 50 now, hotels have begun selling venues with a minimum billing.
Food to the rescue
Banquets at marriages and conferences used to be a big deal for hotels. Overall, food and beverage (F&B) generated nearly 40% of the revenues for many top hotels while the remaining 60% came from rooms. In the absence of any significant occupancy, food services have grown multiple times in importance.
Anil Chadha, chief operation officer at ITC Hotels, lists everything the group’s hotels have done in recent months. This includes introducing a food ordering feature on an ITC Hotels F&B app, where one can even ‘gift’ a meal. In addition, the group introduced do-it-yourself kits with semi-cooked food to ride the trend of home cooking during the pandemic.
IHCL’s digital pivot is even more striking. The group’s hotels help one organise virtual parties with food delivered from its restaurants at multiple addresses in a city. Not just the food, the consumer could buy a restaurant ‘background’—enabled with technology—for their events.
“Our weekends are sold out on account of virtual celebrations. We deliver 100-150 meals across the city at the same time. This is a product that has taken off and we want to develop this further," Gaurav Pokhariyal of IHCL said.
Most city hotels sit on prime locations. This is fast becoming an avenue to experiment with new revenue streams. In short, better monetise that real estate.
Hyatt India, for instance, said it has reimagined its real estate, which includes its suites and meeting rooms, as co-working spaces. Hyatt’s hotels — and that of other chains — are trying to attract guests who would want to work out of a hotel. Hyatt Centric MG Road in Bengaluru, for instance, offers a package that includes high speed internet, complimentary refreshments, 20% discount on F&B and laundry services.
The Imperial, a 235-room boutique hotel in New Delhi, is exploring renting out real estate. It is one of the worst-hit city hotels since about 90% of its clientele were expatriates. That business has vaporised. The hotel has a standalone business centre. “If I get a request for 3,000 sq. ft of area with exclusive entrance, we will be happy to give away small chunks of space," Vijay Wanchoo, senior executive vice president and general manager at The Imperial, said. “I am also willing to give out some rooms on the floor as office space. We have had very good enquiries but rates are a question mark," he added.
Thus far, the response has been underwhelming for hotels that want to attract corporates or multinationals. Corporates have their employees working from home still and those interested in co-working are mostly startups.
Five-star hotels would have turned away startups in a pre-pandemic world because they wouldn’t fit the client profile they would like. Nonetheless, hotels have little option at the moment.
The Imperial, meanwhile, has turned to entertainment as an industry it must attract. Movies, and now web series, are shot throughout the year and launched throughout the year. Movies need launch venues, rooms for actors and crew.
A heritage property would suit the entertainment industry, Wanchoo said.
“We were selectively picking up this kind of business before the pandemic. However, in the early 50s, Raj Kapoor would stay at this hotel (which is a heritage property) and launch his movies from here," Wanchoo said. “I am making an attempt to revive that business stream."