BackFew takers for rooms with a bleak view
The next 12 months are likely to be the worst of times for mid-sized hotels. What can be done to save them?The silver lining is a Bharat Dekho campaign. If many more of the 22 million Indians who went abroad last year travelled within India instead, there could be a revival.
PremiumBENGALURU : Sejoe Jose, who heads Marvel Tours, has gone from the feast of 2019 to this year’s famine. Last year, the company which focuses on inbound travel in south India from clients in the US, Australia and Europe served about 35,000 mostly foreign visitors. Revenues have dried up in 2020.
“Normally, during this time, we have a lot of enquiries as most of our business is booked months in advance," said Jose. “We have lost 90% of our bookings for this year. I don’t see much hope," he added.
Reconciled to a recovery only in October 2021, Jose this summer offered leave without pay, or the option to resign and receive a gratuity, to almost all of Marvel’s office staff of 52 people. In an illustration of the travel business’ shrinking horizons, at dinner-time on a Friday evening in late July, Jose was on a Zoom call with the Rotary Club of Cochin, speaking about nine special destinations in Kerala.
Recently, Jose led Kochi residents on small cycle tours down the tiny, wonderfully atmospheric bylanes of Fort Kochi, where spice wholesalers and antique warehouses alternate, in large part to revive business for the tea and snacks sellers who served tourists and the drivers of the large transport fleets that ferried them around.
But even the tiniest of windows can close quickly in the Age of Covid; a spike in covid cases in Fort Kochi has resulted in a localised lockdown for the past fortnight and the cycle tours had to be stopped.
The collateral damage to the industry from the pandemic is being radically revised upward. On 27 July, the Federation of Associations in Indian Tourism and Hospitality projected that losses for the sector for the year ended March 2021 would be ₹15 trillion, up from a projection of ₹5 trillion in March.
Amid the generalized downturn across many industries, this collapse in business for restaurants and hotels matters disproportionately because few other industries are as labour-intensive as the hospitality sector. It supports people (importantly women as well) of varied skills; from those who make textiles and handicraft to drivers, housekeeping staff and guides. All of them are struggling. “Even for those who have not lost work, incomes have fallen by half," said Amit Basole, a professor of economics at Azim Premji University.
This is an industry whose fortunes will likely rebound only after the introduction of a vaccine. For this reason, it is not clear how much the government can help hotels while widespread fears about travelling and dining out abound, but finance minister Nirmala Sitharaman’s statement last week that it is considering an extension of the moratorium on loan repayments for this sector is a step in the right direction. Opening up to international flights would help, but the government last week extended the flight suspension till 31 August.
With India’s infection rate climbing at the fastest rate in the world, the next 12 months are shaping up to be the worst of times for mid-sized hotels in top destinations like Rajasthan, Goa and Kerala. In the coming months, their working capital will be stretched like never before. Last week, the Hotel Association of India said average room rates had dropped by 50% and that most of the business in cities was quarantine-related.
Bharat Dekho
As Unlock 3.0 unfolds, domestic tourism could ease the pain a little. Sidharth Singh, who owns four properties in and around Jodhpur, including Mihir Garh and Rohet Garh, argues the government needs to convince more affluent Indians to travel within the country. “The government needs to launch a Bharat Dekho campaign," he said.
At the southern end of the country, Michael Dominic, managing director of the southern hotel company CGH Earth, agrees. If many more of the 22 million Indians who went abroad last year travelled within India instead, there could be a revival, he said.
Bharat Dekho would build on the success of Incredible India. The slowdown for more than a year after the terrorist attack on Parliament in December 2001 was a bleaker period than today, coming as it did just months after the 9/11 attacks. “The international market completely crashed. 2002 was a complete write-off," Singh recalls, “but we soon went into huge growth between 2004 and 2008."
The turnaround was thanks to the “Incredible India" campaign spearheaded by Amitabh Kant, who took over as tourism secretary in the summer of 2002. I happened to be in Rajasthan in December 2001. Places as crowded typically as Udaipur’s Pichola Lake and the ramparts of Jodhpur’s Mehrangarh fort were devoid of tourists. The Incredible India campaign helped turn things around by successfully recasting India as a luxury destination, with full-page advertisements in glossy travel magazines and newspapers.
Lockdown Raj
As infections have risen in recent weeks, Kerala has been especially strict, policing movement within the state. In early July, Joerg Drechsel, a German who owns Malabar Escapes in Kerala did a trial run with some friends at a villa property on the Vembanad lake. The health inspector arrived at 8am, the morning after nine guests had checked in.The hotel follows strict protocols devised to respond to the pandemic, so the inspection went off without a hitch.
Very soon after, however, the areas around the property, as well as its Malabar House hotel in Fort Kochi, were cordoned off because of covid-19 cases nearby. “The manager of Malabar House needed a police pass to get to the property," reports Drechsel.
Restarting after lockdowns and stopping as infections rise disrupts supply chains everywhere, but is particularly hard on hotels. The key to tourism coming back is slowing the growth in the infection rate to below 1 (meaning, the pandemic is subsiding), but that remains a distant dream in India. Dominic believes the Kerala government has been too cautious and needs to ease up on inter-state travel so that the hotels in the state can at least benefit from domestic demand.
In July, Indian travellers threw a lifeline to heritage hotels across Rajasthan creating more business than anticipated in an off-season already weighed down by the pandemic. A combination of travellers by car and chartered flights from cities such as Delhi and Mumbai suggests people were tired of the restrictions imposed by months of lockdown.
Mihir Garh, which hosted the singer Madonna for a horse-riding holiday years ago, was originally going to remain closed till October but Singh opened in July after receiving a booking for all of its nine rooms from a family that arrived by chartered flight.
At Suryagarh in Jaisalmer, managing director Manvendra Singh Shekawat speaks with astonishment about a tenfold increase in enquiries in the past fortnight. The property started in July with just 12 room nights booked; four weeks later, it had 80 nights, including “many walk-in bookings." The hotel just hosted guests who drove 16 hours from Mumbai to get there.
Like Mihir Garh, Suryagarh also has bookings by families coming in by chartered flights in August. Its sister property, the Art Deco-styled Narendra Bhawan in Bikaner, has done even better with up to 250 room nights in July. Catchy promotions helped. Narendra Bhawan devised a package where guests paid nothing for their rooms but paid ₹3500 per head on a double occupancy basis for a set breakfast, and lavish Rajasthani lunch and dinner. Siddharth Yadav, who manages the hotel, says that occupancy rates have edged up to 25% to 30%. Debt-free and operating with a third of its total staff, “we are breaking even by the skin of my teeth," says Yadav.
Mid-sized hoteliers in Goa, Rajasthan and Kerala are at least used to a business characterised by rich, de facto dollarized tariffs priced for the foreign market in peak winter season from November to January followed by a tapering down till April. The challenge for guides and drivers of a fallow season that potentially lasts for as long as 18 months is much harder.
Jairaj K.R., a guide for 30 years in Kochi, reports that his only booking is with US clients for February 2021, but is contingent on a vaccine being available. He expects that work will resume only in October of next year. “We are at a standtill," Jairaj said. In the interim, he has been working the quarter of an acre of land around his home, growing vegetables for his family.
The road ahead
In 2020, the problem of ensuring mid-sized hotel companies have enough working capital will become acute in the coming months in the absence of payments for forward bookings in winter and a likely drop off in business from domestic travellers around long weekends such as the 15 August holiday.
The sharp deterioration in margins from keeping hotels open with relatively few rooms occupied, increased sanitising costs and luring customers with deep discounting adds to the challenge. The Hotel Association of India argues that an extended moratorium won’t be sufficient.
The complaint among small and medium-sized enterprises that India’s banks have turned risk-averse just when they are needed most is amplified among hotels. In some instances, banks even stopped disbursements on loans already approved.
“That working capital gap is what we are trying to bridge by knocking on the doors of banks. The banks are scared because they think this will be the last sector to recover," said Suryagarh’s Manvendra Singh. In late July, ITC’s results laid bare how sharp the downturn has been in the quarter ended 30 June even for a conglomerate that boasts many city hotels. ITC’s hotels division’s revenues were just ₹23 crore in the three months to 30 June, compared with ₹393 crore a year ago.
Many across the industry feel aggrieved the government and the banks have not done more to help. In the UK and Europe, governments have stepped in to pay large support subsidies towards employees’ salaries. Relais & Chateaux, an association of high-end hotel properties across Europe and Asia, recently received a €6 million interest-free loan for six years from the French government, reports Malabar Escapes’ Joerg Drechsel, who is on R&C’s board.
CGH Earth’s Dominic and many others believe the pandemic’s problems are made worse because hotels and even tourism is regarded as a luxury industry by the government. According to one estimate, about a quarter of jobs in Kerala are supported by tourism. Says Dominic, “It provides so much indirect employment—the taxi driver, the guide, the shopkeeper. So many policy makers in India seem ignorant of this." In an absurd example, the Ashok Gehlot government in Rajasthan sought to massively hike bar license fees paid by hotels in April, right in the middle of the pandemic.
But as long as most people are afraid to travel, it is not clear how much government support, even if forthcoming, can do to help the industry survive. Nikhilendra Singh, whose company runs Raas in Jodhpur and Devigarh in Udaipur, worries that many luxury travel operators in the UK and elsewhere, which have been critical to devising itineraries and directing business to Indian heritage and boutique hotels, might go bankrupt.
So called travel corridors between India and Western countries would need to operate without quarantines on both sides and are usually agreed to between countries where the virus is clearly being contained. Talk of travel corridors thus seems akin to a mirage in a desert until India has the pandemic under control.
Still, CGH Earth’s Dominic reports “healthy levels of enquiries about when flights will resume and when travel visas will be allowed from our traditional markets such as the UK and Germany."
The trouble is that even in more popular tourist destinations such as Spain and Vietnam, a sudden spurt in infections can set things back. Last week, the UK imposed a 14-day quarantine on travellers returning from Spain after cases rose to a few thousand a day and Vietnam, with just 600 cases in total, had to evacuate 80,000 tourists from Danang after a local covid outbreak.
Given this daunting reality in India and around the world, Nikhilendra Singh quips, “The Karnataka health minister was right: ‘Only God can save us.’"
Rahul Jacob is a former Hong Kong bureau chief for the Financial Times
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