Ranjit Batra, President – Hospitality, Panchshil Realty pens his view on the emerging new order in hospitality

The hotel industry will see a paradigm shift in the post-COVID-19 world. We will soon be referring to it in terms of BC and AC — Before COVID and After COVID. A lot of people compare the resilience of the hotel industry during the SARS epidemic and the 2018 financial crisis, and it eventually got back after a lag of a couple of years.

Most of them believe — taking cues from the fact that almost 85% of hotels in China have opened now — that it will see a V-shaped recovery. I think that is a pipe dream. SARS was an epidemic and affected only 26 countries.

In India, the entire country was placed under lockdown at a snap of the finger. This will have a significant impact on all the key stakeholders — owners, operators and customers. There will be some short-term impact and some long-term structural changes.

HVS India estimates hotel revenues in India to decline by anywhere between $8.5billion and $10 billion in 2020, not to mention the job losses. Let us take the impact on different stakeholders.

THE OWNERS

Indian owners will be staring at a loss for 2020, with a glimmer of hope that 2021 at least sees them break even. Taking a cue from HVS estimate of revenue loss and assuming average NOP margins of 25% to 30%, the owners would be staring at a loss of NOP of almost $2.5 billion to $ 3 billion. The owners will also have to bear the opening cost, once the hotels are ready to open after the lockdown.

THE OPERATORS

Operators have long maintained that their interest is aligned to that of owners as their fees are tied to revenues and net profits. However, it will be interesting to see whether the operators step up to the plate and ease the financial burden of the owners, especially when most of the owners are at their wit's end. The test of a relationship is always in hard times only.

It will be interesting to see how the relationship between the operators and their employees will pan out, with some operators choosing to seek pay-cuts from their employees, while some choosing to stand by them, making sure there are no pay-cuts and insisting that owners toe the line

THE CUSTOMERS

The increase in a web-based meeting on the likes of Zoom and CISCO WebEx, coupled with the shift towards work-from-home, will lead to business travel being curtailed to a large extent in the near future. Hotels, mainly dependent on business travellers, will require significant time before their occupancies see some traction. Usually, domestic leisure destinations should rebound first, with domestic travel restrictions being eased first.

THE WAY FORWARD

The future will belong to the owners with a stronger balance sheet and operators who stand by the owners. The customers will vote with their feet for hotels that they feel safe in and care about the environment.