Pan-India hotel occupancy rate may hit multi-year low: ICRA

Ratings agency ICRA expects pan-India hotel occupancy rate to hit a multi-year low in FY2021.

According to ICRA's sector report, pan-India occupancy rate in FY2021 is expected to be 35-40 per cent.

The pan-India average occupancy in FY2020 was down to around 65 per cent from around 69 per cent in FY2019, and in '2M FY2020', it drastically declined to 8-12 per cent.

"Occupancy declined in all the key markets in Q4 FY2020 and YTD FY2021, impacted by the travel restrictions and lockdowns to contain the virus spread. Only one-third of the hotels were open in April and May 2020, with demand coming mainly from medical or other frontline workers, stranded travellers and work-from-hotel guests," the report said.

"Given the grim scenario, ICRA expects the pan-India occupancy to hit a multi-year low in FY2021 at 35-40 per cent and consequently result in sharp decline in RevPAR in FY2021. There will also be adverse impact on other key industry parameters, consequently."

As per the report, CY2020 will be the worst year for International Tourist Arrivals (ITAs) and this is unlikely to recover before CY2021.

"Progressive M-o-M and Y-o-Y decline in ITAs were witnessed in Q1 CY2020. While ITAs grew by 2 per cent in January 2020, they were down by 9 per cent and 57 per cent respectively on Y-o-Y basis in February and March 2020," the report said.

"The WTTC expects a decline of 58-78 per cent in ITAs for CY2020 with demand revival linked to the speed of containment, duration of travel restrictions or border shutdown; and the depth of economic recession."

As for the recovery, the report cited that lower-end business travel will recover first and group business and MICE segment will be the last to recover as cancellations will continue well into the end of 2020.

Further, drive-to-destinations will recover earlier than long-haul markets which will take 12-18 months to recover, depending on a cure or vaccine.

"The industry is expected to witness over 90 per cent revenue contraction during Q1 FY2021 leading to severe cash bleed," the report said.

"Companies are undertaking several cost control measures like head count reduction, salary cuts, and deferring several costs; and variabilising others like maintenance contracts, lease payments, etc. Going forward, FY2021 revenues and margins are expected to witness sharp decline and the industry will take over two years to reach pre-Covid revenue levels."

In addition, the report said operating revenues are estimated to decline of 56-57 per cent in FY2021.

The operating margins are expected to "decline from 21.5 per cent in FY2020 to 12.8 per cent and the NPM to a steep loss".