Small will be bigger in the hotel industry… These will be cost effective and mean less debt’

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The hospitality industry has been amongst the worst hit by the outbreak of Covid-19 and the subsequent lockdown. Kapil Chopra, former president of The Oberoi group and founder of The Postcard Hotels, speaks to Amin Ali about possible solutions:

What is your assessment of lockdown’s impact on hospitality?

The hospitality industry would suffer due to lack of business, and also lack of a stimulus and support from the government. Due to closure of outlets and downsizing in operations, 40% people would lose jobs. The food services business in India is estimated at $61 billion and hotels at $13 billion. Now imagine zero revenue for three months. Out of the total of $74 billion, 25% roughly translating into $18 billion or Rs 1.3 lakh crore is already lost in first quarter of FY 20-21; 30% restaurants will not reopen and many budget hotels may close permanently.

What are your suggestions to revive the sector?

The ESIC (Employees’ State Insurance Corporation) has a big corpus. Some money should have been given out of that to employees in hospitality and aviation. Both sectors are hit hard and this will go to employees with lower salaries even if it is Rs 5,000 a month. UK guaranteed 80% of wages for employees in hotels while Bhutan gave Rs 12,000 per employee. Secondly, help people kickstart the business by giving tourism sites on revenue share so that hotels and restaurants can come forward and build quickly without the red tape. Lower the excise and licence fee for alcohol and yet retain revenue due to increased demand.

Also, for hospitality loans, there should be interest deferment of at least 12 months. Restaurant and hotels with a good credit score, should have an option for easier access to working capital at 8% interest rate. This interest rate post one-year deferment will kickstart the economy. This should be provided to distressed industries for the next 12 to 24 months. That’s what some banks charge for housing loans and are still profitable. Our sector got a total miss from government while it was announcing relief measures.

When will travel and hospitality be able to make a comeback from this ‘zero revenue’ quarter?

Businesses will start to reopen in June but plans to ramp up operations will take time. Our businesses have been reset by an average 12 months. Broadly, if you are able to achieve the number of February 2020 in Feb 2021, count yourself lucky.

This is also an important time for companies to state what their purpose of being in existence is. Is it only profit or do they want to leave a legacy as a company that approached people with compassion? It will be about the kindness that you approached employees with and how much did they feel a part of the company. At the end of the day, if the lifecycle of a business was 20 years, then this is a mere 3-months blip in a 20-year cycle. Approach it with a level of optimism. Look at businesses in a strategic way. Don’t look at it tactically. There is no competitive pressure right now, meaning it’s a great time for reflection to build a stronger and resilient business.

Does the business model of the hotel industry change from here?

Small will be bigger. Developers conceptualising one big 200 room hotel will look at multiple properties of 25 rooms each as these will be cost effective and mean less debt on the balance sheet. Also, in near future, people will be comfortable being in smaller boutique hotels with 10-20 guests rather than a hotel where you have 100 people at the breakfast buffet or at the pool. Also, these will be easier to sell as 4-5 families that have followed all quarantine protocols will like to go ahead and book the entire boutique hotel. That is the behaviourial change we are seeing at our hotels.

Which tourism segments will revive first?

The first to bounce back will be budget branded business hotels. People will be able to upgrade their stay and choose these hotels by paying the same price they paid for unbranded ones. This segment will recover fastest. This will be followed by high end domestic leisure as travellers that went abroad for vacations will opt for domestic holiday in India at almost one fourth the price. Driveable destinations will recover faster and since people will be heading out after a while, length of stay will go up at these destinations.

Luxury business hotels, especially those in suburbs, will be the last to recover as international travel is not expected to pick up before November. Delhi, Mumbai, Chennai, Hyderabad and Bengaluru that had a lot of business visitors should be ready for a tough time for the next few months.