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Indian travel and hospitality industry infected with COVID-19

Many travel and hospitality trade associations have asked the government for respite in taxes and a support fund.

Travel- Photo by Element5 Digital on Unsplash Million of travelers have cancelled their plans due to the coronavirus outbreak. Photo by Element5 Digital on Unsplash

Earlier this year, Gurugram-based B2B travel startup Outsite VR, which creates virtual tours of select destinations, was in talks with multiple tour operators, travel agents, and hotels for a possible partnership. However, all those discussions have been shelved as of now, as the travel and tourism industry tries to find a firm footing at a time when the novel coronavirus has forced everyone to cancel their plans.

“A couple of contracts have been delayed. The tour and travel agents do not have deep enough pockets and they do not want to get their hands into innovative solutions like VR (virtual reality) or immersive experiences at the moment. These people have to save themselves first,” said Mayur Karodia, co-founder, OutsiteVR.

“There is definitely a lot of panic in the industry. People are holding back and sitting tight.”

Since the time the first case of COVID-19 was reported in India in late January, the number of novel coronavirus cases has shot up to over 600. Schools, restaurants, and shopping malls, among others, have been shut down, while businesses have implemented work from home policy.

After the first three reported cases, India moved fast and suspended the visa of Chinese nationals in the first week of February. Later that month, it suspended visas for tourists from Italy, Iran, South Korea, and Japan. However, as the cases continued to rise, India initially suspended visas for all international travelers till April 15, followed by a ban on all international flights for a week beginning March 22. Last week, all domestic flights were also grounded till March 31.

When all these restrictions couldn’t contain the spread of the virus, on Tuesday, Prime Minister Narendra Modi declared a national lockdown for three weeks to safeguard its 1.3 billion population against coronavirus. As India continues to fight the pandemic, travel and hospitality sectors are going through their worst days.

An unprecedented crisis

With the coronavirus spreading in the country fast, the travel industry veterans KrASIA spoke to, said travel has come to standstill.

“Outbound (travel outside the country) is on a total halt. Nothing is moving. Almost 90-95% cancellation has happened. We are in a blind spot right now on how long it is going to continue,” Riaz Munshi, president, Outbound Tour Operators Association of India (OTOAI), told KrASIA. “It is a very difficult time. I have never seen such a rough time in 30 years of my career.”

“There are 60-70% of cancellations among those who were planning to travel in May or June which is more of a worry for us,” he said. “They also think the situation is not going to recover fast, and even if it recovers, it will take some time to come to terms that it is safe to travel.”

Munshi added that over the last few weeks inbound (travel to India from outside) was affected badly as well. And with the ban on international flights, things have taken a turn for worse.

“There are a lot of companies that would go bankrupt. It is not easy for people who invest so much money in infrastructure to work on zero revenue,” Munshi said. 

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According to the industry body ASSOCHAM (The Associated Chambers of Commerce and Industry), the total tourism business activity of India is estimated to be USD 28 billion. It said the country has “lost about 1.5 million foreign tourist arrivals in March and April,” which will incur a loss of about USD 1.9 billion for the tourism industry.

In a letter to finance minister Nirmala Sitharaman, dated March 20, industry bodies Federation of Association in Indian Tourism & Hospitality, Confederation of Indian Industry, and ASSOCHAM said, the Indian tourism industry (travel and hospitality) is looking at pan-India bankruptcies, closure of businesses, and mass unemployment as a result of this pandemic. 

The travel industry associations estimate that about 70% of the direct and indirect workforce of 55 million in the tourism sector may get unemployed if the situation persists.

“Tour operators and travel agents are all sitting empty. So it is practically impossible to pay salaries and other expenses for two months without any work,” said Chetan Gupta, general secretary, Association of Domestic Tour Operators of India, an industry body.

“There are many travel companies that have shut down their business for two months, hoping people will start working from May.”

Indian airline companies, which were already in duress for having to operate in tight margins, are now going through a zero-revenue period due to the outbreak. “At an industry level, consolidated losses are estimated to be in the range of USD 500-600 million for the quarter (excluding Air India),” said aviation consultancy CAPA India last week in a research note. 

CAPA India further added that without any “serious and meaningful government intervention,” several Indian airlines may end up “shutting down operations by May or June due to lack of cash.” Even the domestic travel industry, on which some of the travel companies were initially relying on has spiraled down after a complete lockdown was announced.

Before the government suspended domestic flights on March 23, some airline companies had already reported more than a 30% drop in domestic travel, while airfares in the popular domestic routes were reduced by 20-25%. IndiGo, which dominates the domestic airline market with a 50% market share, has already announced to cut down its domestic capacity by 25% until the situation improves.

The colossal collapse of the travel sector left the hospitality industry in shambles. The nationwide occupancy across thousands of hotels fell an all-time low last week. Now with the ongoing 21-day lockdown, practically all the hotels have closed down.

In the best-case scenario, where the outbreak only disrupts operations for two to three months, the overall loss of total revenue for the approximately “140,000 branded or organized hotel rooms across the nation will be anywhere between USD 1.3 billion to USD 1.55 billion,” according to hospitality consultancy, Hotelivate.

It expects an “additional loss of anywhere between USD 4.2 billion to USD 4.7 billion in total revenue across the alternate accommodation industry,” such as bed & breakfast, guest houses, and unbranded hotels that constitute 95% of the supply chain.

Meanwhile, major Indian online travel agents like MakeMyTrip and Ixigo, which earn about half the revenue from selling airline tickets, and remaining from hotels, are facing the brunt of the deep slump in the aviation and hospitality industry.

Earlier this month, domestic OTAs, which have publically supported the government’s call to ban foreign tourists from entering the country, reportedly saw 20-25% cancellation in bookings.

Both, MakeMyTrip and Ixigo, declined to comment for the story.

While major OTA’s have reportedly said they expect international travel to be down through the summer, they were a bit optimistic on domestic travel. 

According to a report by wire service PTI, MakeMyTrip this week told its employees that co-founders Deep Kalra and Rajesh Magow would draw zero salaries from April 2020 while the rest of the leadership would take 50% pay cut to overcome the rough patch.

The road to the future

Madhuri Mulwani, Sales head for WanderOn, a small travel startup that organizes group trips and customized trips to locations such as Spiti Valley, Leh and Ladakh, Meghalaya, Bali, and Bhutan, told KrASIA that the company has been busy with canceling all the trips that were lined up through the year, talking to their vendor partners, and clients to help them cancel their tickets. 

“If people are not canceling their trips, we are canceling,” she said. “We can’t conduct any trips when such things are happening. If someone falls sick on the trip, that is also our responsibility.”

Mulwani said the company hasn’t decided on how to deal with the situation going forward. WanderOn is not alone in its confusion. Most of the travel services have no clear ideas as to when operations can return back to normal, although everyone is hoping it won’t take more than two months. 

“The Indian (travel) market still doesn’t have a clear direction or understanding of the situation as of today,” said Chetan Kapoor, co-founder and COO at travel research firm Videc. 

To survive the storm, many airlines such as GoAir, which were earlier doing free cancellations and rescheduling for March and April trips, are now charging for cancellations while still offering free rescheduling, which will ensure their clients stick with them.

Over the last week, many hotels trying to promote staycation–staying at local hotels–to fill up the rooms. Others offered their rooms to those who needed to be in quarantine.

Many hotels came up with the staycation offering for social distancing. They were thinking of ways to get people in, so as to make some money,” said Videc’s Kapoor. But with the lockdown across the nation, “some of them are opening up to become care facilities.”

For instance, hotel chains including Ibis and Lemon Tree are already offering their rooms for quarantine purposes in New Delhi. Similarly, Indian hotel chain Oyo recently said it has reached out to the government to convert its facilities across the country in quarantine facilities for an affordable fee.

However, the outlook remains grim.

In other countries, we have seen within two weeks of the shutdown, some airlines have filed for bankruptcy and requested bailouts, while hoteliers are seeking government support,” he said. “In India, it won’t be different.”

Indeed, many travel and hospitality trade associations have reached out to the government asking for respite in taxes for at least the next twelve months, and a support fund to pay salaries of affected tourism employees, among other things. The aviation industry is reportedly seeking a USD 1.6 billion rescue package from the government to fight the crisis.