The emergence of Omicron will impact hotel operations in the March quarter: ICRA
NEW DELHI : With Omicron infections surging in the past week across India and several states imposing partial closures or curfews, hoteliers are seeing cancellations for January 2022 even as bookings and inquiries for the next few weeks have declined, finds a new report from rating agency ICRA.
As the situation continues to evolve, he said that until December 2021 demand was strong and there had been only some reduction in discretionary business travel. Leisure travel, through December, he said, was largely unaffected. The third quarter of fiscal year 21-22 was significantly better than the agency’s previous projections, he said.
âWith the emergence of the Omicron variant and the surge in infections, several states have imposed partial closures. This will reduce travel in the coming weeks. We are seeing a drop in cancellations and hotel requests. One month Full closure will impact the pan-Indian occupation fiscal year 21-22 by four percentage points, âsaid Vinutaa S, assistant vice president and area head at the agency.
With the Omicron variant disrupting travel as infections rise, some slowdown is expected in the last quarter of the year from what was predicted earlier. But the ICRA clarified that there was no revision to its earlier expectations for fiscal years 21-22 since strong demand in the third quarter and the downward bias for the fourth quarter if there will be any bottlenecks. extended, will balance out according to the rating agency’s expectations.
For the third quarter of the current fiscal year, operating margins for hotel companies are expected to improve sequentially with better operating leverage due to the travel surge. He said the return to pre-covid levels for the industry is still in a few quarters.
CIFAR clarified that it continues to maintain a negative outlook on the industry. About 52% of its ratings for the sector are currently on a negative outlook. It has experienced around 27 downgrades in the sector since the start of the pandemic.
This despite the fact that there was constant demand around Christmas and New Years weekend in 2021. In addition, the hospitality industry had recovered after the second wave of covid in India in April of the last year, helped by the easing of restrictions, the high pace of vaccination and pent-up demand.
The demand for hotel stays in recent months has come mainly from stays, weddings, trips to drive-through leisure destinations and special purpose groups. Biscations (working out of a resort town) also experienced growth in the second quarter and early in the third quarter in fiscal years 21-22.
But even so, leisure destinations like Goa and Jaipur have seen healthy occupancy, with Goa’s occupancy exceeding pre-covid levels in recent months. Mumbai and Delhi have also registered over 60% occupancy since August 2021, while Pune and Bangalore have lagged behind. The recovery was driven largely by the occupation, with ARRs lagging behind in most markets. Leisure destinations and some upscale hotels were exceptions, reporting ARRs at pre-Covid levels or above.
The CIFAR sample reported a 117% quarter-over-quarter revenue improvement in the second quarter ended September 2021 and is expected to improve another 15% sequentially in the third quarter ended December 2021, given the good travel season during the holiday season.
Some level of recovery in business travel, mainly to project and manufacturing sites, was also observed in specific sectors, although it remained low compared to pre-crisis levels.
The occupancy rate of upscale hotels across India picked up from July 2021 after the lockdown was eased and was over 50% in the third quarter of fiscal 2022, better than their previous expectations.
Vinuuta S said the hospitality industry’s annual revenue will increase in fiscal 2022, supported by demand in the second and third quarters, closing at 50-55% of pre-covid revenue for the entire year. Net losses are likely to be lower from FY20-21, supported by the benefits of operating leverage and the continuation of some of the cost reduction initiatives undertaken previously. Hotels are also likely to report pre-covid margins at 85-90% of revenue in the future.
âLenders are cautious about this sector, and additional external financing should largely rest on the comfort of developers. In the medium term, we expect developers to provide capital or monetize assets held by companies, in order to improve the capital structure. ,” she said.
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