Hello Dear Reader
Hope you doing well.
As promised in the last blog, today we are going to discuss the impact and industry-specific future course of action. In this blog discussing one of the most affected sectors of the economy due to pandemic COVID 19 i.e “Tourism Industry”.
When we read the word “Tourism”,
what first thought comes in our mind? Probably
answer is Holidays? So, where have you travelled in pre- corona world?
We are aware that tourism the industry is not only about holidays or vacations whereas it includes business,
education, movie, economical, religious, experiential, event, medical, sports
travels and in various other forms as well. The World Travel and Tourism
Council reported that Indian tourism industry generated ₹16.91 lakh crore or us
can say 9.2% of India's GDP in 2018 and supported 4.2673 crores -jobs i.e. 8.1%
of its India’s total employment.
Since we are going to discuss the impact on the tourism industry. Before proceeding further on this topic, it would be better to know about the value chain of the tourism industry. Tourism industry value chain is very large and flexible based on the type of travel. Tourism Industry broadly comprises tour & travel like booking and reservations Eg. Online Portals, Transportation industry Eg Airways, Trains, local transportation, hospitality industry eg. Hostels, Hotels, Food and beverages, Tourism products such as for medical tourism hospitals be the part of the value chain. These are directly involved in the value chain, the indirect contribution, we can measure by giving a thought as a “tourist”, while you were on your last travel whatever you have consumed be the part this large value chain.
Due to COVID 19 and precautionary
measure of lockdown taken by most of the countries, all the key contributors of
this value chain facing a black swan situation. The tourism industry had faced many
slowdowns be it 2000,2008 and 2009 etc but this is unprecedented in history, where all kind of travel whether it is international or domestic both are at a standstill position. Most probably unnecessary travels would be the last thing to
do in your to-do list after lockdown. The industry might take more than 1.5 years to
come on normal operational levels. We are discussing in details two major part of value chain i.e aviation industry and hospitality industry.
Aeroplanes are grounded
for more than 50 days and there is no hope to restart operations in
upcoming 15-20 days. As per a recent report by the International Air Transport
Association stated that COVID 19 could impact over 29 lakhs Jobs in India’s aviation
sector. It is worth to mention that every airline job supports another 24 in
the travel and tourism value chain. So the actual impact would be much more than
direct job loss. Every grounded aircraft makes no money but it still
contributes to fixed cost such as Lease rentals, maintenance cost airport
charges, landing charges which are 35% of operational cost. Indian
aviation industry business models are not equipped for a long standstill since
it is once in a century event. As per media reports India’s 2 listed large
airline companies Indigo and spice jet could report combined losses of USD
1.25-1.50 billion in 4th Q2020 and 1st Q2021.
India government has not yet decided
on any sector-specific relief measure, which is more worrying since most of the countries including US, UK, EU countries, Singapore and UAE has taken various measure
to support distress airlines sector such as subsidies salaries, sector-specific
packages, reducing taxes etc. Indian Government has started the discussion on an exit
plan for lockdown but not yet any announcement made for the aviation sector. Now India
needs to focus on some specific airlines companies to keep them operational in the long run. The Government may not help all the airlines companies to survive. A few small
carriers may take exit route from this industry. The Indian government may support
by low-interest rate loans and bonds, direct cash infusion, lower GST rate on
air travel, waive off landing charges and airport charges, contribute certain
percentages of employee cost and lowering taxation of aviation fuel which
contributes 40% of operational cost. In case of the government don’t take any measures
soon, it may lead to the collapse of the aviation industry.
The COVID 19 impacted the hospitality
industry in an unseen and unheard manner in a short period of time, where most of the Indian
hotels are closed their operations. From the first week of March, hostels were
facing booking cancellations. The hospitality industry is a heavy investment and
operational cost-driven industry and a total of 6-7 months non-operation may lead to
a great depression. The Indian hospitality
industry can be bifurcated in 3 segments i.e Premium branded hotels,
Semi-Organised and unbranded or un-organised hotels/hostels. Looking at the current
trend of COVID 19 cases in India, there are hopes that from September onwards domestic
tourism can resume in India. It would be great for the hospitality industry
that international travel may also resume by year-end, which is season period for tourism
in India i.e. November to March. As per research report by HVS Research in case
demand pickup from October then there is an estimated decline by 20.5% points
would be in occupancy.
Here it would be important to discuss unbranded accommodations such as hostels/homestays Airbnb, Oyo Rooms etc.
In the last 5 year due to social media marketing, this segment of the hospitality
industry has grown in multi-folds. 65% of the operating cost of these hotels are fixed expenses such as rental and staff pays. Owner of these hotels is small
businessmen who don’t have an appetite to afford such fixed for a long span of time. This segment plays a huge role in hospitality and government should first focus on this segment and help operators to meet out such fixed cost until lockdown
ends.
Government has not yet taken any
decision on any sector-specific relief measures but the industry is expecting some direct
monetary support such as stimulus package, another extension in the moratorium
period and subsidies on heat-light-power consumption. Apart from this government
may reduce GST rates on hotels which resulted in the lower tariff. In the meantime, the government should allow the selling of liquor to hotels as well. Since 9-10% of
total revenue comes from the sell of the liquors only. The government should help out
in paying employee pays to minimize layoff in the tourism industry.
The government may incentivize domestic
travel by tax rebates or good campaigning Since most of states economics depend
upon tourism only such as Uttarakhand, Goa, northeast states. We may witness a new
trend in travelling where tourist loves to travel less populated states such
as Kerala, northeast states, Uttarakhand. Indian corporates are looking to establish
permanent work from home cultures or virtual meetings, it will result in
fewer business travels.
Apart from government support, the tourism industry should look
for redesigning their business practices which will help to sustain in the world
after corona as the world would not be the same as it was before corona. Any
further investment or expansion should be postponed for 1-2 years and refrain
from spending which does not have direct revenue benefits. Industry players should
focus on some ancillary revenues other than their core business activities. The focus should be on cost reductions and better efficiency. After assessment of
supplier capability and categorization of all operating supplies should redefine
credit terms. Re-negotiations can be done with landlords and employees for the
period until normal operations resume.
Hope this article helps
you to a better understanding of the challenges faced by the tourism industry and a way forward approach. Tourism is
a strong pillar of growth of Indian economy and government should come forward to
address the issues of the industry without any further delay which will restore
faith in government. We should use of lockdown period to plan a trip after lockdown
to explore hidden beauties of India. I am
completing the blog with two words “Incredıble! Ndıa”.
Keep Reading
Regards
CA Pankaj Sharma
+91 96361 25021
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