Hospitality sector is a major winner amidst reviving economic activity

The aviation industry is benefiting from better domestic traffic and further growth with the resumption of all flights on international routes. The easing of restrictions on flights to and from India has also cheered the hospitality industry, which is attracting investor attention with improving occupancy levels. Improved investor confidence is reflected in 20-38% gains by stocks like Lemon Tree, Indian Hotels and EIH Ltd during March itself. Experts believe that these stocks are likely to rise further.

The hospitality industry was one of the hardest hit during the pandemic, said Mitul Shah’s head of research, Reliance Securities Ltd.

The impact of the disruptions caused by the spread of COVID-19 has been significant over the past two years. According to experts, around 20-30% of hotels and restaurants in India are estimated to be permanently closed from 2020. This impact is also important for the Indian economy as the tourism and hospitality sector is one of the major foreign exchange earners for the country.

The travel and tourism industry has seen some green shoots during the second half of calendar year 2022, but the Omicron strain of coronavirus spread by the end of the third quarter and took away profits. The recovery now holds some promise.

Shah expects the demand environment to improve rapidly, given the immunization campaign and improving economic indicators. Experts like Shah expect consumption to reach pre-Covid levels in H1FY23 due to changed travel in the domestic tourism segment, demand for wedding season and the possibility of reopening of doors to foreign tourists from Q1FY23, Shah said. Hotel companies are now lean in terms of cost. This, with less room to supply, will make stronger players stronger in the long run.

Experts like Ashutosh Tikekar, Head of Global Markets, BNP Paribas feel that the hospitality industry is benefiting from the pick-up in demand and may continue to accrue in the near future. However, Tickner feels that the impact of high inflation on disposable income needs to be looked at. An increase in inflation due to higher oil prices can affect spending power, reducing the growth rate of sectors. These factors are to be seen with rising aviation turbine fuel prices in the aviation sector, although the sector is benefiting from the opening up of economic activity.

According to a report by ICICI Securities, the weekly average daily fliers rose to 359,000 for the week ended March 26, 2022, from 332,000 in the previous week. All major airlines saw a gradual increase in the passenger load factor in February ’22, the report highlighted.

Shah is also positive about the aviation sector with a potential increase in international capacity and help offset rising airfares due to rising demand and rising crude oil prices. International routes also mean higher revenue per seat.

Shah, however, cautioned that in the short term higher fuel prices could impact the company’s profitability, though in the long term, aviation is also one of the promising sectors to drive India’s growth story. Fuel costs account for about 40% of airlines’ operating costs.