Omicron spread to impact hotel operations in Q4: ICRA

While the situation is still evolving, it said that till December 2021, there was strong demand and only a few cuts in discretionary business travel had been made. Leisure travel, until December, remained largely unaffected. The third quarter of FY 21-22 was much better than the agency’s earlier estimates, it said.

“With the emergence of the Omicron variant and a sharp rise in infections, many states have imposed partial lockdowns. This will reduce travel over the next few weeks. We are seeing cancellations and hotel inquiries reduced. One month of complete lockdown Finance The year will impact 21.-22 by four percentage points in all-India occupancy,” said Vinuta S, assistant vice president and sector head at the agency.

Some slowdown is expected in the last quarter of the year compared to earlier expectations, with the transition to the Omicron variant disrupting its journey. But ICRA clarified that there is no revision in its previous expectations for FY21-22 because of strong third quarter demand and a downward bias for Q4 if there is a prolonged lockdown, balancing as per the rating agency’s expectations. Will happen.

For the third quarter of the current financial year, the hotel companies expect better operating profit on the back of pick-up in travel along with a sequential improvement in operating margins. It said a return to pre-Covid levels is still a few quarters away for the sector.

ICRA clarified that it however maintains a negative outlook on the industry. About 52% of its rating for the sector is currently on a negative outlook. This has seen the sector fall about 27 percent since the start of the pandemic.

This is despite the fact that there was constant demand around Christmas and New Year’s Eve in 2021. Moreover, the hotel industry was recovering after a second wave of Covid hit India in April last year, easing restrictions, high-speed vaccination and stalled demand.

The demand for hotel stays over the past few months has mainly come from stays, weddings, travel-worthy leisure destinations and special purpose groups. The second quarter and the early part of the third quarter also saw traction in biscation (working from a resort) in FY 21-22.

But even then, leisure destinations like Goa and Jaipur saw healthy occupancy, with Goa’s occupancy exceeding pre-Covid levels in the past few months. Mumbai and Delhi also witnessed over 60% occupancy since August 2021, while Pune and Bangalore lagged behind. The recovery has been largely occupancy driven, with ARR trailing in most markets. Leisure places and some high-end hotels were the exceptions, reporting ARRs at pre-Covid levels or higher.

The ICRA sample reported 117% quarter-on-quarter revenue improvement in the second quarter ended September 2021 and is expected to improve by 15% sequentially in the third quarter ended December 2021, marking the journey to a healthy festive season. Seeing has been seen.

Some level of business travel pickup, primarily for project sites and manufacturing locations, was also observed in specific areas, though it remained lower than pre-Covid levels.

All India premium hotel occupancy picked up after the relaxation of the lockdown from July 2021 and stood at 50%+ in Q3 FY2022, better than their earlier expectations.

Vinuta S said the year-on-year revenue growth for the hotel industry in FY22, supported by demand in Q2 and Q3, closed at 50-55% of pre-Covid revenue for the full year. The net loss is expected to be lower as compared to FY 20-21, supported by operating leverage benefits and subsistence of some cost-saving initiatives taken earlier. Hotels are also likely to report pre-Covid margins at 85-90% of revenue going forward.

“Lenders are cautious as far as the sector is concerned, and the incremental external funding is expected to be largely based on promoter comfort. In the medium term, we expect promoter capital structure to improve with capital appreciation. Will bring or monetize the assets held by the companies,” he said.