Rebooting the hospitality sector after Covid-19

Hotel across the country are closed since march with practically zero revenues and high fixed costs.

The global economy is going through an unprecedented phase due to Covid-19 of which Tourism and Hospitality sector is one of the worst impacted. With large scale cancellations, shut down of businesses, zero tourism, this has had a ripple effect to the Hospitality Sector. Hotels across the country are closed since March with practically zero revenues and high fixed cost has led to serious impairment of balance sheets.

The sector faces serious issues for its survival and revival in the near future. It’s a clear case that this sector needs major dosage of policy support from the government. The Federation of Associations in Indian Tourism & Hospitality (FAITH) had estimated total direct and indirect job losses due to Covid-19 on the tourism value chain to be around 70% of the total estimated workforce of 5.5 crore (both direct and indirect) i.e. 3.8 crore.

The Indian tourism and hospitality sector comprising of hotels, restaurants, tour and travel operators, wedding and conference planners, etc contributes more than one-tenth of the GDP i.e. more than US$ 250 billion and is also considered to be amongst the top job creating industry. As per a report by HVS and Anarock, the Indian Hotel industry may lose Rs 90,000 crore in the calendar year. The Federation of Hotels and Restaurant Associations of India (FHRAI) has recently warned that almost 70% of hotels and restaurants could face possible closure in the next 30-45 days unless immediate relief is provided by the government.

During 2019, foreign tourist arrivals (FTAs) in India stood at 10.89 million and during first two months of 2020, FTAs were 2.13 million and 0.73 million tourists arrived on e-Tourist Visa. However due to Covid-19 related travel restrictions and cancellations, the FTAs in March 2020 has come down drastically to 0.3 million and due to International travel ban it was close to zero in the last 2 months.

As per the data furnished by the Ministry of Tourism, there were 1854.93 million domestic tourist visits all over the country during 2018, these numbers are almost 20 times the size of the FTA highlighting the importance of quickly reviewing the domestic tourism. As highlighted above, the sector faces serious issues for its survival and revival, and it requires the government to take immediate measures. Many countries in the AsiaPacific region have introduced stimulus packages and other policies, including those related to employment, in direct support to the much-impacted tourism and hospitality industry.

Such assistance is intended to help enterprises weather the period of lost income while the pandemic lasts, preventing enterprise closures and ensuring that tourist workers will have jobs to return to when the Covid-19 situation normalises. Some noteworthy illustrations are shared below: In , the government, in late February, announced its aim to re-stimulate tourism by focusing on ten domestic destinations, which will receive financial support.

The aid package was to include funds dedicated to lowering domestic airfare prices for those destinations by 30%. During the same period, jet-fuel prices and airport charges were to be lowered at nine airports. For six months, the government would subsidise taxes owed to regional governments by restaurants and hotels located in those ten destinations. In , the Ministry of Tourism, and the government, in collaboration with airlines, resorts, and hotels also offered discount vouchers for tourists starting March 2020.

Further Malaysia approved a six-month tax deferment for travel agencies, hotels, airlines and other businesses in the tourism industry starting 1 April 2020. Hotels will also be exempt from service tax from March until August, further discounts are being provided on monthly electricity bills for 6 months government is offering up to 100 billion baht (THB) in soft loans for tourism operators, while debt suspensions and interest rate reductions can be requested by those who do not need fresh funds.

The Tourism Ministry will return THB 1.4 billion in deposits to tour companies that registered with the Tourism Department, with each company receiving 50-70 per cent of the deposit back. ’s relief package includes tax rebates and financial breaks for businesses and households with a special focus on “tourism, aviation, retail, food services and point-to-point transport service sectors”.

Property tax rebates proposed are as high as 30 per cent for hotels and meeting venues. In , the government has been paying AUD 1,500 fortnightly per employee from March 30, 2020. Further, AUD 1 billion has also been set aside to support sectors including tourism which are disproportionately affected by economic impact of Covid-19. The Union Government has announced significant reforms and come up with a special MSME focused economic package.

The new definition of MSME, takes investment and annual turnover into consideration and is expected to significantly help the players in tourism and hospitality sector to get benefits like: : This scheme is intended to help MSMEs by providing emergency Credit Line guaranteed by government. These loans, which should be availed before October 31, 2020, will have a four-year tenure and moratorium of 12 months which would come in handy for the MSME businesses.

Eligible players in the hospitality sector who have not defaulted in their loan repayment and have outstanding loan amount of not more than Rs 25 crore can avail additional loan of 20% on entire outstanding as at February 29, 2020. : The government has inter-alia set aside Rs 20,000 crore as subordinate debt to help about two lakh MSMEs with stressed accounts or non-performing assets (NPA). Under this scheme, promoters of the MSME including hotels/tour operators and the like who were unable to raise formal debt, will now be given debt, which will then be infused as equity in the business subject to necessary conditions. on all loan repayments until 31st August, but subject to interest being levied on this period.

Considering the above discussions, provided below are some of the measures that the government can provide: In view of the massive job loss situation and being a sector which is highly unorganised, appoint a think tank which comprises of key participants from ministry of tourism, state government, hotel operators and industry associations to evaluate key reforms for survival of the sector and specifically boost domestic tourism like: Targeted campaigns like seen in Indonesian example above to promote select tourist destinations in green zones starting with domestic tourism; engage Indian embassies overseas to bring discerning tourists on chartered flights to promote themes like wellness, Ayurveda and re-instate e-visa to countries which are Covid-free.

Allocate a corpus fund as seen in Thailand or Indonesia which can be provided to states to provide loans to allow players in this sector provide for wages, guarantee employment and undertake sanitisation measures. Encourage states to reduce property taxes on hotel properties and consider reduction of state taxes on alcohol and ATF.

With minimal revenues of hospitality industry, shortterm interest free loans or loans at low interest rates for funding operating costs, payment of salaries would help in rebuilding the business and tide through the uncertain times. Reduction in GST rates to boost tourism by reducing GST to 3 percent for budget hotels/tour operators/agents and 5 percent for others (premium hotels) Allow innovative measures including allowing the hotel/tour operators/ agents to utilise the GST collected for the FY 20-21 to be retained in the business for operational requirements and allow the remittance of this GST in the month of April 2021 With travel restrictions being lifted in a phased manner, it is expected that travel and hospitality industry is likely to see a slow recovery.

The industry will be required to undertake a significant change with widening the usage of technology and have appropriate health and safety policies in place for guaranteeing safety of travellers. India should also take such forward-looking steps to revive this sector and utilise the next few weeks to ensure liquidity is made available with the industry to re-open their business.