Omicron variant has dampened sentiments for the hotel industry and prolonged lockdown will impact the fourth quarter of FY2022 operating metrics, said credit rating agency ICRA.

“With a sharp rise in infections in the last one week and several States imposing partial lockdown, hoteliers are witnessing cancellations in January 2022 bookings and the enquiries for the next few weeks have come down. The situation is evolving. Until the end of last month, there was only some cut down in discretionary business travel. Leisure travel largely remained unaffected in December and no major cancellations were witnessed” ICRA said in a statement.

Traction seen in Q2

The hotel industry demand has recovered at a sharp pace post-Covid 2.0, aided by easing restrictions, the high pace of vaccination, and pent-up demand. The demand for hotel stays in the last few months has come primarily from staycations, weddings, travel to driveable leisure destinations, and special-purpose groups. Biscations (working from a resort) also saw traction in Q2 and the early part of Q3 FY2022. Business travel pickup, mainly to project sites/manufacturing locations, was also seen in specific sectors, although it remained low compared to pre-Covid levels. However, demand will be curtailed in Q4 FY2022, at least in January 2022, because of the Covid wave.

Says Ms. Vinutaa S, Assistant Vice President and Sector Head, ICRA, “The Pan-India premium hotel occupancy picked up from July 2021 post relaxation of lockdown and was above 50 per cent in Q3 FY2022, better than our earlier expectations. The QoQ revenue improvement was approximately 117 per cent in Q2 FY2022 and is expected to improve by another 15 per cent sequentially in Q3 FY2022, supported by the healthy festive season travel.

She added that for nine months FY2022, the estimated Pan-India premium hotel occupancy was nearly 40-42 per cent (up from 20-22 per cent during nine months of FY2021). The Pan-India ARRs were at a 25-30 per cent discount to pre-Covid levels, although some high-end hotels and leisure destinations have reported pre-Covid ARRs in the last few months. The Pan-India RevPAR remained 50-55 per cent lower than pre-Covid levels and at 60-65 per cent discount to the FY2009 peak for the said period. With the emergence of the Omicron variant and sharp rise in infections, several states have imposed partial lockdown. This will curtail travel over the next few weeks. We are witnessing cancellations and hotel enquiries have dropped. A month of complete lockdown will impact FY2022 Pan-India occupancy by 4 percentage points.

Slowdown expected in Q4

Q3 FY2022 was significantly better than ICRA’s earlier expectation. However, with the Omicron variant, there will be some slowdown in Q4 FY2022, compared to what was anticipated earlier. There is no revision in ICRA’s earlier expectations for FY2022 currently, because of a strong Q3 FY2022. However, the situation is evolving, and there could be a downward bias to our estimates in case of prolonged lockdowns.

ICRA continues to maintain a negative outlook on the industry. About 52 per cent of ICRA’s ratings are on a negative outlook currently. ICRA has witnessed about 27 downgrades in the sector since the start of the pandemic.

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