Here's why MakeMyTrip, OYO, Lemon Tree and likes may reap the most out of the long-term recovery in hotels
- India’s hotel industry is headed for a slow recovery from the coronavirus pandemic, it is also poised to be a major contributor to online travel’s doubling growth over the next five years.
- A Goldman Sachs report pegs hotels to be the fastest growing segment within the sector with a CAGR (compounded annual growth rate) of 20%.
- Even with the hopeful outlook, hoteliers will have to be patient as the recovery is expected to be slow in the near-term.
AdvertisementThe battered Indian hospitality industry can make room for growth over the next five years, if they survive the low phase during the pandemic and the key to survival is a robust digital strategy. India’s millions of hotel rooms will have to opt for a digital transformation.
Even though the situation looks bleak, Goldman Sachs believes that ‘all hope is not lost’ for hotels in the online space. The report dated July 2020 says that the online travel industry in India is expected to double in the next five years.
And hotels will be the fastest-growing segment within the sector with a CAGR (compounded annual growth rate) of 20%. “We estimate hotels alone will contribute c.47% of the online travel revenue pool in India by FY25 (36% in FY20), making it the key battleground within the space,” said the report.
Adapting technology and joining branded hotel chains will be key to survival
India’s current online penetration is one of the lowest in the world at just 22%, according to the report. Out of the 2 million rooms accounted for hotel rooms in India, only over 140,000 are affiliated with hotel chains.
Long-term growth will be driven by budget hotels falling under the unorganized category, who are deeper in the Indian market and can be brought online, believe analysts at Goldman Sachs.
“These last few months have proved that branded hotels are and will continue to be the safest environment even in the worst pandemic. Along with safety, hotel brands that figure out how to offer meaningful experiences will lead the way,” said Ankur Gupta, Managing Partner & Head of India Real Estate, Brookfield Asset Management in a report by JLL.
All hope is not lost
While hotel chains like Lemon Tree, Indian Hotels Company, which is a subsidiary of Tata Group, EIH which runs Oberoi and Trident, and hospitality unicorn OYO are all set to benefit from it, the biggest beneficiary could be MakeMyTrip which currently accounts for 50% of the online hotel aggregator market.
For the first three months of the year, MakeMyTrip had reported a 15.9% fall in adjusted revenue to $137.2 million. The NASDAQ-listed company also posted an adjusted operating loss of $10.3 million.
AdvertisementMakeMyTrip, which is set to announce its earnings results today, had said during the last earnings call that the current quarter might see its losses ballooning to over $20 billion, but over the next few quarters they will bring down the loss to the $10 million range before targeting breakeven.
Recovery will be slow
The Hotels Association of India recently requested the government to step in to help the sector citing losses to the tune of ₹90,000 crore this year. With hotels being shut for over three months and now opening gradually across the country, the listed hoteliers have all gone to report massive losses for the first quarter of the financial year.
Patanjali Keswani, Chairman & Managing Director, Lemon Tree let out a word of caution even said that while he is hopeful for a gradual recovery in the second half of the year, he is still shoring up cash for the next one year, "assuming the worst-case scenario."
MakeMyTrip has liquidity of nearly $168 million as of 31st March which will help them survive for two years.
AdvertisementBut despite the weak beginning to the financial year, the Unlock India phases and the gradual opening of hotels, most recently in Delhi, has revived the hopes and the optimism reflects in share price of the listed hoteliers this month. .
|Hotel Chain||Stock action in Aug so far|
|Indian Hotels Company||24.8%|
Revenge travel will help the battered industry recover
Revenge travel will help the hotel industry recover. The term gained popularity in China, after people having been stuck in a lockdown, started travelling within the country, to be able to just to get out of their homes. A Mckinsey report says that the end of lockdown would mean the first thing people would want to do is eat out, and the second thing is travel.
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