By Ashwini Kakkar, former Vice Chairman, Mercury Travels; former President Travel Agents Association of India, and former President of the Bombay Chamber of Commerce and Industry. This article first appeared in Business World.
Coronavirus has emerged as a major black swan event and dealt a crippling blow to the entire Travel and Tourism industry, not only in India, but in the entire world. The disruptions that it has caused are across the entire value chain i.e. Airlines, Hotels, Travel Agents, Tour Operators, Restaurants, Rail Networks, Roadways, Water Transport and Cruises, Taxis, Auto rickshaws and a slew of other indirect providers. Equally, all segments within inbound, outbound, and domestic arenas, like Corporate Travel, Leisure Holidays, MICE, Weddings etc. have all come to a grinding halt.
COVID19’s Impact on GDP
Between Non-Resident Indian’s (NRI) and foreign visitors, 11 million of them spend around USD 28 billion in a year, 28 million outbound Indians spend about USD 25 billion and 1.8 billion domestic tourists are the mainstay of the local industry.
While airlines had a good February with 9 per cent growth in traffic carrying 12.3 million passengers across India, from around mid March onwards, both Domestic and International flights were all grounded, resulting in virtually no revenue (except minor cargo revenues), but no let up in continuing costs. Visas were abruptly suspended with no new ones on the horizon, hugely affecting companies like VFS as also all the travel insurance providers. International Air Transport Association (IATA) estimates that the global loss of revenue to airlines will be about USD 314 billion while pending customer refunds due to flight cancellations stand at USD 35 billion. The United States (US) government has indicated a bailout package to US Airlines of USD 50 billion of which 25 billion has been cleared on 15th April.
As corporate India works from home, and Air, Rail and Road connectivity has been shuttered, the Hotel industry faces a loss of Revenue of around 1.10 lakh crores. Almost all hotels in India are running at very low single digit occupancy rates, if they are at all open. The US Hotel Industry, unlike their Indian counterparts has already indicated a 40 per cent downsizing of jobs. Travel Agents, Tour Operators, Online Travel Agency’s (OTA) and Specialists are staring at a loss of revenue of about 60,000 crores. These include Adventure, MICE and Cruise supporters. Most of these companies are in the Micro, Small and Medium Enterprises (MSME) sector and this slump will impose huge stress on their liquidity and financial health, leading to numerous bankruptcies. In fact, the airline FlyBe and Foreign Exchange major Travelex have already gone into Insolvency.
The underlying assumption, for the above has been provided by World Travel and Tourism Council (WTTC), which states that this entire sector could take 10 months to recover, placing at least 50 million Travel and Tourism jobs at risk. This, in the overall context of Global GDP growth of ‘negative 3 per cent’ (recession) with India’s projections of ‘no growth’ i.e. zero per cent by Barclays and ‘negative 0.4 per cent’ by Nomura providing no succour or hopes of a quick recovery, especially for this sector which contributes about 10 per cent (between 9.2 per cent and 11.6 per cent) of India’s GDP and employs directly and indirectly, between 43 and 50 million people.
Breaking Free from the Pandemic
On the societal front, the consequences of Social Distancing not going away in a hurry, are not going to make it easier. While the industry needs to look at its cost structures and emerge leaner as well as more innovative, this is a moment for the Government to step in with a big, bold package for this industry which fully covers cash loss on salaries to employees in MSME part of the industry. Rescheduling the loans at lower interest rates with a three to six month moratorium on repayments for the large and small players, and consider serious GST cuts including the shift of ATF into a low GST regime. Like for the Government, lower oil prices may be one of the very few silver linings for the industry, especially the airlines.
In spite of strong Government support, the next 12 to 18 months will be bumpy and it is expected that 20 to 30 percent voluntary or involuntary consolidation will happen. Those companies that can conserve cash and stay close to their customers and employees will definitely survive the crisis. It will also be critical to look at reinventing, for example becoming arbiters of “fit to travel” for customers on one side and hotels, airlines and destinations on the other. The reversal of fortunes is likely to be led by the young and fearless travelers, tempted by low costs and great value propositions and a strong push back by customers who have been “boxed-in” for months in their homes and are yearning to break free.
The sequential recovery may be slightly slow and quite different, but will happen with a vengeance. This too shall pass and the human spirit will fly higher than ever.