Weak Owners Will Be Weeded Out In The After-Covid Shake-Up

The hotel industry will see a paradigm shift in the post-COVID-19 world. We will soon be referring to it in terms of BC and AC— Before COVID (BC) and After COVID (AC).

A lot of people compare the resilience of the hotel industry during the SARS epidemic and the 2018 financial crisis, and it eventually bounced back after a lag of a couple of years. Most of them believe—taking cues from the fact that almost 85% of hotels in China have opened now— that it will see a V-shaped recovery.

I think that is a pipe dream. SARS was an epidemic and affected only 26 countries. COVID-19 is a pandemic and has already affected the entire world. Not a single country has escaped the wreck it is causing. China did not impose a lockdown on the entire country; it locked down, province by province.

In India, the entire country was placed under lockdown at the snap of a finger. This will have a significant impact on all the key stakeholders—owners, operators and customers. There will be some short-term impact and some long-term structural changes. HVS India estimates hotel revenues in India to decline by anywhere between $8.5billion and $10 billion in 2020, not to mention the job losses.

Let us analyse the impact on different stakeholders.

THE OWNERS

Amongst all the stakeholders, the owners will be the most significantly affected. They are the ones carrying the most risk in this equation vis-à-vis the operators. Most of them are staring at significant equity erosion and bankruptcy. This is especially true for Indian owners who are leveraged to the teeth.

Indian owners will be staring at a loss for 2020, with a glimmer of hope that 2021, at least, sees them break even. Taking a cue from HVS estimate of revenue loss and assuming average NOP margins of 25% to 30%, owners would be staring at a loss of NOP of almost $2.5 billion to $3 billion. They will also have to bear the opening cost, once the hotels are ready to open after the lockdown.