Hospitality Sector Laments: A Pitch-Black Friday
The virus-induced lockdown and social distancing norms incinerated the revenues and survival of the travel, tourism, and hospitality industry. Mass unemployment, business disruptions, and vacant hotel rooms have further aggravated the woes of the hospitality industry. On a business level, the impact of the crisis has percolated across verticals from luxury to niche and budget market players jeopardizing their survival in these turbulent times.
The redemption of the crippled hospitality sector is contingent upon people and their urge to socialize, which has been thwarted on account of the pandemic thereby hurling the sector into an unfathomable abyss of debt and losses. In addition to this, the sector’s dependency on the aviation, tourism, and travel industry makes its recovery agonizingly difficult.
To ease the wounds of the sector, the government introduced an array of economic packages such as providing a loan moratorium, relaxation in tax and corporate compliances, etc. to ease the burden of cumbersome paperwork and processes at a time when business operations have been adversely affected. The packages and relaxations ushered in a glimmer of hope during the industry-wide gloom, however, recovery at the grassroots level may take longer than anticipated, leaving numerous industry players in the lurch.
In RBI’s endeavor to provide interim relief, it announced a loan moratorium on interest and principal repayment for three months extendable to six months for the hospitality sector thus providing immediate but short-term relief to survive the pandemic. The Hotel Association of India requested the government and RBI to extend the moratorium on interest and repayment of principal for the entirety of the Fiscal Year 2021 till 31st March.
It is an industry-wide belief that such an extension would ease short-term financial trenches, however, a pressing issue is whether the industry can take flight while balancing the costs incurred for safety measures and economic survival in the long term.
However, with the conclusion of the moratorium period, the Finance Ministry introduced a one-time debt restructuring package for ailing businesses sitting on large debt piles. This measure is another short-term infusion shot by the government aimed at keeping businesses afloat, however in a capital- and labor-intensive industry such as hospitality with high fixed costs and payrolls, this may provide a breather for many players.
In principle, this measure appears equitable; however, in practice, hotel and restaurant owners have experienced procedural roadblocks in availing of the one-time restructuring facility due to reservations and non-cooperation by banks. Therefore, intervention by the government and RBI is pertinent to ensure fair and equitable implementation of the scheme and penalize institutions that ride against the spirit of the scheme.
Thus, it goes without saying that the slew of measures announced by the RBI and government to alleviate liquidity woes of financial institutions, may have a lesser impact in the short term, but a one-time credit rebuilding framework, if implemented properly, may become an attractive option for businesses who intend to stay competitive and progressive in these difficult times.
In particular, financial support from the government is imperative for MSME entities such as bed & breakfast, hostels, pubs, cafés, restaurants, bistros, and beach bars to name a few, which are vulnerable and worst hit by the change in general. Therefore, infusing adequate liquidity and relaxations into smaller businesses may help mitigate the impact of change caused due to supply chain disruptions and reduced consumer confidence and demand.
The ineffectiveness of government measures is likely to adversely impact the industry at large. Although the hospitality industry has demonstrated resilience through heavy discounts, constant innovation, cost reduction, and adoption of technology to survive the pandemic – physically and financially, many MSME players may not see light at the end of the COVID-19 tunnel.
While larger players struggle to make profits, emerging concepts such as homestays in remote locations, Work-from-Hotel, emotional and psychological retreats, cloud kitchens, etc. offered by the industry players may help them re-establish a consumer base and stay relevant even today. It goes without saying that a resumption of economic activity is essential, but its success hinges upon the right implementation of government measures and relaxations along with liberal governance on the finances of the hospitality sector while maintaining a strong vigil on the virus.
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