Lots of jobs at risk, industry revival will depend on stimulus: Puneet Chhatwal

I am cautiously optimistic that we will have a solution in 2-3 weeks, says MD & CEO of IHCL.

There is a demand and a supply imbalance at the moment and by reducing the price, you are not going to get more heaps and sheets or health beds.
Give us the on ground update as to what is happening at various hotels? Are hotels open for business? Can anyone walk in or some hotels have been currently used by various state governments for quarantine purposes?
So it’s a little bit of all of the above. So some hotels are open; so more than 60% of our portfolio is still operational albeit at very low levels. The business is limited to in-house guests. We are doing the security checks in terms of measuring the temperature, and taking all measures that are needed. Secondly, what you just said, we have offered a lot of our hotels, especially under the Ginger brand for quarantine purposes including in Mumbai and in Bhubaneswar as an example. And finally, what we have seen is a complete slowdown since the lockdown. The business has come to a standstill. Some of that is a conscious decision in certain smaller cities where we have more than one property or in smaller metros to slowly close a few hotels and use the other property more efficiently and leverage that more instead of having low occupancy spread across different properties.

When the lockdown was announced, did you realize that some of your hotel rooms were occupied by guests? Some of them could be expats, some of them could be visitors who currently have no option but to stay there. How are you managing this crunch?
There is not much that one can manage. If the guests are in there, we are serving them whether they are expat or other guests. There were doctors at certain places and there were even armed forces personnel staying in the hotel. So we are there to serve our customers and that is what we did. The only thing is with no trains, no cars, no planes flying, there are not many check-ins that come in every day. So not many new people are coming in. But those who are there and who want to stay on, they are being served under normal operations.


Are there mass cancelations which are happening? Pre-booking that were made for spring or summer breaks; are those getting canceled out? More importantly, do you think that industries such as yours will really have to bear the brunt because I do not know how soon one can really get that confidence to travel?
You are right. It is not going to get impacted, it is already impacted. If we look at March, there are three parts of the month; one is till the March 11, till the announcement came as a global pandemic, the visas were cancelled for people from a lot of European countries travelling into India and there was accelerated news on various corona cases all over the world. Then came the ban on OCI cardholders also coming in. The period of 1 to 11 March which was almost as good as last year, almost very close to the festival of Holi. Then the period of 12th to 23rd of March where the occupancy started dropping rapidly. So March 1-11, most of the properties were operating – north of 60-65%, even 70% occupancy. During March 12-23, it came down to 40% or so. And since March 24 and going on, as we can see, till April 15, it is either low single digits or 10-15% for most properties. So, there is definitely a complete slowdown or a complete stop.

The industry has never witnessed this kind of situation before. Tourism and hospitality contributes 10% of global GDP, contributes more than 10% of all the jobs generated globally, including in India, with a 9% contribution to our GDP and almost 8.5% to the total number of jobs. So, certain policy decisions will come in due course to help refuel this industry. It is very important for people to travel, not just for business but for getting to know things, for leisure, for developing tolerance, for developing a better understanding. And I do not think this is going to stop forever.

As most of the governments have announced and I think, we will also get there, and we are having those discussions. But obviously, the government is set to make sure that there is enough medical supplies. That is the number one priority. The number two priority is that there is enough food available for people and then comes the economics part. I think we will get into that phase and hopefully the industry will get the attention it deserves because it is for the good of the whole – globe as well as for India.

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Yes indeed, medical will be and should be the first priority. But just give us a sense as to what your outlook is in terms of the overall pricing and room rates? Do you think that we could see some alteration in your overall pricing?
Not really. I think, that I hope, the industry wakes up to the reality. There is a demand and a supply imbalance at the moment and by reducing the price, you are not going to get more feet in sheets or heads in beds, as we call it. We have to maintain the pricing because our pricing levels if damaged, are a very difficult staircase to climb back upon. In my other role as the President of the Hotel Association of India, together with our ExComm, we are lobbying with the hoteliers to not get into that kind of a gain because that is a very short-term gain, which will have a very bad long-term impact. So I do not think the pricing over medium and long-term will be impacted. In the short-term, maybe yes in the next couple of months.

When it comes to Indian Hotels, when we announced the third quarter results, we did announce some good numbers. January and February were also quite good till then. As I said, till the 15th of February the world was normal; then it started slowing down a bit and the actualisation really started as of 11th of March. So the next year, we have to count it like this year; we had one or two bad months. I think next year, too, we will have a couple of bad months in the next financial year and the management needs to stay focussed and the industry needs to stay focussed to get the job done in a shorter period of time.

Let us address the investor concerns here. The first reaction is okay. It’s bad news for tourism and for hotels. The stocks have come down. But do you think one now needs to step back and understand the numbers carefully because you have fixed costs and variable costs; fixed costs will not come down but variable costs will come down. So for an investor who wants to understand this, should I buy the Indian Hotel stocks or should I panic? How does one understand this kind of a scenario?
You answered it yourself. In a normal scenario, you have fixed and variable costs but in a scenario like this, which you can call Force Majeure or act of God, even the fixed cost will then become variable cost. It all depends on the kind of changes and announcements that will come. To give you an example, if you have some relaxation on payment of some utility cost, like we have had an announcement on the deferment of payment of EMIs; they help you create cash flows. Similarly, some of the governments elsewhere in the world have announced some kind of subsidies for keeping employment levels so that the people are employed and are not laid off. So, suddenly your labour cost also becomes a semi-variable cost.

So it is a bit premature today. Within a week from now, we will enter into those kinds of decisions and we will have a better insight into where our industry is headed and what kind of stimulus will be needed. It is not just in the hotel industry but overall to secure employment. That is the key. People have to have employment and a lot of jobs in all sectors, especially in tourism, are at risk.

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I am very confident and optimistic that we will have a solution in the next one or two or three weeks at the latest. The industry also has to do some things on its own. Every industry has an opportunity to learn from this crisis and how we can improve and do things better going forward. I am cautiously optimistic that we will also have a solution, both domestic as well as definitely globally, through the World Travel And Tourism Council, through our Hotel Association of India, through our tourism body called FAITH for all the travel and hotel associations, through engagement with the government, and through improvement in our own businesses making them smarter going forward. That is what is our role and that is what we will try and achieve.

At a global level, because of social distancing, the concept of Airbnb could get challenged. Some of the weak hotel chains which currently are just trying to run hotels even though they are making losses will be questioned. So will all the innovative stay at home concepts get damaged completely?
I would not say damaged. But definitely after every crisis, there is a change in the social behaviour of people. So a bit of social distancing will become a part and parcel of our life. No matter which country in the world, one would not be getting too close to people because of this inherent fear that has been caused or the learnings that have been made through this. We can definitely expect a change in social behaviour, change in travel patterns including travelling even when there is a complete lockdown and people are not travelling and the business goes on, like we are doing digitally or through the phone. You do not have to actually always travel to do business. So some of those changes will come, but with that will also come new opportunities and definitely the correction in terms of only going for valuations without having a solid business model backed by assets, which needed a correction, will also happen. It is either already happening or will happen to a much larger extent than we have seen now.
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