The tourism industry is back on the growth path after biting the dust during the Covid-19 pandemic and subsequent lockdowns. The travel and hospitality sectors were among the biggest victims of the pandemic, but they are currently witnessing a reversal in fortunes. And it is not just about recovery, but also about breaking previous records. Festivities, pent-up demand, and easing of coronavirus-related fears played major roles in the revival of the hospitality sector. However, global geopolitical tensions pose fresh challenges to the sector which is just coming out of the woods.
Hotels are witnessing higher key operating metrics such as RevPAR (revenue per available rooms), average room rate (ARR), and occupancy room rate (ORR). The second half of the year saw a major spike in business due to strong demand from the wedding segment and the corporate sector. Meetings, incentives, conferences and exhibitions (MICE), direct segments and foreign inbound travel witnessed a dramatic upturn. The first half of the current financial year also saw a recovery in business.
Though hotels are witnessing a higher average occupancy in the first half of 2022-23 across India, industry analysts do not hold high hopes about the growth prospects of the sector. They have pinned down higher occupancy to lesser capacity addition by the industry owing to the pandemic. With a slump in demand, the hotel industry refrained from investing additional capital in their assets. So, inventory is limited, which cushions the pricing.
Tourism industry facing headwinds
The tourism industry is facing headwinds from rising inflation as well as higher labour and borrowing costs. This will reflect on consumer spending. Additionally, the economic situation, exacerbated by the Russia-Ukraine war, represents a major downside risk for the sector. The ongoing war has not only pushed up fuel prices but also add to inflation.
The combination of increasing interest rates in all major economies, rising energy and food prices and the growing prospects of a global recession are currently major threats to the recovery of global tourism industry. The UNWTO Confidence Index warns of a potential slowdown.
Domestic demand to the rescue
Analysts believe India’s travel and tourism industry will have to rely on domestic demand for some more time as foreign tourist arrivals still lag behind pre-pandemic levels. However, there has been a continuous increase in domestic tourist visits, with a CAGR of domestic tourist visits to all States and Union Territories from 1991 to 2021 being 7.8%, according to Tourism Statistics, 2022. The two states with the most domestic tourists visiting are Tamil Nadu and Uttar Pradesh.
There is still a wide gulf in pre-pandemic and current numbers. While domestic travels in 2019 were over 232 crore, it was nearly one-third in 2021 at 67.7 crore. The number of foreign tourist arrivals in 2021 fell to 15 lakh compared with 27 lakh in 2020, registering a negative growth of 44.5%. Inbound tourism is currently grappling with the e-visa issue as the government suspended e-visa facility for countries such as the UK and Canada. The service was halted in 2020. Despite the negative signs, most indicators point to a recovery for the industry and steady growth.
The uptick in the two sectors can also be corroborated by the fact that shares of companies in these sectors have also witnessed a jump. The share prices of Indian Hotels Company (Taj Group), Lemon Tree Hotels and Chalet Hotels have risen by 50-55% between January and September 2022, reassuring investors in the sector.
Several government initiatives may also have played a role in bringing about a change in futures for the hotel and tourism industry. In the wake of the pandemic, the government had announced an easy credit facility to the sector which was timely and significant.
International travel is also in a revival mode. According to the latest UNWTO World Tourism Barometer, international tourist arrivals almost tripled in January to July 2022, witnessing a jump of 172% compared with the same period in 2021. The recovery of international tourism can be pegged at 60% of pre-pandemic levels and Europe and Middle East spearheaded the revival. According to UNWTO Secretary-General Zurab Pololikashvili, while tourism continues to recover steadily, it cannot be ignored that several geopolitical and economic challenges remain.
Industry analysts call for collaboration among world leaders in several areas. An increased focus on co-existing with Covid-19 while enhancing preparedness for future crises is a must, says Julia Simpson, President & CEO, World Travel & Tourism Council. Governments must also ensure safe travel experiences, support equitable vaccine distribution and continue to ease the conditions of entry to destinations for a swift recovery of the sector.
The tourism sector in India is a key driver of the economy and it contributed nearly 7% to the GDP in the pre-pandemic years. The sector will contribute $250 billion of GDP, 137 million jobs, $56 billion in foreign exchange, and 25 million foreign arrivals by 2030, according to Invest India data. The tourism industry will play a significant role in India’s rise as a major economic power.
India is one the most popular travel destinations across the world and the sector has significant potential considering tourism industry is an important source of foreign exchange in India. The foreign exchange earnings from 2016 to 2019 grew at a CAGR of 7% before the coronavirus years. The government needs to facilitate growth in this key sector through innovative policies and incentives, both to the industry and consumers.