“India has lost a huge opportunity to convert outbound travellers into domestic”

It’s all coming back but not as I’d imagined. While domestic travel is witnessing some activity, it’s still to pick up steam. I think it will happen gradually, feels Himmat Anand, founder, Tree of Life Resorts. In this candid conversation, Anand speaks about the hospitality market scenario as India unlocks in phases, consumer behaviour, present and future business prospects, manpower issues and other challenges surrounding the hospitality, travel and tourism industries. Edited excerpts…

It’s been a little over two months since Tree of Life Resorts opened for business at some locations. How has the journey been so far?

 

Tree of Life Resort & Spa Jaipur was the first one to open and it has taken-off really well. In fact, I’m quite amazed with the market response. Jaipur is a clear indication of the fact that if the source market is closer the resort will do much better. The Jaipur resort continues to clock between 65% and 68% occupancy levels at very good average room rates (ARRs).

 

We opened the Tree of Life Vantara Resort, Udaipur on July 1, 2020 followed by Tree of Life Kipling Jungle Lodge, Ranthambore on August 1, 2020. It’s taking time for business to pick up at these locations. We are doing around 20% occupancy which is alright given the current market scenario.

What hasn’t worked for the Udaipur market?

For Udaipur, Gujarat is the main source market. We were expecting the Gujarat market to respond quickly but that hasn’t happened as people are still very cautious about travelling. Mumbai is another good source market for Udaipur however, the coronavirus pandemic situation is quite dramatic in the commercial capital right now and people are still apprehensive about travelling.

 

You were among the few hoteliers to announce an opening date well before the unlock process started. What made you take that decision? How has it panned out finally?

 

We took the call to open our resorts in May 2020. That’s because businesses have to open and there is no such thing as ‘the right time to open’. You can either keep waiting or take the plunge and chalk out your own destiny. Yes, we were among the first ones to open for business and the decision was based on certain calculations like the lockdown will start to ease out starting June first week. Our assumption was that Punjabi households of the National Capital Region (NCR) will definitely head out for a short vacation with family. That’s something I was banking on in addition to the Gujarati households who’d venture out, for obvious reasons, after being confined in their houses for an extended period.

 

While the assumptions did work for the Jaipur market it didn’t pan out in the way we imagined for Udaipur. We were to open Jaipur resort on the June 19, 2020 weekend. But we’d already received booking from June 15, 2020 onwards as a result we opened for business before the targeted date. The guest profile was 100% domestic leisure travellers mostly from NCR-Gurugram.

 

While business gradually picked up in June, we closed July with 68% occupancy and an ARR of Rs 10,800 for Tree of Life Jaipur. The numbers were way better than what we’d done in July 2019 wherein the occupancy levels were between 45% and 50% at ARRs of about Rs 8,000. On a year on year basis, ARRs were higher by 30% to 35% while occupancy levels were up 36% over the same period last year.

 

We’ve done phenomenally well during July this year in Jaipur resort and August numbers are looking equally encouraging. What’s surprised me the most is that the luxury pool villas selling at Rs 14,000 a night (including breakfast) were the first ones that got sold out. In fact, even today, there are little chances of a guest getting a luxury pool villa unless pre-booked well in time.

 

Are travellers booking directly or coming from other trade channels?

 

Most of them are direct followed by bookings through the online travel agencies (OTAs). What also worked for us is that during the lockdown period, we aggressively used the social/ digital media platforms like Facebook, Instagram and Linkedin to ensure top of the mind recall for brand Tree of Life resorts across locations.

 

Every day there was some or the other activity planned on these platforms and we were approaching the business as if our hotels are still running. This not only ensured visibility/ recall but also helped us stay connected with the market. Our social media connect was very strong and the strategy has paid off well. So, when the unlock happened bookings began flowing in from the very next day we opened for business.

We also went with aggressive pricing on the OTAs. We started with heavy discounts to the tune of up to 50% in June, brought it down to 40% in July and cut down further to about 30% in August. I think by October the overall discounts will be down to the normal 10% to 15% levels.

The customary annual price hikes starting October will be a strict no-no in that case?

Beggars can’t be choosers so we’ll have to accept whatever best room rates we can get from the market. All is good as long as the hotel is able to meet its expenses and pay salaries to employees. Fortunately, we don’t have the burden of interest payments to banks. The loans on our books are internal as we are still a family owned company. So I don’t really have a bank sitting on my head every month seeking interest payouts.

 

There are talks about 40% to 50% of hotels going out of business owing to financial stress.

 

That’s indeed going to happen. In our case, while we have a loan to pay back, we are very fortunate that if I can’t pay today I have the flexibility to pay it later. There is no pressure on my business and we can breathe easy in the current financially stressed market conditions. That doesn’t mean we are taking advantage of the situation, loans will be paid back and there are no two ways about it. Having a breather for the next six months is a big advantage. I will be able to restructure the debt and pay it back thereafter. I think that's a huge positive for our company.

 

Why in your view are people still averse to travelling/ holidaying?

The overall scare in people’s mind about travelling, in my view, is mainly due to the continuous hammering across media outlets about the number of people infected by the coronavirus. I think India is way better off than most nations given the size of population. However, the media hype has put a spanner and delayed revival of the domestic travel market.

 

Secondly, there is a huge outbound market comprising 20 million Indians who travel overseas. However, due to lower number of operational flights these travellers are unable to pursue international travel. My assumption is that nearly 3 million people would travel during the July to December months.

What’s the hurdle in tapping this huge market of outbound travellers?

 

I’d thought that the outbound tour operators will actually tap this captive market and convert them into domestic travellers. That hasn’t happened because the outbound tour operators have not been as proactive on that front as they could have been. Inbound tour operators catering to international travellers are anyway stuck and can hardly do anything in the domestic travel segment given its peculiarity and the need for client relationships.

 

I think India has lost a huge opportunity in activating and converting outbound travellers into domestic travel. However, there is still time because I don’t see the frequency of international flights happening till November first week or so. We still have two to three months in hand and the outbound tour operators need to wake up to this opportunity.

 

How are guests responding to all the safety and hygiene practices being showcased by hotel companies?

The hotel industry has got egg on its face as far as health, hygiene and safety matters are concerned from a customer’s point of view. I think industry players have overhyped the situation demonstrating a plethora of practices and whatnot. But let me tell you, the customer isn’t really interested in these cosmetics. All that the guests are looking for is basic hygiene including the standard guest onboarding procedures being prescribed by the regulator.

 

By creating all the hype about hygiene practices, the hotel industry has actually scared away potential guests.

 

Hotels have anyway been practicing the highest standards of hygiene and cleanliness irrespective of COVID-19 pandemic situation. There was confidence already built in the guests’ minds about the hotel industry’s focus on hygiene and cleanliness so what was the need to make such a song and dance about it anyway.

What has been the experience like on these matters in your resorts?

At Tree of Life resorts, we apprise our guests about the prescribed precautionary measures being taken at our properties. Thereafter, if the guest(s) asks for any additional precautionary measures to be taken we are more than happy to do it.

 

For instance, we have cameras installed in our kitchens and the guests have the option to watch the food preparation on their mobile phones. Similarly, all rooms are sanitised before the guests walk in and we also give them the option to re-sanitise the rooms in their presence. Not more than 5% of the guests have asked for the rooms to be re-sanitised.

This is a clear indication that the guests’ trust and resilience is already there and she/he is very happy with the basics being done at the resort/ hotel premises.

 

I think the guests aren’t as paranoid as the hotel industry has made it to be. They are coming to a resort to relax, walk around and experience the open space, something they aren’t able to being confined in their residential apartment. We have taken all necessary precautionary measures and I can confidently tell you that we have not had a single complaint about lack of hygiene matters on the resort premises.

 

Another aspect to be mentioned here is that while the hotel is responsible for the guests’ safety, the guest is equally responsible for their own safety in the resort. It cannot be 100% my job. The guests have to play their role and take necessary precautions like wearing their masks at all times, washing their hands, maintaining physical / social distancing and using sanitisers when in public places.

 

Travel was also curtailed due to restrictions imposed by local administrations in certain states / locations / regions?

Yes, these decisions have impacted travel plans. Local administrations need to take a stand and stick to it like Himachal Pradesh (HP) did saying no tourists will be allowed till August 15, 2020. However, there was a flip-flop situation in Uttarakhand every second day. Same was the case with Goa, Kerala, Karnataka and Andhra Pradesh (AP) if I remember it right.

 

I think the state governments also need to make up their mind. While lockdown happened very efficiently for a country of our size the unlocking exercise has made a total mess of it. Look at the situation with restaurants, while food can be served liquor has been banned. I just don’t understand the logic behind this move. Our unlocking has been a total disaster for the Indian hospitality and food service industry.

 

Of your resorts bouquet, only three are currently operational?

 

Four actually. The Tree of Life Grand Oak Manor, Binsar Wildlife Sanctuary has been opened for guests as well. The ARRs are low at about Rs 4,500 in Udaipur, Ranthambore and Binsar but I am hoping business to pick up as tourists from Gujarat seem to be warming up to the idea of holidaying.

Three more properties viz. two in Kerala and one in Dehradun will open in September. So all resorts in the Tree of Life portfolio will be operational well before the business season that’ll kick start in October.

Are the resort operations sustainable at such room rates?

 

Not really. We will be losing money for a month or two. Right now profit is not a consideration for Tree of Life. I am willing to risk running the business for a small loss for two or three months. I will take that chance because I cannot wait till October, November or December to keep thinking about how to move the business ahead.

 

My focus currently is to build occupancy across my resort properties. Average room rates are not really my target because we need cash flow. Besides, it’s occupancy that will bring in the cash flow not ARRs and I’m very clear on that. My objective is, If I have to discount, I’ll discount to ensure cash flow and I’ll bring back the pricing eventually when the market starts to look up.

 

A lot of hotel companies have cut down on staff strength.

 

All hoteliers have had to retrench/ lay off employees unfortunately because it was a business necessity during the lockdown period. We all had no choice as the market scenario was such. It wasn’t done to save money. There was no money to even pay salaries.

 

As and when the opportunities are arising I’m reopening the properties with half the capacity. We are also going back to our staff and asking them to rejoin. While I still can’t pay full salary it’s important to start somewhere. For me, it’s not a business obligation but a moral one towards my people.

 

I must also admit here that we haven’t been able to pay pre-COVID level salaries to our staff. However, with business picking up at our Jaipur property and hopefully at our other resorts in the coming months, we are working on gradually bringing the salaries closer to the pre-COVID scale.

 

Having retrenched earlier, hotel companies are now rehiring for the same positions albeit at much lower pay scale and unreasonable preconditions?

 

In fact, I am amazed looking at the approach by some multinational hotel companies / brands coming out with fresh/ new recruitment advertisements for all positions in their respective hotels. This is a very disappointing trend I am seeing currently on staffing.

 

Ideally, preference should be given to existing employees who were retrenched and only after they refuse should the hotels look outside. I don’t see any reason why former employees will not join considering they have been out of work for long and they have a family to support.

 

Hotels with significant debt on books are uncertain about their existence leave alone survival. What’s your advice for them?

 

Keeping this thought process in mind, I’ll respond in two parts. One thing that’s happened with us is that in the last two months, a number of asset owners have expressed interest in being a part of the Tree of Life network. Reason being that as an independent hotel operator, as you rightly pointed out, their survival over the next three to four years is going to be very difficult.

 

I’m a small inventory hotel chain with 10 to 20 guestrooms in each property that we currently operate. Independent hotel asset owners want to be associated with our brand and leverage on our strengths. As we speak, four contracts are under advanced stages of discussion and by next month we should be adding four or five properties to our portfolio of resorts.

 

So at a time when business is shrinking for a lot of hotels, we are confident to be able to generate enough revenues and we know that very well. While there are a lot of such discussions we may not sign all of them. We have shortlisted five that fit very well in the scheme. Our feeling internally is that we should be able to work together very well with these properties. That’s one part of the story.

Now let me answer the second part. I think the only thing that can give hotel owners sleepless nights is loan payback. So asset owners without any loan liability on the property should not have much of an issue right now. There is no need for them to get adventurous particularly those located in the Tier II and Tier III markets. That’s because the moment you’ll open there will be some of the other expenditure that will come up and that’ll kill you for sure. So it’s best to remain shut till October - November. Also, if the asset owner is among those thinking about making a profit by opening then let me tell you upfront, no hotel will ever make profit over the next six to nine months.

 

However, those servicing loans on their respective hotel assets will have to find a way to restructure the debt. For these asset owners survival is all about managing the loan because I don’t think business is really a criteria for them right now. My view is that many will not be able to restructure loans and a lot of distress sale assets will be up for grabs in the coming months because the Reserve Bank of India’s interest moratorium ends on August 31, 2020. While the RBI has offered a one-time debt restructuring option it is unlikely banks will extend the facility to hotels and restaurants owners considering long term uncertainty looming over these businesses.

 

Given the current and future industry scenario, what’s going to be the fate of aspirants currently studying hotel management and those who’ve graduated this year?

I think these are tough times for students especially those graduating this year irrespective of the education stream being pursued. While every other industry is facing challenges the level of pain differs. Having said that, there are industries especially in the digital space that have gained significantly and are busy chalking out plans to tap the future growth opportunities.

 

While hospitality, food service, travel and tourism are among the badly hit my view is that over the next couple of years every sector will go through a restructuring process and cost rationalisation will be key to accomplish this exercise. However, hospitality industry aspirants and professionals need to keep this in mind that we are a part of an industry that thrives on personalisation and guest experience.

Irrespective of the level of digitisation or automation that one can think of it cannot overlook the fact that hospitality is a people’s business and will remain so for years to come. While percentages can vary, I do not believe that the hospitality industry can be do without its people, especially the leisure segment. The room to staff ratio will obviously undergo a significant change particularly in the case of large inventory business hotels.

All in all, the next 24 months are going to be challenging for every business including hospitality, travel and tourism. However, I’m not only confident about a revival in the overall market scenario two-and-a-half years from now but also the fact that there won’t be any dearth of opportunities for hospitality industry aspirants and professionals. Students currently pursuing should utilise this time to make themselves future ready while working professionals will have to reinvent and find newer ways to stay relevant and thrive in these challenging times.

(The writer is a Mumbai-based independent business journalist and has extensively covered diversified consumer businesses over the last two decades. He can be reached at hello@ashishktiwari.com)