Hotel owners consider salary cuts as cities go under coronavirus lockdown

ICRA expects some correction in room rates in the months ahead.
Hotel owners may be forced to go for steep salary cuts at the top and senior management levels amid lockdowns in some cities and low single-digit occupancy in several others.

With no immediate end to the coronavirus pandemic in sight, most of them are preparing for an unprecedented crisis in their businesses. For hotels (in all segments), while domestic business travellers form 76-77 per cent of their customers, foreigners’ share is close to 23-24 per cent. Following the outbreak and a rapid increase in coronavirus cases, occupancy at hotels across the country have seen a 40 per cent drop year-on-year (YoY) for the current month and cancellations are at an all-time high, according to ICRA estimates. The credit rating agency has downgraded the outlook on the hospitality sector to negative from stable.

Unable to take the losses, some like Ferns Hotels & Resorts have already decided to bite the bullet on salary cuts. “From April onwards, we will have to look at salary cuts. We will start with the top management level, with pay cuts of 50 per cent, going down to the manager level. We will not touch the lower staff level,” said Suhail Kannampilly, chief operating officer at Ferns Hotels & Resorts. Except for three properties in Mumbai, which are being used as quarantine centres, Ferns’ 18 hotels are shut, said Kannampilly, adding that hotel chains’ accumulated losses currently stands at Rs 35 crore.

ICRA expects some correction in room rates in the months ahead, but it would be lower than the occupancy rate correction. Others are also bearish in their outlook. India Ratings estimates the occupancy at mid-scale and two-star hotels to fall to 30 per cent-40 per cent, and that of four-star hotels and above categories to 20 to 25 per cent for three months, beginning March. This slowdown comes at a time when hotels usually enjoy peak season occupancy because of vacations and weddings, before the onset of the monsoons. Hence, any disruption in operations is likely to substantially impact the full-year operating performance of hotel companies.

Sanjay Sethi, MD and CEO at Chalet Hotels, said though Chalet is not looking at job or salary cuts as of now, “everyone will have to pitch in when the time comes”. The owner, developer and asset manager of premium brands, such as Renaissance, Marriott, Westin, and Novotel —  in Mumbai, Bengaluru, Hyderabad, and Pune — too, suffered a severe knock in terms of occupancy.

“On the business side, a few rental assets we have under Chalet are helping. That mitigates the risks for us.  We are doing everything we can to pare fixed and variable costs. Employee salary is the last thing we will touch. Our employee-to-room ratio has always been very efficient,” said Sethi.

Vineet Verma, executive director of Brigade Hospitality, which manages the assets of brands, including Sheraton Grand, Four Points, and Holiday Inn, said though salary cuts are not on the agenda now, if the situation persists, the company will have to exercise that option. “We do not want to cut salaries at this stage and lay off people as such knee-jerk moves don’t help,” said Verma.

All Brigade Hospitality's properties are operating at 20-25 per cent capacity; occupancy at some of its properties are down to single digits. Verma said if the current cost-containment moves do not help, Brigade will have to shut some of its hotels temporarily. Servicing the debt on its book is another challenge for Brigade. “We are working on a war-footing to see how we can handle that,” said Verma.

Archana Gude, an analyst at IDBI Capital, said: “While the entire sector will see the impact of the current situation, firms with high leverage will be under more earnings pressure.”
Thus, any extension to service debt obligations, as many industry/market experts expect, will give some relief to the sector, she said.

The hotel industry body in a letter to Prime Minister Narendra Modi last week had sought relief. Nakul Anand, executive director-ITC Hotels & chairman, Federation of Associations in Indian Tourism & Hospitality, sought his help in several issues, including possible bankruptcies and mass unemployment, and asked for relaxation of certain norms pertaining to the sector’s business.

As much as 70 per cent out of a total estimated workforce of 55 million (direct and indirect) may be left unemployed.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel