Impacts of Corona: Hospitality Industry
Updated: Apr 6
(of a Tri-Part Series)
Corona, Corona and Corona is, pretty much everything we are hearing these days. In today’s feature, we may not be talking about something different but we are certainly going to make things financially interesting as today we analyse the impacts of the pandemic on the hospitality industry. This article was due for a long time and we are finally covering it so read it up until the end to get a deeper understanding of the impacts of the pandemic on the hospitality industry.
The hospitality industry was on a roll until last year with tourism recording a 10th consecutive year of growth in 2019. This record growth saw the hospitality industry being the best placed to benefit exponentially from the umpteenth growth of the tourism sector. With tourists, globe-trotting to the different corners of the world, restaurants and hotels saw high revenue growth due to an undiluted stream of customers. Big players like Marriott and Hyatt were all well-positioned with their global network of hotels to capitalise on this booming industry and 2020 was all set to jet-set that growth. For a long time, markets had looked ahead to 2020 for being a year of prosperity and wealth with expectations for a huge expansion in the global economy, on the backs of a more than stellar 2019. Start January, problems namely Corona started to emerge and by March there was widespread economic chaos that rubbed all those sky-high expectations in the mud.
Corona’s contagious nature and in consequence the need for social distancing norms, to prevent the spread of the disease, have been the biggest contributors to the impending doom lying ahead for the hospitality industry. The virus has wreaked havoc for businesses with many reasons playing a role like the lockdown of cities, shutdown of airlines, travel restrictions, the paranoia of being in public places and much more. This has seen demand evaporate for restaurants and with uncertainty around the future, they have had to enact upon cost-cutting measures to safeguard their survival. Even hotels have been suffering from a similar fate but despite this many big-name chains have still pushed ahead with the construction of new properties across the globe. This is a show of confidence in the revival of the once-booming industry that many experts have predicted will take a lot of time to get back on its feet.
The virus has forced most, if not all, businesses to rework their business models to more viable and sustainable ones that can generate some cash flows. Many restaurants have taken to takeaways while many have migrated to DIY food kits as viable future business models. DIY kits and takeaways have found quite a few takers with many people trying to mitigate the lockdown blues by indulging in scrumptious food. These models are a part of a larger overhaul that is currently happening in the restaurant industry. Hotels, on the other hand, are hung as they don’t enjoy the same flexibility as restaurants and with people staying at home and not travelling there is little that can be done. Yes, in the future hotel owners may look to repurpose their hotels into more versatile offerings like retail spaces to help generate revenue. The pandemic has also affected the share price of many of the companies that are a part of this industry as investors have lost confidence in their ability to perform.
As to what awaits them in the future, there is no credible insight as the current pandemic is changing shape constantly. This uncertainty has put many businesses on the brink of bankruptcy due to deep losses and ballooning debt. This situation will see the survival of the fittest as only the financially healthy firms and businesses would be able to survive. These are testing times that are certainly stress-testing our businesses. We need to be more aware and cautious than ever. For the hospitality industry normalcy will only return once the virus has been completely contained and finished. Until that happens the paranoia and fear of being in a public place will be there. So, if the businesses want to experience post-corona demand they will certainly have to conquer two things- trust and confidence of the consumer.
Understanding the Markets:
The hospitality industry is not the right investment to make currently. With poor insight into future performance and the current topsy-turvy conditions, an investment here would be blind and risky. The segment certainly does not have companies which are financially sound as many have excess debt with negligible cash flow channels. Also, with travel restrictions and customers being advised to stay at home these companies have lost a major source of revenue which will further hinder their performance. In India, there has been little relief from the government in the financial packages released by the finance minister. This has led to a further downturn for this industry which has been neglected by our honourable Finance Minister. For all this, it is in my belief to steer clear of this industry in the stock markets.
*These are the author’s beliefs and not directions for investing. The author is not responsible or accountable for any discrepancy arising out of this material.