[The Outline By Inc42 Plus] U, V, W Or Z? Indian Travel Sector’s Recovery Dilemma

The past 15 months have been quite crazy for the Indian travel tech sector. Not only was there an unprecedented lockdown that froze nearly all movement of people, but even now personal or business travel continues to be fraught with challenges and dangers of transmission, despite the opening up of the economy in a number of countries and sectors. For the Indian travel sector, recovery is a distant prospect, with the ever-changing market conditions due to the pandemic and its consequent impact.

By March 2021, one year after the pandemic first hit India, things had turned around for the travel industry. Hotel bookings had revived, Indians were travelling outside their home towns again and business seemed to be picking up. Then came the second wave in late March, which wiped off the recovery. Now in the aftermath of the second wave, while business for travel and hospitality companies has shown some green shots, nothing is certain.

And how can it be — after all, there is a third Covid wave coming up in the next 6-8 weeks as per some estimates. As travel and hospitality startups and companies deal with a rollercoaster of revenue and slowdown in the next few months and a range of scenarios for recovery — U, V, W, Z, anyone? — there is a sense that the flux will continue for the foreseeable future.

Stop-Start Life For Indian Travel Sector

Before looking at what the next few months and fiscals hold for the travel industry, let’s take a look at the Indian travel sector recovery gains in late 2020 and early 2021 after a brutal nine months in 2020.

While the lockdown last year resulted in a major slowdown, things had begun picking up again by September 2020. This is when bookings started growing for hotel rooms and flights for the first time since February 2020. According to market research firm STR, Indian hotels had achieved a 50% occupancy level in February this year, the first time this mark had been achieved since February 2020.

While during the first wave last year, the airline sector witnessed complete closure of domestic operations for about two months, airlines were allowed to continue domestic flights during the second wave, but even then flight bookings fell given the fear in the market and the severely high number of cases in most metros.

India’s daily domestic passenger numbers moved from 24% of pre-Covid levels in July-September 2020 to 71%of pre-Covid levels in February 2021. Then came the second wave, which was a huge setback. The daily passenger demand by the last week of March already had fallen to just around 246K passengers or roughly 50% of pre-Covid levels and to 15% of pre-Covid levels by the end of April, according to financial services firm Motilal Oswal.

Travel OTA EaseMyTrip, which listed publicly this year, registered a profit of INR 61.4 Cr for FY21, 86% higher than FY20. Half of the profits were recorded in the fourth quarter when the first wave of the pandemic had gone down and the rise of the second wave wasn’t noticed until March.

Second Wave Slows Down Travel Sector Recovery

The fall in demand after March has pinched India’s travel sector, with players such as MakeMyTrip, ixigo, Yatra, EaseMyTrip and others staring at a long road to recovery. But many of these are now optimistic about recovery as the second wave dies down. They claim the temporary recovery of the last few weeks is being driven by factors such as more clarity about vaccine availability, the migration of workers from Tier2/3/4 to metros and Tier 1 cities, as well as the demand for leisure travel and in the metros to mark the end of the most recent lockdown.

EaseMyTrip, for instance, said it has seen an increase of over 40% in overall bookings of flights in the past two weeks and a similar trend in hotel and holiday bookings as well.

Similarly, ixigo said bookings to Goa, Srinagar or Himachal and such tourist destinations have resumed in the past couple of weeks. Airbnb recently noted that weekend getaways to vacation homes have increased after the second wave subsided in the major cities, while other hotel chains have also noted a spike in recent weeks, though the recovery is far from steady yet.

The online travel platform claimed it is seeing a revival in train bookings from a million bookings a day during the peak of the second wave towards the end of April to about 1.8 Mn bookings this week on average. Cofounder Aloke Bajpai claimed railway bookings have seen faster recovery than the airline sector. “The way things are trending, hopefully in a quarter we are expecting a complete bounce back to the March levels,” ixigo’s Bajpai told Inc42.

EaseMyTrip’s Nishant Pitti added that as vaccination penetration improves and the number of cases go down, the fear of moving out of the home will also go away. He said that travel players should now be gearing up for pent-up demand. “We believe that travel has a new phase now. At present, more and more people are getting vaccinated and the fear to step out among people has started to decline.”

Even MakeMyTrip was optimistic about the bounce-back. The company told us, “Domestic travel will continue to lead recovery for the next few quarters and as more international leisure destinations begin opening up for Indian travellers – outbound travellers will pack in domestic mini-vacations in the coming months.”

Murky Future Complicates Growth Projections

While most players are hopeful of a healthy recovery by the end of 2021, there is a big but. This is heavily dependent on the pandemic and whether the vaccine development can stay ahead of any stray mutations that may once again cause havoc in civil society. This lack of a clear roadmap to recovery is a huge problem for India’s travel sector.

Then there is the challenge around international travel, which is currently unavailable for most Indians. Given that there is plenty of ambiguity around the acceptance of Covaxin in foreign nations, Indians may not be allowed to travel abroad for some months. Even then, there are too many hurdles to overcome. A quick foreign trip is no longer an option as many countries are likely to have mandatory quarantines for incoming tourists. Will the famously thrifty Indian tourist shell out more money just to travel abroad or will this class settle for domestic travel?

OTAs expect demand for international flights to bounce back soon, but that is linked to the situation around the vaccine. “The advance purchase window between 30 to 60 days and 60+ days is contributing approximately 20% to the business individually. Cumulatively, advance purchase on international travel is currently accounting for 40% of the international flights business. Many new countries are likely to open travel to Indians in the coming days and the official circulars are awaited. While travel is open to Russia, with restrictions and for selected visa categories to the US currently, many other countries like the UAE, Maldives, Indonesia, Sri Lanka, Thailand among others are likely to take a decision soon.”

International travel will require global cooperation and evidence-based solutions, said Pitti, but he is optimistic about the pent-up demand for such travel too. “It has been a significant amount of time that people have visited any place overseas and that definitely will attract a lot of tourists once that option is available.”

Another major problem for ticketing players is that international inbound and outbound travel to and from India is to and from developing nations in Southeast Asia, Africa and Eastern Europe. For such countries, achieving vaccination penetration may take longer than developed nations, further delaying demand recovery in India. While domestic demand is undoubtedly going to come back, international travel is going to be impacted till the end of 2022, according to many experts.

Will The Travel Sector See A Cash Crunch?

Given the current state of affairs though, Moody’s-affiliated ICRA expects the debt level of the travel sector to increase to INR 50,000 Cr (around $7 Bn) over FY 2021-22. As per its estimates, the airline industry will require additional funding of INR 37,000 Cr (around $5 Bn) by 2023 to fund recovery. All this spells out bad news for the travel OTA industry as well, which is heavily reliant on airline demand.

Fundraising could become a challenge for listed players because the current liquidity in the public markets may not last long, plus the impending public offerings by a slew of tech startups with clearer growth paths and fewer pandemic-related challenges will be more attractive. As per Bertelsmann India Investment partner Rohit Sood there is a chance that investors may face IPO fatigue. He also indicated that acquisitions such as Flipkart’s Cleartrip takeover may be on the cards if the fundraising is a challenge for these OTAs.

In February 2021, MMT announced that it is looking to raise $200 Mn in debt through senior convertible notes. The company said it will be using the capital for business operations and employee salaries after a tough 2020. MakeMyTrip reported revenue of $163 Mn in the fiscal year 2021 (FY21), ending March 30, 2021, a massive decline of 68% from the previous year, as the pandemic wreaked havoc on the company’s financial performance.

Major unlisted players have been similarly hurt by the pandemic and are looking to raise funds to overcome the crisis. Hospitality giant OYO is reported to be raising $600 Mn (approximately INR 4500 Cr) from foreign institutional investors, as it looks to bounce back after another slowdown due to the devastating second wave of Covid-19 in India. In January this year, the company had claimed it has $1 Bn in cash and cash equivalent to navigate the post-pandemic market, but it is now seeking to raise more funds as business recovery has been hit hard by the second wave that severely impacted Tier 2/3 cities, where OYO has a strong presence.

Besides its fundraising efforts to aid business recovery, OYO has been in the news for hotel partners hounding the company over unpaid dues. OYO is in the midst of a National Company Law Appellate Tribunal (NCLAT) insolvency hearing involving multiple hotel owners, who claim they are owed dues by the company. These hotels have filed for claims worth INR 250 Cr with the tribunal which are yet to be verified. OYO has moved the Supreme Court to expedite the hearing, but it’s unclear what the final decision will be. It could yet complicate life further for OYO.

Despite the uncertainty, ixigo is gunning for an INR 1,800 Cr IPO. Ixigo did not comment on its upcoming IPO, but market observers question whether this is the right time for a public offering. The growth trajectory is less than clear, and any optimism right now comes with a big rider in the form of the uncertainties around the pandemic.

Ola’s New Colours 

While the travel sector has come to grips with the up-and-down nature of the business these days, the same can be said for ride-hailing, shared mobility startups. The pandemic certainly accelerated mobility giant Ola’s transition towards becoming an EV maker. Well, Ola’s first electric scooter is almost ready for launch and cofounder Bhavish Aggarwal is gathering opinions on the colours for the bike. Personally, I can’t resist a bright red scooter. What’s your pick?

Of course, if you are itching to explore beyond your city or neighbourhood, you’ll likely need to change that scooter for a flight. Travelling even to the next city is a major challenge these days — it reminds us of the almost weeks of preparation that went into summer vacation train journeys in India in the mid-1990s. We know things will change in the near future, till then one can only recommend utmost precaution.

Safe travels,
Nikhil Subramaniam

Graphics & creatives by Aprajita Ashk