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The Impact of Covid-19 pandemic on Hospitality Industry in Kerala

S Sajeev _ Professor, Institute of Management in Government, Trivandrum
Akhil Reji Jacob _ Assistant Professor, MSM College, Kayamkulam

Abstract

The outbreak of COVID19 has an adverse effect to the whole world. No country or economy was spared from its impact. The effect of the pandemic to Indian economy was severe. There was a rapid fall in the revenue of the Government and growth rate of the economy. The pandemic has affected all sectors of the economy, and the tourism sector was one among them. The travel restrictions and ban of national and international flights keep the operation of the sector at zero level. The tourism sector of Kerala has also suffered severely on account of Covid 19 restrictions. This paper is an attempt to assess the impact of Covid 19 pandemic to the hospitality sector in Kerala.
Keywords: Tourism Sector, Hospitality Industry, Revenue Loss

Introduction

Outbreak of COVID19 was one of the most disastrous pandemics faced by the human civilization. The pandemic has adversely affected every segment of society and economy globally. Due to the rapid spread of COVID in the first half of the year 2020, Governments had to shut down the whole economy. The entire economic activities were suspended, which resulted in social and financial catastrophe around the world, which leads to unemployment, poverty and social unrest. Thus it can be stated that COVID19 was the greatest calamity the world had to face since world war two.

Tourism sector is considered as the largest and rapidly developing sector in an economy. The sector was one of the most affected sectors due to the outbreak of COVID19. The Government decision to go on lockdown and to impose travel restrictions resulted into rapid fall on the arrival of both foreign and domestic tourists in the country. This has created a terrific impact on various segments of tourism industry such as airways, hospitality sector, restaurants and cafés and such other allied tourism segments. The United Nation World trade Organization (UNWTO) projected that the fall of tourist arrival would result in a loss of tourism receipts of US$300-450 billion in all over the world1. As per the result of first quarter (period between January to March 2020) released by UNWTO, there has been a decrease of 22% in the international tourists arrival in first quarter on 20202. By the beginning of March the tourist arrival was fallen down by 57%, following the start of lockdown, widespread travel restrictions and the shutdown of national borders. By the end of March the tourist arrival was fallen down to zero. The amount of loss calculated during the first quarter was 67 million in terms of international arrival as compared to the same period of last year3. By region wise, Asia and pacific region were first affected by the impact of COVID19, saw a 35% decrease in revenue in tourism sector during the first quarter of 2020. The second hardest hit was Europe -19% decline followed by United States (-15%), Africa (-12%), and middle east (-11%)4.

The COVID19 has created adverse impact on the Indian tourism sector as well. As a measure to prevent the spread of pandemic, flight services – international as well as domestic, train and bus services were suspended or operated to a bare minimum. This has lead to significant decline in the country’s foreign and domestic tourist arrival. There was massive unemployment and loss of revenue in the tourism sector. In India, out of total employment, tourism sector creates 12.75% of the employment5. The Confederation of Indian Industry estimates that around 4 to 5 crore people have lost their job in tourism sector, that is 70% of total workforce in the tourism sector. The annual growth rate of the tourism sector of the country during the year 2019 was 8.3%6. The fall of tourist arrival, as a result of COVID19, would lead to a sharp fall in this pattern of growth.

*1.United Nation World Tourism Organisation. (2020). World Tourism Barometer (volume18, Issue2) May 2020. United Nations.
*2 to 4. ibid, 5 Ministry of Tourism. (2020). Annual Report 2019-2020.Government of India 6. ibid

The tourism sector contributes substantially to the economy of Kerala. The spread of pandemic has dazed the tourism sector of the state. In spite of the worst flood the state had to face in the year 2018, there was an increase of 17.2 per cent in the arrival of tourists to Kerala that year. However the outbreak of COVID19 resulted in precipitous fall in the arrival of tourists to the state as well as the revenue from the tourism sector. Tour operators, travel agents, hotels and all such allied services related to the tourism sector were affected by the outbreak of COVID19.

Hospitality sector was one of the sectors that was badly affected by the outbreak of COVID19. With fall in the arrival of tourists, the hotels were not able to run their regular business. With the fall in revenue they were not able to meet the fixed cost which forced them to cut down the cost by laying off workers, cutting down the salary of employees, reducing the frequency of availing services of various service providers or cutting down the services of auxiliary service providers and such other measures. All such adversities created a cascading effect on the hospitality industry in the state. The other sectors and personnel who are depended on the hospitality sectors such as call taxi services, tourist’s guides, event management team, laundry services and so on were influenced by the impact. The outbreak of COVID19 in the state of Kerala has virtually affected all elements of the hospitality chain.

Kerala Tourism Industry and COVID19

Kerala is one of the well known tourist destinations in India. In the year of 2019, Kerala ranked 17th and 8th positions in terms of foreign and domestic tourist’s arrival respectively. The tourism sector of Kerala plays an important role in the generation of employment opportunities and makes a significant contribution towards the state GDP.

The fall of tourist footfall in the state had badly affected hospitality sector of the state. The hotels were not able to accommodate customers .Thus many of them shut down their operations and forced to take radical measures such as laying off and salary reduction among the employees to withstand the crisis. The loan repayment of many entities was affected. The closing down of facilities of hotels for a longer period has necessitated costly maintenance after the reopening of services. These institutions have also faced problems in payment of fixed charges of electricity, taxes etc., which Government have relaxed to some extent subsequently. However the entities find difficulty in finding source for raising finance to meet the cost of maintenance. Even though the banks were directed by the central Government to give 20% of the existing loan amount as new loan, the banks were reluctant to do that. The revenue generated by the Kerala tourism industry in the year 2019 was around Rs 45,000 crore, with a growth rate of 17.2%7. It is projected that this revenue and growth rate will slide down in the year 2020-2021 in the light of the unprecedented events of 2020.

According to latest reports published by Kerala Hotel and Restaurant Association, the room occupancy rate of hotels in the state of Kerala during the pandemic period was 10 to 15 per cent. With lower occupancy rate and higher operating and financial cost, the organizations find it difficult to survive. The first step taken to meet the situation was to layoff the employees and workers which resulted in massive unemployment in the sector. Hospitality sector in Kerala contributes around17 to 20 per cent employment in the state8. After the outbreak of pandemic, this was fallen by 5 to 9 per cent. Another area which was affected by the fall in business of hospitality sector was auxiliary industries to the hospitality sector. The auxiliary services include taxi, laundry, performing artists to entertain customers, cleaning staff, security agencies and so on. The outbreak of COVID19 has forced the hotels and such other entities to stop or to reduce the frequency of services of these agencies. This has affected the livelihood of the personnel working in these sectors.

This catastrophic situation in the hospitality sector has also affected the revenue of the Government. Since many of the units shutdown their operation, the revenue to Government in the form of tax, cess, duties and such other payment from this sector had a steep fall. As per statistics of Department of Tourism, Government of Kerala, the tourism contributes 10% to the state’s GDP and contributes around 23 per cent of total employment in the state9. Downfall of this sector due to COVID19 pandemic has resulted into a huge revenue loss to Government and loss of employment to people who were working in this sector.

In the month of August 2020, the Government of Kerala has announced a Rs100 crore packages to help the tourism entrepreneurs and employees who were affected by the pandemic. The soft loans were provided under the packages at an interest rate of 9% per annum where the department of tourism will absorb 6 per cent of the interest for a total period of 18 months and the remaining 3 per cent shall be borne by the concerned borrower. The initiative is to make available loans to entrepreneurs and employees of the sector through various banks and Kerala Bank. Those personnel who are working in the tourism establishment were also offered a loan facility of Rs 30,000 (per employee). Apart from this, the Government have formulated a loan scheme with State Level Bankers Committee Kerala to provide working capital assistance to the tourism entrepreneurs. Under this scheme, the entrepreneurs in the tourism sector can apply for a working capital loan up to Rs 25 lakh. The Government have also extended relaxation in the levy of property tax and deferment of electricity charges in coordination with Kerala State Electricity Board.

Research Problem

As elaborated earlier, the Covid pandemic has brought in unprecedented hardship to the entire society and to the hospitality industry in particular. The non-movement of vehicles and travelers put the industry in a standstill. The policy makers in Government, business community and researchers in tourism and hospitality sector are curious to know the extent of impact the pandemic has caused to the industry. It was in this context that a study was undertaken to assess the impact the Covid pandemic has put on the hospitality industry of Kerala. The study aims to achieve the following objectives.

  • To assess the impact the Covid pandemic has caused to the hospitality industry in Kerala
  • To ascertain the type of assistance, if any, extended by Government to help the hospitality industry to survive and overcome the crisis.

*7 Research and statistics Division, Department of Tourism. Kerala Tourism Statistics 2019-2020. Government of Kerala. 8, 9 ibid

Methodology

The study undertaken was a small sample study with 8 hotel units selected from 3 major cities in Kerala such as Trivandrum, Kochi and Kozhikode. The categories of hotels selected for the study are presented in Table 1

Table 1:

 

Categories of Hotels chosen as sample

 

Categories of Hotel

No:

Three Star

1

Four Star

3

Five Star

2

Not Classified

2

Total

8

 

Apart from the collection of primary data from selected units, the study has also made use of secondary data from literature published in news paper, journals, reports of department of tourism, world tourism organization and resources available in the World Wide Web. Though the sample units selected are relatively small, they almost represent the characteristics of other units in the hospitality industry in the state. Non-probability convenience sampling technique was adopted for sample data collection as many units in the industry were reluctant to share data.

As a prelude to the study, the facilities available in the selected units were ascertained. The data in this regard are presented in Table 2

Table 2:

 

Hospitality related Facilities available in the selected units

 

Types of facilities availible

No:

Restaurant

8

Conference Hall

7

Gift Shop

3

Accomodation

8

Alcohol & Beverages

4

Spa & Fitness

2

 

All the sample units have restaurants and accommodation facilities and conference facilities in all but one unit. Many of these units also had beverages services and gift shops. The operation of these facilities offers direct and indirect employment to many who are engaged/dependent on these facility services. As many as 2 hotels selected for the study maintains more than 150 guest rooms and the other 1 has between 150 and 100. The other hotels of the sample study maintain less than 100 rooms for guest accommodation. All these hotels have reduced their room tariff to promote guest arrival and as a measure to face industry competition during pandemic period. As many as 50 per cent of the hotels offered room tariff reduction at the rate of less than 15 percent where as the rest of the units offered discount up to 30 per cent.

The guest arrival in all the hotels during the all India lock down period started on 24th March 2020 was zero where as the flow gradually increased along with the curtailing of lock down restrictions by Government of India in the subsequent months. The average guest arrival per week before and after Covid 19 pandemic is presented in Table 3.

Table 3:

 

Guest arrival per week – Pre Post Covid 19 Pandemic

 

Average guest arrival per week

Before the start of Pandemic

After the start of Pandemic

Less than 100

0

4

101-200

0

0

201-300

3

1

More than 300

5

3

 

(Source: Primary data)

The table presents the reduction in guest arrival in the selected hotels in the state. Currently in majority of hotels (4 out of 8) the guest arrival is less than 100 per week. It used to be more than 300 guests in 5 hotels before the start of the pandemic where as only 3 hotels get guest more than 300 per week after the outbreak of pandemic. As room selling is one of the most perishable activities, one can imagine the magnitude of revenue loss to the hospitality industry in terms of low occupancy rate.

The occupancy rate pre-post pandemic in the selected hotels are presented in Table 4.

Table 4:

 

Guest Occupancy Rate – Pre Post Covid 19 Pandemic

 

Occupancy rate

Before the start of Pandemic

After the start of Pandemic

Less than 15%

0

2

16%-30%

0

4

31%-45%

2

1

More than 45%

6

1

 

(Source: Primary data)

It is evident that the room occupancy rate in majority of hotels after Covid 19 pandemic is less than 45 per cent where as it was above 45 per cent in majority of hotels before the outbreak of pandemic. Less number of guest arrivals and low occupancy rate naturally have an impact on revenue of these institutions. The reduction in revenue on account of pandemic is presented in Table 5.

Table 5:

 

Loss of Revenue on account of Covid 19

 

Average Percentage of Reduction in Revenue

No: of Hotels

Less than 25%

1

26%-50%

2

51%-75%

3

More than 75%

2

Total

8

 

(Source: Primary data)

Majority of the units selected for the study has experienced revenue loss to the tune of more than 50 per cent during the post pandemic period. This would have affected all allied segments of the hotels such as employment, outsourcing services, tax payment to Government etc.

The Table below shows the number of employees who were working/are working in the pre-post scenario

Table 6:

 

Number of Employees working – Pre Post Covid 19 Pandemic

 

Number of employees working

Before the start of Pandemic

After the start of Pandemic

Less than 50

0

2

51-100

3

3

101-150

2

1

151-200

 

0

0

More than 200

 

3

2

 

(Source: Primary data)

Strategies adopted by Hotels to overcome the revenue loss

As self sustaining entities, hotels in hospitality industry cannot survive on loss for long. The units under study have adopted different strategies to prevail over the crisis. The options exercised by selected units are presented in Table 7 below.

Table 7:

 

Guest Occupancy Rate – Pre Post Covid 19 Pandemic

 

Strategies adopted

No: of units adopted the strategy

Lay off of employees/workers

3

Reduction of salary of employees

2

Reduction in the complimentary services to the workers

3

Reduction in Marketing cost and advertisements

6

Reduction in monthly cost of electricity, water etc

8

 

(Source: Primary data)

The majority of the hotels either declared lay off or considerably reduced the number of employees to prevail over the crisis along with other natural choices such as reduction in complimentary services and restricted usage of water and electricity. The declaration of lay off put severe blow to the serving employees as there was a total loss of revenue to them in an unexpected time. This phenomenon was not the case of hospitality industry alone but for almost all sectors of the economy leading to a total distress in the society at large.

While few units adopted alternative strategies to cope up with the financial loss incidental to the pandemic, others remain passive. As many as 3 out of 8 units diversified into allied activities to withstand the turbulence. The alternate ventures adopted by these units include online delivery of food from restaurant, converted rooms as quarantine paid facility etc.

The number of agencies and number of people who are indirectly on employment/contract with a hospitality unit are enormous. There were sharp reduction in the contract with outside agencies during pandemic; the data in this regard are presented in Table 8

Table 8:

 

Contract with Outside Agencies – Pre - Post Covid 19 Pandemic

 

Type of contract

Before the start of Pandemic

After the start of Pandemic

Artists to entertain guests

4

1

Call taxi services

6

4

Laundry service

4

4

Security Agencies

 

6

6

Cleaning staff

 

1

3

Kitchen suppliers

 

1

3

Gift shop

 

2

2

 

(Source: Primary data)

There was substantial reduction in availing services in regard to guest entertainment and call taxi service. The contract with cleaning and kitchen supplies services have increased after the pandemic as the hotels terminated their permanent employees and outsourced these services based on needs.

Assistance from Government

Government, both the central and state have announced relief packages for various segments of the society who were severely affected by the economic slowdown post covid and to rejuvenate the economic growth. As it is obvious, hospitality sector was one of the worst affected sectors on account of Covid 19 pandemic. The study explored if the units selected for the study were given any assistance from the government to prevail over the crisis.

Among the units selected for the study, one unit responded that they have received pay check assistance during covid pandemic. Tax relief was given to one unit where as some sort of subsidy was given to another unit. These concessions of various sorts were given only to 3 out of 5 units selected for the study. This indicates that the Government assistance to hospitality industry during the crisis was considerably inadequate. As many as 3 units have also resorted to bank loans to meet the liquidity crisis created by the pandemic. The three units which have availed Bank loans earlier also find it difficult to pay back the loan installment consequent to the loss of revenue in their units.

Perception on Business Prospects

The units are hopeful that the Covid impact will not last long and the business will come to normal within short span of time. Since the instinct of people towards travel and entertainment are natural, hospitality industry has the prospects of coming back to normal soon. The majority of the units have the same view.

Conclusion

Risk and uncertainties are associated with every segment of economic activity. The consequences of risk and uncertainty will be high when it affects every segment of economic activity. Risk and uncertainties were at its peak for every business units during pandemic. The hospitality industry perhaps was the most affected sector. This industry as well as the auxiliary industries depended on this were severely affected. There were massive un-employment, loss of revenue, liquidity crisis and damage to tools and equipment during pandemic. The support from Government, both central and state, to this industry was relatively inadequate during the hours of crisis. However, the pandemic has forced the owners to think of alternatives and many units survived by engaging in alternate options. It is expected that the post covid period will offer new impetus for the industry to grow.

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