Will The Hospitality Industry Survive

Three months into the lockdown and the virus is showing its deadly impact on almost all industries. The hospitality industry which was gearing up for a promising 2020 has now almost completely shut operations, and the future looks bleak. On May 18, a report in a national daily claimed that the hotels that are teetering on the edge of decline or total shutdown have decided to cut losses by remaining shut for the next six months. Many stakeholders within the industry are not expecting any tourists to visit Nepal for at least another year. According to World Travel and Tourism Council’s research report, tourism in Nepal is still a major contributor to the state coffer. However, the Covid-19 outbreak has forced the government to shut the nation’s borders and ground all commercial flights. This basically means as long as the lockdown is in place, Nepal will have absolutely no visitors. Even after a gradual lift of the lockdown in various countries, traveling will not be first priority. With no visitors in the foreseeable future, hotels in the country are gearing up to suffer heavy losses or worse, total closure of their businesses. Text: Avant Shrestha

What is the damage?

According to the World Travel and Tourism Council, Nepal’s travel industry contributes Rs. 240 billion to the country’s economy and supports over a million jobs. Tourism is vital to the national economy and accounts for nearly 8% of the country’s GDP. It is reported that in 2019, Nepal received a total inflow of more than 1.17 million tourists whose average stay in the country was 13 days with a daily average spend of $44 US dollars. In addition, tourism is the second largest foreign exchange earner; the Central Bank data reveals that total foreign currency exchange for 2018 in Nepal stood at approx. US$ 617,263,000. According to Hotel Association of Nepal (HAN), an umbrella organisation of hotel entrepreneurs in the country, the projected income of the hotel industry might decrease by 90% in 2020. This is a huge loss for the industry considering that at the start of the year, Nepal with its much-hyped Visit Nepal Year 2020, had anticipated receiving over two million visitors. Now due to the global pandemic the campaign is canceled, all tourism activities shut down, and the industry in total disarray.

“In this unprecedented time, it is important for local bodies to look inwards and try to save and salvage the declining industry.”

Shreejana Rana President, HAN

Shreejana Rana, President of HAN states, “We were all getting geared up for the Visit Nepal year 2020, and we were very enthusiastic about the fact that we would have so many tourists coming in. And suddenly, we have been caught off guard with a situation that is not just a national issue, but an international one.” Sharing his opinion on the VNY 2020 campaign Upaul Majumdar, General Manager, Soaltee Crowne Plaza says, “I for one never expected that there would be quick results. I don’t think that tourism promotion such as the VNY 2020 would bring immediate results. In fact, what it does is to create a lot of interest and the larger fallout would be in the later years. What it will do is to pique the curiosity of a lot of people.” With the discovery of a vaccine seemingly months or years away, and the challenge of containing the spread while restarting the economy, the immediate future of the hospitality industry does not look promising at all. Rana opines, “The governments around the world have rightly restricted travel within countries but the consequence is that the hospitality industry is severely affected. In this unprecedented time, it is important for local bodies to look inwards and try to save and salvage the declining industry. When we suffered from a national tragedy like the earthquake, we had our neighbours helping us and we were able to swim out of the situation; but currently no country is exempted from the Coronavirus. So it is important that we as Nepalis come together and try to come out of this challenging time. We have to be able to help ourselves.”

Status of the hotels

According to multiple reports, hotel entrepreneurs and hoteliers of all classes have stressed that the pandemic is likely to affect the country’s hospitality industry for the entire year and more. An estimated 3,000 hotels around the country have decided to send their staff home because they are unable to pay their salaries. Majumdar stresses, “Currently, the entire industry is in disarray, because there is no real need for people to be traveling anywhere. And I believe if there is any business, it’s from people who probably got stuck because they have not been able to travel back to their countries.” Soaltee is currently accommodating one guest who has been in the hotel ever since the lockdown came into effect. In addition Soaltee Crowne Plaza’s restaurant is operating and is open for food pickup and deliveries. To operate the restaurant and work on the maintenance of the hotel they have about 38 employees who are living in the hotel for 14 days at a time after which the whole team changes. While staying at the hotels they follow all the safety protocols such as taking temperature twice a day and maintaining good hygiene practices. On the cost cutting measures that the hotels are implementing, Majumdar explains, “Actually there are no cost cutting measures, we are shutting down all the operations, that’s it.” He continues to explain, “Most of the hotels across Nepal are already closed because there are no guests so it doesn’t make sense to stay open. When I speak for the Soaltee Crowne Plaza, we are not looking at cost cutting measures really. We are looking more at how can we build a safe environment for our guests as well as for our employees which actually turns out to be more costly.” At a time when revenues are at, maintenance costs are higher for 5 star hotels like Soaltee. However it’s fair to claim that they are unlikely to go out of business. On the other side of the spectrum, small scale hotels and relatively newer hotel entrepreneurs do not have the backing of deep pocket investors nor a huge financial reserve, so they are struggling to run their business and anxious about the future.

“Actually there are no cost cutting measures, we are shutting down all the operations, that’s it.”

Upaul Majumdar General Manager, Soaltee Crowne

Ujwal Manandhar, Managing Director of Hotel Sweet Town which is located in Thamel, the capital’s tourist hot spot explains, “Currently, we are not under operation as the few guests that we had decided to leave just before the lockdown came into effect. If they had decided to stay with us, we would have continued our business with limited services.” Manandhar continues, “At the start of the year we started experiencing lower tourist traffic and 50% of our bookings stared getting canceled from January onwards as the virus started to spread around China and Europe.” The staff at Manadhar’s hotel decided to head home as soon as the lockdown was announced. “We cleared the salaries and they went back to their homes where they would be safer. At this moment we have no intention of laying them off. It’s unethical to fire them in times like this. But at the same time, in terms business, we have to see how much we can support them as well,” explains Manadhar. According to data compiled by the Department of Tourism (DoT), the number of star-rated hotels reached 135 in fiscal year 2018-19. In addition, the number of tourist standard hotels and home-stay reached 1125 and 1006 respectively in 2018. Altogether the country has the capacity of 40,856 rooms to accommodate the formally predicted 2.5 million guests. Hotel entrepreneurs are anxious about the future and they believe that as much as 40-50% of the hotels are at risk of closing down. The investment, the loan repayment and rent are three of major concerns during the pandemic. As a result, newer hotels are going to face a tougher time and are unlikely to survive. “Right now the government needs to make decisions and implement decisions fast because at the moment there are a number of hotels that are not in a state to continue anymore. The costs keep increasing and there is no income,” Manandhar shares.

Dealing with the lockdown

The major economic challenges for the hospitality industry can be divided into three categories. Primarily, the new hotels that have come up like the Marriott and Aloft in recent years are facing a huge challenge because these hotels have taken huge loans in order to build the hotels. Secondly, all the older reputed hotels usually tend to have a very high salary structures that nearly amount to 40% of the income. The 40% is spent directly on salary and thus they do not have big financial reserves. Lastly, for the smaller hotels who are operating by renting land or building to run a hotel are struggling to pay the rent.

“We cleared the salaries and they went back to their homes where they would be safer. At this moment we have no intention of laying them off. It’s unethical to fire them in times like this. But at the same time, in terms business, we have to see how much we can support them as well.”

Ujwal Manandhar Managing Director, Hotel Sweet Town

Manandhar states, “As of now, the first priority for hotels like us is to adopt, ‘live now, plan later’ mentality. We don’t see traveling becoming normal anytime soon. Even if the virus is gone, people will be affected economically and their main focus won’t be travel. However, we have some plans on how to restart our business but we will need big support from the government and the tourism ministry.” Majumdar explains that Soaltee is working to establish high level of science led protocols on cleanliness and hygiene which will be certified by the government. Once established, there will be intensive trainings so that every member of the team is equipped with the knowledge.

Financial Hurdles

After the first month of the lockdown HAN urged the government to adopt special policy measures to prevent further decline of the hospitality industry. They released a statement asking the government to formulate necessary policies keeping in consideration the management of human resources, bank loans, house rent and power tariff. Rana says, “With no income coming in, it is really difficult to continue to pay the staff. On humanitarian grounds we paid the staff full amounts for Chaitra. Members of HAN continued to pay 50% of the salary for Baisakh. And in spite of shutting down operation, the hoteliers have decided to pay 12.5 % of the basic salary of its employees as well as service charges that the hotel had accumulated and which hadn’t yet been distributed. During this time we feel really let down by the government which has failed to understand the situation of the investors. As the President of HAN, I feel there is a lot of pressure on the investors.” When hotels started shutting down operations indefinitely, the numerous staff face an uncertain future. In many countries, there has been pay cuts and trimming down of workforce; while in Nepal, staff has been furloughed until further notice. “I believe across the Middle East people are handed out pink slips and just left to fend for themselves. That’s largely what’s happening across the industry across the world,” says Majumdar. As of early May a government committee formed to ascertain the losses in tourism industry has recommended setting up a retention fund worth of Rs. 20 Billion. Where the said fund would be allocated and how much financial support would be given to the hospitality industry is yet to be decided.

Time to reflect

With many hotel entrepreneurs not expecting any visitors for the entire year, it’s time for them to analyse whether they can sustain the dry period and whether they will be able to weather the post Covid 19 market. Rana shares, “When one tourist comes to Nepal, nearly 10 Nepali citizens benefit directly and indirectly. Tourism really plays a very vital role in the country. Directly or indirectly, we contribute nearly 7% to the GDP and 25% of the foreign exchange we receive is from tourism.” She predicts, “2020 and 2021 will be a very difficult time for the industry, however we can take this time to really work on our products: evaluate it, research and develop it as per the demands of the international standards and then market it to the right target group and eventually in 2022, the industry may bounce back.” Majumdar concludes saying, “Tourism is not just about hotels, it also represents all the people who are connected to tourism which I believe is a huge deal for Nepal. I believe that the sector needs a lot of understanding, in terms of bringing it up, and not comparing it with other industries. It needs a lot of policy level support, it needs government support, and indeed people to understand and support it.”