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Impact of credit crisis and terrorist attacks on tourism sector - Views on News from Equitymaster
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  • Dec 10, 2008

    Impact of credit crisis and terrorist attacks on tourism sector

    India's travel and tourism sector has been hit by a double whammy. First came the global credit crisis. And then the inhuman series of terror attacks across the country. We recently interacted with the management of one of the largest tourism companies in India to find out how the sector is likely to cope with the crisis going forward. The interaction offered us some insights into the three different segments of travelers - corporate, outbound and inbound, each of which will be impacted by the crisis.

    Corporate: Of the tourist visiting India, corporate travelers account of the majority chunk. This segment was already getting affected since the start of the year on account of the global credit and subprime crisis. With companies cutting down travel budgets, this segment exercised caution. While the recent terror attacks will affect this segment on a temporary basis, it is more likely to suffer due to the prolonged economic crisis. Hotels in the metros which largely cater to corporate tourists have witnessed a sharp dip in occupancy rates in the past few weeks, in some cases as much as 25% to 30%. As per hotel consultants HVS International's analysis, almost all the top six hotel markets - Delhi, Mumbai, Chennai, Hyderabad, Bangalore and Kolkata have been impacted. While the room rates have officially increased hotels are selling corporate travel packages at huge discounts to maintain occupancy levels. Tour operators believe that the real discounts and tariff cuts are as high as 30% to 50%.

    Outbound: This set of travelers has not been affected by the terror attacks as it comprises of locals travelling abroad. However, the outbound tourist traffic has been affected by the economic crisis, coupled with higher air fares and depreciating rupee-dollar exchange rate. While the medium term effect on this segment has been relatively less, an economic slowdown can lead to deferment of future travel plans or travelers may instead choose to visit domestic destinations.

    Inbound: More than 1 m inbound tourists visited India last year. This group will be highly impacted on account of the terror strikes. Mostly for leisure, these tourists visits places across the country. Hence destinations like Mumbai, Delhi, Agra, Jaipur, Goa, Kerala among others will face tough times. With the terror attacks tarnishing India's image as a safe tourism destination, the growth prospects of this segment may remain muted in the near term. Although the company we spoke to has not witnessed large cancellations as a good percentage of the bookings for the peak December-January season were already paid, it expects future bookings and revenues to dip from March 2009. Inbound tourism from US was already adversely affected and by FY09, its adverse impact in terms of percentage is likely to be in the range of 10% to 15% (source: ASSOCHAM).

    The Indian tourism industry, valued at Rs 333.5 bn, earns most of its forex revenues from the US, UK and European visitors. As per the industry, on account of recent crisis, the sector may lose as much as 40% of annual revenues. Even as per the estimates of the Tourism Committee of The Associated Chambers of Commerce and Industry of India (ASSOCHAM) on account of the global slowdown, the growth in tourism sector is likely to fall by a minimum of 10% and stay at around 5% YoY for FY09.

    While the industry is hopeful on the long term prospects, the recovery process may be prolonged.



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