Q3 was the most positive quarter in seven quarters for tourism industry, says Indian Hotels’ Puneet Chhatwal

hat is the dynamics of the quarter gone by because the last quarter was a very peculiar quarter in our book. It started with a lot of promise which captured the Diwali, Dussehra and the holiday season, but just when things were looking up, the Omicron variant hit us. So the quarter has included both good and bad.
You are right on the quarter being a bit peculiar but it was still the most positive quarter of the seven quarters that have gone by for the tourism industry in general and hospitality in particular. We have learnt that after the wave, it took almost six months, in certain states and in other states depending on the lockdowns and the restrictions imposed, even up to nine months, for the industry to come back.

Then came the devastation of the second wave which was very strong. But the industry started bouncing back in three months and then we were confronted with the third wave of the Omicron as of December 20. But the effect on the cancellations and on the drop in business started subsiding as of January 15 and it would be fair to estimate that the last one week has been positive for the business and the pickup is strong, especially the last two-three days and this week is really critical because las week we had a holiday in the middle of the week. At the end of this week, we will know more if this trend continues. I personally remain very optimistic that the trend will continue and the bounce back will be faster and the period shorter.

The real bounce back will happen once business travel normalises. Leisure travel had picked up and we can see that as well. But the bulk part of any hotel chain is when business travel comea back. Has that started coming back?
Absolutely. It did start coming back at a different segment level. I would say it has not started coming back at luxury level or at upper scale to the extent that we would have liked to have it. Especially in the two key metros of Delhi NCR and Mumbai, they are the engines of business for our sector and they are very important. They definitely rely more on business than on leisure.

However, having said that, there is a certain segment that is emerging even in leisure in which people are combining the business and leisure trip. The term ‘bleisure’ was coined 5-10-15 years ago but the real impact of bleisure has been witnessed in the last couple of years. So if people are going to a leisure destination and/or combining business because the work from home is on, I do not think we can 100% classify that as leisure travel only.

Having said that, I think the business is beginning to come back. People feel the need of building new relationships as that is important for the business and work from home has also set in a certain form of fatigue and we will see a good balance emerging over the next six to eight weeks in which people will first start combining work from home and business in person followed by hopefully things getting back to the way they were in a pre-pandemic period.

Is Indian Hotels on the path of better profitability and more returns? Your business is almost back to pre-Covid levels but operating costs are 20% lower, overheads are down 23%. Is this the new normal and when things normalise, your overheads will settle 15-17% lower than pre-Covid levels?
Absolutely right. It is in line with the guidance that we have provided but it is not just the level in absolute terms of fixed cost. With the kind of growth journey we have marked upon, productivity is also an important element going forward. So if we were to take out fixed cost for hotels in operation or fixed cost on the total in portfolio including the hotels in the pipeline, the pandemic for the industry globally has been good in reviewing the cost structure and how we could do almost similar amount of things and become a more efficient industry. It is not about Indian Hotels; almost every player in this industry has been able to readjust their cost base on the fixed cost level as well as on the variable cost level.

In the short term, have your capex plans taken a backseat because of Omicron?
We do not build strategies for the short term as that is just tactical. Our strategies have been communicated to the market. We have walked that talk during the pandemic and we will be walking that talk much faster post pandemic. Of course, every wave, whether it is Omicron or Delta is a setback and it puts one behind. However, it also makes one more and more resilient.

Our Q3 results point to the resilience of the industry and its ability to bounce back. Travel being a fundamental need, going forward, even after Omicron, there will be life and people getting used to it. The vaccinations are helping, the boosters are helping, more and more people are venturing out and those of us who live in Mumbai know, we are facing almost similar traffic in different pockets.

If I were to look back at your journey during Covid years, I would say the biggest disruption and the potential for disruption is actually Qmin. How is that business shaping up and in the long haul what is the strategy to build up the Qmin platform?
It is very important. We have been communicating with investors and analysts that we have divided our business into the traditional business and new business. The traditional business is our backbone – the Taj, the Vivanta and some of our hotels under the SeleQtions brand. Each of the hotel has its own story. However, the new business has one old brand name but it is completely re-imagined. It is the development of Ginger as homestay and Qmin.

Qmin is today present in 20 cities. It is working on its own app. We have also ventured out with Qmin in QSR in the city of Bangalore, opening 11 outlets in the last quarter. We have opened a few outlets two in Mumbai, two in Delhi at the Connaught and The Ambassador and in Mumbai at the President and the Taj, taking that total to almost 15 and the Qmin business has evolved quite well for us.

We are optimistic about increasing our presence in 25 cities. As more and more cities open up, there are less and less restrictions and lockdowns. There would be an adjustment in demand but we are here to stay with this business and in all these businesses, one of the strategies that we have is to be the premium brand in that relevant segment. So if we are talking about Ginger than Ginger has to be the most premium value proposition; if we are talking about Qmin, it has to be the most premium value proposition on both home delivery or on the QSR front.

That is very much synonymous with the strategy which we have had over a century with Taj. We do not want to do anything that dilutes the positioning of any of these brands and impacts the whole company. On the contrary, all these brands have helped us increase the margin in Q3. Even in a pandemic period to hit more than 30% on consolidated including international properties for us and 37% plus on standalone is not coming just from the traditional business. It is assisted and supported by the new businesses.

It is no secret that the Tata Group is always looking out for marquee acquisitions. With the pandemic, we have seen some big hotel assets marquee assets which became distressed and have been bought. Is anything on your radar whether it is in India or overseas?
From a strategic perspective, except for a very, very compelling proposition on the domestic front, we are not into investment into assets for almost four years. Our entire growth model is based on asset light strategy or signing operating leases for our Ginger brand. But we hope to benefit with the Tata Group’s latest acquisition on the airline front – Air India – together with Vistara and Air Asia – to get our fair share of the business which we already have but may be consolidated and taken to the next level.