Travel Industry expected to generate 35-40% of pre-pandemic revenue this fiscal: CRISIL

Domestic travel is picking up pace in the second quarter, with easing of restrictions and improving vaccination rates. However, international travel and inbound tourism may see improvement only in the second half of the fiscal.

Travel Industry expected to generate 35-40% of pre-pandemic revenue this fiscal: CRISIL

According to industry reports, the travel and tourism industry is expected to reach 35-40% of the pre-pandemic revenue levels in the ongoing financial year.

Manish Gupta, Senior Director, Crisil Ratings said, “Domestic travel is picking up pace in the second quarter, with easing of restrictions in several states and improving vaccination rates. However, the recovery of international travel and inbound tourism segments depends on travel agreements with foreign countries and may see improvement only in the second half of the fiscal year. Corporate travel is also expected to remain under pressure with events shifting to online mode. Therefore, the revenue may reach only a third of the pre-pandemic level, i.e., 35-40%.”

While companies raised capital last fiscal year and will continue to implement cost-cutting measures to reduce cash losses, a significant drop in travel and continued uncertainty about the pandemic will harm their credit profiles, according to the Crisil Rating report.

Air and bus tickets and hotel packages are provided by tour and travel operators for both leisure and corporate travel within India and abroad. According to the report, following the nationwide lockdown and other restrictions, which resulted in a sharp reduction in travel, these companies' revenues fell to Rs.2,300 crore last fiscal, which was only 20% of FY20 levels.

The first quarter of the previous fiscal witnessed the industry coming to a halt, with the peak travel season generating only 5% of the year-on-year revenue. However, the subsequent resumption of travel with improved air traffic and increasing demand for domestic tourism lifted the revenue to 55% of the pre-pandemic levels by the fourth quarter, stated the report. The first quarter of the current fiscal was then washed out by the emergence of the second wave due to the state-level lockdowns across the country.

COVID-19 restrictions are being eased in states and countries

The industry is expected to post operating cash losses of around Rs.150-200 crores in FY22, which is significantly lower than the previous year, owing to improved bookings and cost control. Furthermore, according to the report, travel operators have a low reliance on debt because their working capital cycle is typically negative due to high customer advances and creditors compared to low receivables.

In addition, companies raised capital last fiscal year in the face of near-term uncertainty, boosting their cash balance to over Rs.4,300 crore, despite small debt repayments of Rs.85 crore due this year.

Naveen Vaidyanathan, Associate Director, Crisil Ratings, stated that the industry's silver lining is that people's fundamental desire to travel may not have waned, as multiple European countries, including France, Italy, and Spain, have opened their borders in the last two months to welcome tourists back, and the United States is expected to follow suit soon.

"However, there are still several unknowns in the Indian context, including whether vaccination rates will improve, whether international borders will be opened to Indian travellers, and how corporate travel will fare in the post-pandemic world. These uncertainties, combined with continued losses, are driving our bearish outlook on the sector - and they're also key indicators to keep an eye on ", he added.

Source: Economic Times