Small tour operators: Covid-19 crisis causes consolidation

/ New Delhi
Small tour operators: Covid-19 crisis causes consolidation

While tourism industry per se has been hit hard by coronavirus pandemic, small tour operators, backbone of Indian travel trade, face existential challenges & many of them may simply be forced to close down.
Rate this post

Overall 90 pc business is down, 10 pc is there due to little bit of tweaking in our business and launching new services in order to survive,” Arun Kharat, CEO of City Glide Travel Solutions Private Limited, a small travel agency in Pune, a city in western state of Maharashtra, tells India Outbound.

After a booming 2019 when business grew rapidly and his company expanded its footprint, it has been a particularly quiet year so far for Kharat and indeed the entire tourism industry which is now faced with the worst period in its history.

It is now well over four months since the lockdown began to be lifted gradually in India and some segments of the economy have begun to kickstart again, but tourism, however, remains as close to the edge of the cliff as it has been ever since the lockdown was announced abruptly on March 24.

“We handle both inbound and outbound operations. Outbound has been closed entirely since March, with only domestic remaining, but even that has suffered tremendously. If earlier, we were doing INR 7-8 million per month in the domestic segment we are making INR 500,000-600,000 per month. For outbound used to be mostly ticketing and that used to be around INR 500,000-800,000 monthly which is currently nil,” says Kharat, who is also the CEO of Book2Ride, an app based taxi and car rental service in India.

Tourism is one of the key drivers of economies of various countries, including India. The tourism industry accounts for USD 247 billion or nearly 10 pc of India’s GDP and employs over 55 million persons, across the entire spectrum of hotels, transport, restaurants, entertainment and souvenirs.

According to the World Travel & Tourism Council (WTTC), the travel and tourism sector accounted for over 10 pc of the global GDP and over 330 million jobs last year. The sector has seen high growth in the last decade, in India and overseas, which can be largely attributed to factors such as rising disposable incomes, the emergence of low-cost carriers, ease of travel through internet-based services and the relaxation of visa regulations.

However, all that seems too well and truly behind, at least for now. Globally, tourism has been amongst the worst hit sectors of the economy, irrespective of the country. Though the final figures would not be known for at least six months after the world has rid itself of the scourge, the initial data is scary enough. Already 10 pc of global tourism jobs have been lost definitively as companies have shut down, with the bill of the crisis for tourism shooting to USD 1.3 trillion by end of August. United Nations estimates the final count could be about USD 3.3 trillion or 4.2 pc of global GDP in 2019.

(Left to Right) Pandemic has ensured that even top destinations like London remain bereft of tourists; The few agent offices that have reopened are working with skeletal staf

(Left to Right) Pandemic has ensured that even top destinations like London remain bereft of tourists; The few agent offices that have reopened are working with skeletal staff

The impact of the crisis has been perhaps the harshest in India for three reasons. One, the sector is overwhelmingly unorganised, with over a million small companies operating standalone hotels, transport firms, restaurants, booking agents, guides and even artisans catering to tourists. There is no data on exactly how many of these companies existed, their total revenues or number of employees.

Another reason for the severe impact has been that in many remote and rural areas, tourism is the sole source of livelihood for many, even those who have small farms, as farm income is nowhere near enough to sustain a family. But the biggest reason behind the severity of the crisis in India is a total absence of government support of any kind, even as the pandemic enters its seventh month in the country and continues to spread uncontrollably.

“First and foremost, the travel industry is completely devastated in this Covid-19 period where the small, big and medium, all kinds of travel companies have been affected in their respective ways. Business which was expected all through the year has been cancelled because of which there has been loss of business, loss of finance as well as loss of manpower. The survival strategy has just been to stay put, till things improve. After the Vande Bharat flights started and other airlines have subsequently started their flights there is some hope that people will start getting some work again, but it is not enough to keep the industry going the way it was,” says Aditi Bhende, national secretary of Travel Agents Federation of India (TAFI), an industry body.

While the airlines as well as some of the large hotel chains have been getting some business since the lockdowns were eased, intermediaries of tourism industry like tour operators and travel agents are amongst the hardest hit by the lockdown, with many staring at bankruptcy. An early estimate of the impact of the lockdown and the pandemic on the Indian travel industry is a loss of INR 10 trillion and the unemployment could be 36 million, counting both direct and indirect jobs.

The brunt of these losses is on the small and medium sized players who did not have any recourse to look for either diversifying their business or try to capture the few niches that were still available.

As a result, the agencies are finding it hard to continue on their own. The Indian Association of Tour Operators (IATO) says most of the tour operators have been forced to lay off their staff, many have sent staff on furlough and those who are remaining are getting less than 30 pc salary. “We were 625 employees last year, but we are making do now with just 25-30 people. We are currently managing anyhow. Instead of 100 pc we are doing only 10 pc. That 10 pc business volume is trying to support us. Losses are definitely there. If it goes beyond December we will have a tough time. Most of the employees left but whosoever is working now they are working with full pay,” says Kharat of the agency in Pune.

Bhende of TAFI says that it is an industry-wide phenomenon as both inbound and outbound agents have been hurt and those who were entirely dependent upon outbound or special segments like destination weddings or MICE are today staring at bankruptcy or at least a sizeable chop in terms of headcount. “Since the last six months the companies have had no business, no income. They are forced to cut salaries or let some of their staff go or find some other alternatives,” Bhende tells India Outbound.

“Before Covid-19, we had 15 persons in our team. Since March 24, I have shut our office and even right now our company has not restarted operations. So, there have been challenges for our team also due to these hardships being faced by the company,” says Bhende, recounting her own company’s fate.

Return of normal business still a distant dream

Even though there are now air bubble agreements with a number of countries, air travel outside India still remains a dream for most Indians as almost every country has India on its negative list for visitors due to the rampant coronavirus pandemic. Across Europe, Africa, Asia and the Americas, the governments have clearly ruled out accepting visitors from India, with few exceptions for business visa or permanent residents.

Thus, revival of outbound tourism still looks like a distant prospect, most agents believe. “The stabilisation will only happen when the Covid-19 will end and people will start travelling all over again. It is not going to be easy. I don’t think we will see anything happening before the beginning of 2021. It will take some time for the people to get the confidence to travel and visit other places. Overseas I don’t see anything happening till February next year,” says Bhende.

Most agents predict that while the return to pre-Covid levels is at least two or even three years away, even revival of a significant chunk of business is unlikely before summer next year for both outbound and inbound travel. The exact measure of the appetite of Indian travellers for outbound travel is likely to be found only by the time next year’s summer vacations approach. It would also give time for at least a partial revival of the Indian economy, which has been wrecked by the unplanned and chaotic implementation of lockdown.

A missing government

The agents rue that at a time when tourism industry all around the world is being bailed out by respective governments, in India, the government has totally ignored the sector and done nothing at all to help a sector that straddles the rural-urban divide as well as educated and highly skilled employees as much as persons with fairly basic skills. Practically every agent, outbound or otherwise, has had expectations from the government. First one was moratorium on interest payments in the absence of any business.

The agents say they need the government to not only provide relief from the steep interests that they pay on their bank loans or overdrafts, but also help in reviving the sector through tax breaks and promotion of tourism.

“The government needs to look into the ease of business firstly. How easy it is to do business in this country. There should be a waiver in the visa fee for the incoming and tax breaks for those travelling overseas so that people start travelling and we start getting some business,” says Manu Mahalingaiah CEO of Skyway International, a medium-sized travel industry based in Bengaluru in southern Indian state of Karnataka.

The travel agents say that the government does not seem to recognise the importance of the agents in the tourism industry. “As the national committee member of The Travel Agents Federation of India (TAFI), we have been in dialogue with the government at large and we have been putting forth our problems to them. We are still hoping and expecting the government will support us in a very big way. Something they have not realised is that the entire travel industry is based on travel agents giving the support to the airlines which is a very major support without which the airline industry also will not survive. So, the government has to take this into account and make sure that the travel agent is completely protected and is definitely given the required support during this Covid-19 pandemic, which the government is completely ignoring right now,” says Bhende.

“Nothing transcends down to the SME sector as far as government initiatives are concerned. There are several small companies that have shut down. We tried to push a lot of recommendations for the government but for the tourism sector nothing has come in,” adds Kharat.

Thousands of small tour operators face existential challenges as their offices remain closed seven months after the lockdown

Thousands of small tour operators face existential challenges as their offices remain closed seven months after the lockdown

Survival strategies

In the absence of any support from the government or any signs of a quick revival of the sector, many travel agents have started to diversify into other sectors. “The issue is that most of the members have diversified. I have seen lots of diversification happening to the members. They have got into whatever means they can make money. They have diversified into cloud solution, online portal or app, medical equipment,” says a large outbound travel agent in Mumbai.

There are some others who have realigned their businesses marginally, staying still in areas directly connected to tourism and hospitality. Arun Kharat and his son Kunal Kharat are trying to work in both B2B and B2C sectors. “We work in both the sectors B2B and B2C. In the B2B sector since it was dealing with mostly IT sector and the company itself closed and they are working itself with 10 pc occupancy, so business has straight away shrunk by 90 pc. For B2C we tried to do some innovation with respect to safety and hygiene. We launched Book2Ride, a mobile app, which got a good response from government authorities on being ‘vocal for local’ model. It is a transportation app for taxis and autos and it has got a very simple user interface,” he says.

“The USP is there is no surge pricing. It’s a flat tariff so it turns out to be economical. The Pune police used this app for airport transfers and hospitals. We tried to enter into this segment and tried to do something for survival. This was our survival strategy with little bit of innovation and lit bit of tweaking towards current tide and business model and make it more customer centric and user friendly,” he says.

Closing down & consolidation

But diversification is not an option for every agent and this is leading to several agents, especially the smaller ones shutting down. “We are seeing lots of agents under tremendous stress and so far they have been running operations by cutting the costs to bare bones. But ultimately, they do run out of options and can no longer afford to fund the company,” says Jyoti Mayal, president of Travel Agents Association of India (TAAI).

“I feel that there will be lot of people who will be closing shops. We have a lot of outbound travel agents as our members and we can see them shutting down unless the government steps in with concrete and urgent measures to help them,” says Bhende.

As of now, the consolidation in the industry has not started but if indeed a large number of small and medium sized agents fall victim to the pandemic, then it is likely to take place fairly rapidly.

Some associations are already suggesting consolidation of an informal kind to their members. “There hasn’t been any merger right now and people are not talking about mergers and acquisitions because they do not know what the future is like. But we at TAAI keep on reiterating to all our members that you actually need to make consortiums to share resources and you need to work together because cooperation is need right now. We can overcome the challenges only if we start working with each other and share not only the work culture but also the people we are dealing with right from our value chain. Our value chain is too long. We deal with all sorts of people. So the value chain needs to be very strong, so that we can sustain our business in the future too,” says Mayal of TAAI.

The real picture of the extent of impact of the pandemic on the Indian travel trade won’t be known for at least a couple of years. But it is certain to dramatically change the shape of the Indian outbound travel industry forever as hundreds, if not thousands, of agents are bound to fall prey to Covid-19.

You may also like
Utah Specialist Academy
Utah Tourism launches programme to upskill trade partners
Golf tourism market to grow to USD 40.4 billion by 2033
Busan positions itself as Global MICE Destination
Myndstream aims to bring mental wellness through music: Freddie Moross

Leave a Reply

Get Magazine