The Indian tours and travel industry could see revenue increase this fiscal to over 70% of the pre-pandemic (fiscal 2020) level, riding on high pent-up demand and increasing confidence of people to travel as the pandemic risks wane.

While full recovery to pre-pandemic level is expected only by fiscal 2024, continuing recovery with improved operating profitability, supported by cost-control measures, and healthy liquidity will support credit profiles from here.

A CRISIL Ratings study of three major players that account for over half of the domestic tours and travel industry¹ indicates as much.

The industry, which provides services such as air/bus ticketing and hotels/packages for both leisure and corporate travel within India and abroad, has taken the severest beating from Covid-19.

Post the initial shock of the pandemic in the first half of fiscal 2021, which brought the entire industry to a standstill, tours and travel operators witnessed gradual recovery in the second half, with improving air traffic and demand for short domestic holidays.

In the first quarter of fiscal 2022, however, the severe second wave of the pandemic slammed the brakes on recovery, that too in the peak travel season of summer, tamping revenue down to less than 20% of the pre-pandemic level.

The third quarter of fiscal 2022 saw the industry make healthy recovery as the second wave abated, taking revenue up to ~60% of the pre-pandemic level on the back of high pent-up demand. To be sure, air traffic reached around 70% of pre-pandemic levels during the third quarter, led by domestic traffic.

The third wave during the last quarter of fiscal 2022 was only a blip in the road to recovery given its lower severity, shorter and limited lockdowns by governments, and improved vaccination rates. With this, the industry appears to be firmly on recovery path, with revenue estimated at over 40% of the pre-pandemic level last fiscal, more than 70% in the current one, and full recovery likely in fiscal 2024, from the lows of ~20% in fiscal 2021.

Says Naveen Vaidyanathan, Director, CRISIL Ratings, “High pent-up demand, eased restrictions, and higher consumer confidence are expected to drive recovery in domestic travel to >80% of the pre-pandemic level. Corporate travel should also rebound to >70%, as corporates increasingly resume work from office. However, segments such as outbound and inbound travel should see a more gradual recovery as restrictions in other countries ease gradually.”

The continued demand recovery, along with sustained focus on prudent cost measures and adoption of technology, could result in operating profit of over Rs 150 crore this fiscal for travel operators.

This would be a turnaround after two consecutive fiscals of operating losses. The industry had already reported an operating profit for the third quarter of fiscal 2022, but losses in the first half of the fiscal and the third wave of the pandemic in the fourth quarter are expected to result in losses of about Rs 200 crore for the full fiscal 2022. This is against operating losses of around Rs 600 crore during fiscal 2021.

Says Ankush Tyagi, Associate Director, CRISIL Ratings, “Travel operators typically have a negative working capital cycle because of high customer advances and creditors, resulting in limited dependence on debt. Significant reduction in business had resulted in working capital outflow for the industry in fiscal 2021, which has reversed last fiscal and may accelerate in the current one with expected business recovery. Furthermore, companies had raised significant capital² in the face of pandemic-related uncertainties, which boosted their liquidity. Cash balance of over Rs 4,300 crore vis-à-vis debt of ~Rs 2,000 crore as of December 2021 supports credit profiles.”

That said, any further wave of the pandemic or new strain of the virus, as well as geo-political risks such as prolonged Russia-Ukraine conflict, which impact travel, will bear watching.

¹ Combined reported revenue of ~Rs 11,300 crore in fiscal 2020. This revenue was on gross bookings/ gross revenue of ~Rs 78,000 crore
² Includes long-tenure zero coupon convertible notes and optionally convertible debentures