The Indian tour and travel sector¹ is poised for a healthy growth of 12-14% in fiscal 2025 driven by continuing high air fares and volumes almost at pre-Covid levels across segments, including long-haul travel where visa-related challenges are easing. Moreover, the revision in the rate of tax collected at source (TCS) on overseas travel packages² may not have a material impact on demand.

To be sure, the growth in fiscal 2025 will be on a high base of the current fiscal, where the sector is poised for a robust on-year revenue growth of ~30%, or ~18% above the pre-pandemic peak.

Operating margin, too, is expected to be healthy at above 6.5% this fiscal and the next, despite higher promotional spend, backed by operating leverage benefits and various cost optimisation/ automation initiatives undertaken since the pandemic. Healthy cash flows and strong balance sheets will support credit profiles.

An analysis of four major travel operators³ accounting for ~60% of the domestic sector revenue, indicates as much.

Says Poonam Upadhyay, Director, CRISIL Ratings, “Growing overseas-travel aspirations of people, especially after the pandemic, and rising demand for short getaways are propelling the growth of Indian tour and travel operators. The TCS rate hike⁴ may have a limited impact on demand as expenditure per individual per trip is usually much less than the Rs 7 lakh threshold for over 80% of tour packages.”

That said, tour operators could face some challenges with respect to monitoring the limit per traveller in the transitional period due to lack of adequate tracking mechanism of travel spends.

Growth in the overseas leisure segment will be driven by the short-haul category, just like last fiscal. This segment primarily comprises Middle East, parts of Europe, and south-east Asian destinations. Long-haul travel to the US is also expected to recover with visa-related delays reducing. Nonetheless, it will take a while to recover to the pre-pandemic level, except for students pursuing education in the US, where visas are being prioritised.

The domestic leisure segment will continue its healthy growth trajectory, fuelled by increasing preference for short breaks and improving infrastructure and last-mile connectivity, besides the corporate and MICE (meetings, incentives, conferences, and exhibitions) segments, which are already riding high.

Says Shounak Chakravarty, Associate Director, CRISIL Ratings, “Travel operators will likely increase promotional spends by 100-150 basis points (as a percentage of total revenue) to further leverage the strong surge in demand across segments. Higher scale will help keep operating margin at 6.5-7% in this and the next fiscal. Debt protection metrics such as interest coverage is seen at over 4 times this fiscal and the next compared with ~3 times last fiscal.”

Liquidity in the sector will remain strong, given the inherent negative working capital cycle, driven by customer advances and lower dependence on debt. This, and strong balance sheets, will sustain healthy credit profiles.

Growth in commercial air fleet, movement in air fares, change in tax structure and inflation will bear watching in the road ahead.

¹Provides services such as air/bus ticketing and hotels/packages for leisure and corporate travel within India and abroad
²To qualify as 'overseas tour programme package', the package should include at least two of the following: (i) international travel ticket, (ii) hotel accommodation (with or without food)/boarding/lodging, (iii) any other expenditure of similar nature
³Thomas Cook Ltd, MakeMyTrip India Pvt Ltd, Yatra, EaseMyTrip
⁴ For transactions above Rs 7 lakh per financial year per individual TCS increased to 20% from 5% effective October 1, 2023 onwards