Hotel industry primed for take-off

Hard hit by the Covid-19 pandemic, the Nepali hospitality sector is looking to bounce back with new investments and products

the HRM

Despite taking the biggest hit from the Covid-19 pandemic in the last two and half years, the hotel sector continues to be the most lucrative sector for investments in Nepal. A total of Rs 53 billion is being invested in 17 star category hotel projects across the country. Some of the properties are already in construction while some are about to commence construction.

According to the Department of Industry, 13 five-star hotels are in the final stage of construction and are expected to come into operation next year.

The statistics of the Department of Tourism show the private sector has invested over Rs 14 billion in star hotels in the last fiscal year.

The buoyancy of investors toward the hotel sector is mainly due to the fact that the hospitality industry will return to normalcy with the subsiding of the pandemic and expectations that international visitors will return to Nepal in large numbers. It is also because many of these hotel projects started construction a few years before the pandemic.

Leaving the Pandemic Behind 
For the Nepali hospitality industry, the years 2020 and 2021 came as a nightmare. With global travel coming to a grinding halt due to the restrictions enforced by governments across the world, the arrival of tourists fell to record lows resulting in massive financial losses and layoffs in the hotel sector. Some of the hotels that were closed in early 2020 are yet to come into operation.

Nepal started 2020 as the ‘Visit Nepal’ year. The campaign, launched to attract two million tourists and earn Rs 200 billion in foreign currency, was formally canceled due to the pandemic.

A total of 230,085 foreigners visited Nepal in 2020, the lowest in 34 years. The next year, the situation worsened as Nepal received only 150,962 foreigners, the lowest since 1977. In 2019, tourist arrivals reached an all-time of 1.2 million.

In 2020, Nepal’s tourism earnings totaled USD 217 million which was USD 801 million in 2019. The earnings plummeted by 48.2 percent to a meager USD 112.5 million in 2021. Similarly, average expenses per visitor per day plunged to USD 48 in 2021 which was USD 65 in 2020.

After two disastrous years, star hotels have started to generate revenue with an improvement in tourist arrival. The number of tourists has started to increase as Nepal attracted 326,667 foreigners in the first eight months of the current fiscal year. The number will increase further as travelers around the world have realized that Nepal is safe from Covid-19 with 75 percent of the country’s population fully vaccinated as of August 2022 and hotels strictly following the health safety protocols set by the government, hoteliers say.

According to Binayak Shah, 1st Vice President of Hotel Association Nepal (HAN), the number of Indian tourists has grown impressively in recent months. “The number of Chinese tourists will grow once the Chinese government opens international travel. Even if we are able to attract tourists from these two countries, the hotel industry will flourish in coming years,” said Shah.

The quarterly reports of star hotels listed in the domestic stock market clearly show hotels’ revenue is improving lately. Of the three five-star hotels listed on Nepal Stock Exchange (Nepse), two hotels–Hyatt Regency and Soaltee–recorded growth in their profits, while Radisson reduced its losses. It shows the hospitality sector is bouncing back from the shocks of the Covid-19 pandemic.

In the third quarter of FY 2021/22, Taragaon Regency Hotels, which operates the five-star property Hyatt Regency, recorded a profit of Rs 41.42 million against a loss of Rs 126 million during the same period in FY2020/21.

The Soaltee Hotel, one of Nepal’s premier properties, posted a profit of Rs 301 million in the last fiscal year against a loss of Rs 224 million in FY2020/2021.
The Oriental Hotels, which operates the five-star Radisson Kathmandu Hotel, reduced its losses to Rs 32 million in the last fiscal year from Rs 203 million in FY 2020/21.

Hoteliers say while the hotels are gradually recording more revenue, they will take a long time to fully recover from the shocks of the pandemic. But all agree that opportunities for the hotel sector have become brighter now, given the rising number of arrivals of guests. “The business looks much better ahead as tourist arrivals are expected to surge,” said Subrata Banerjee, General Manager of Radisson Kathmandu Hotel.

However, hoteliers say the average room tariff is yet to reach the pre-Covid period. “Despite improvement in occupancy, profitability is still low as there is pressure on the average room prices. In Kathmandu, some non-branded hotels are dropping the room rates to increase business. This is the major reason behind low profitability,” said Banerjee.

Shah’s opinion is similar to Banerjee’s. “The revenue has definitely increased, but given the size of the investment, the income is not satisfying,” said Shah. “But we expect the arrival of tourists to Nepal will increase in the next two years.”

Surge in Occupancy
The room occupancy in star hotels in the Kathmandu Valley is almost 60 percent at present, according to hoteliers. The number is only going to increase, they say.

According to Shreejana Rana, President of HAN, the average occupancy now stands at 60 percent. “However, the occupancy is still low in hotels outside the Kathmandu Valley. Outside Kathmandu, domestic tourists have helped the hotels to survive during these tough two years,” said Rana.

Banerjee said the occupancy at Radisson has reached 60 percent. “The bookings are also increasing. There has been a sharp increase in arrivals of Indian tourists after the pandemic,” said Banerjee, adding that the hotel has breathed a sigh of relief as occupancy was zero for over five months in 2020.

Apart from rooms, hotels have recorded a sharp increment in space bookings for events this year with the gradual increase in MICE activities.

Investments Pour In 
Investments in tourism, especially the hotel sector, have been gradually growing in the last one decade. The data from the Department of Industry (DoI) shows domestic and international investors have pledged Rs 161.67 billion in hotel projects between FY2012/13 to FY2021/22.

Despite the pandemic, the FY2020/21 and FY2021/22 saw investment pledges of Rs 13.48 billion and Rs 26.51 billion, respectively, in the hospitality sector.

“Even though the times are turbulent, the private sector has invested a huge amount as investors see a future in this sector. Many investment plans were made and executed when Nepal’s tourism sector was at its lowest ebb,” said Shah.

According to the Department of Tourism, 13 luxurious hotels are in the final stage of construction. A total of Rs 25 billion has been invested in these hotels–and they will have a total of 1428 rooms.

Not only in Kathmandu, but investors are pouring huge resources outside the capital valley too. Many business houses that have interests in different business verticals are venturing into the hotel sector. Large-scale hotel properties are being constructed in major cities like Bhairahawa, Biratnagar and Pokhara at present. For instance, the Century Group of Companies, a business group with a major hold in the domestic spices business, is constructing the Centurion Hotel & Mall at Biratnagar which will be managed by the Radisson Hotel Group. The 150-room hotel, which has an investment of over Rs 3 billion, will be the first five-star hotel in Province 1. Another five-star property is also under construction in Biratnagar. Suva International Hospitality is investing Rs 1.5 billion in the Lemon Tree Premier which will have 80 rooms and will be managed by the Lemon Tree Hotels of India.

In the last few years, several world-renowned hotels are expanding their services to Nepal. Lately, international hotel chains like Marriott and Aloft have already opened hotels in Nepal, while many others are either opening up new properties or taking over the management of existing hotels.

The Shanker Group is building a hotel in downtown Kathmandu which will be managed by Hilton Hotel & Resorts. The hotel Doubletree Hilton is being built in Naxal, Kathmandu with an investment of over Rs 8 billion. The 18-story hotel will have 175 rooms.

Similarly, Surya Nepal Pvt. Ltd. is constructing the five-star Surya Nepal Hotel at Budhanilkantha, Kathmandu with an investment of Rs 6 billion.

Meanwhile, Guna Group of Companies is investing nearly Rs 8 billion in two hotel projects. The Group is constructing The Massif Hotel at Gwarko, Lalitpur with an investment of Rs 6 billion. Likewise, Guna Group has partnered with Jyoti Group for the Days Inn Boutique Hotel which will have an investment of Rs 1.19 billion.

More lending from banks
The lending of banks and financial institutions (BFIs) to the hotel sector has also increased by 10 percent in FY2021/22. According to Nepal Rastra Bank (NRB), BFIs disbursed loans totaling Rs 160.31 billion to hotels in the last fiscal year.

The BFIs lending to the hotel sector surged from FY2019/20 after the government announced 2020 as the ‘Visit Nepal’ year. In FY2019/20, BFIs’ lending to the hotel sector reached Rs 113.89 billion from Rs 91.30 billion in FY 2018/19. In FY 2020/21, such lending grew by 28 percent to reach Rs 145.75 billion.

According to HAN’s 1st Vice President Shah, there were over 100 new hotel projects in different phases of development in various parts of the country in December 2019. “The pandemic severely impacted the development and construction of these new projects. As the situation has normalized, the construction of many projects has already begun. The investors are hurrying for early leads in the market competition after tourist arrivals are normal.”

Road Ahead  
Despite the optimistic scenario, hospitality entrepreneurs said there are still some stumbling blocks that could derail the recovery prospect.

Shishir Khanal, Vice President of Nepal Association of Rafting Agencies, said there are still many hurdles ahead. “I have heard that some airlines are reducing flights to Nepal targeting the upcoming Fifa World Cup in Qatar in November, which is the major tourism season in Nepal. If it happens, it will be a huge setback for us,” said Khanal.

The other factor that could hurt the hotel industry is exorbitant flight fares. According to Khanal, while the booking for the upcoming season is overwhelming, flight fares have become excessively costly.

Deepak Raj Joshi, former CEO of Nepal Tourism Board (NTB), said the government must work on incentivizing travel tour operators and airline companies to reduce the cost of flight fares. “As there is a significant rise in flight fares, many foreigners have opted to not visit Nepal. If we can work on this, the number would definitely increase as 80 percent of tourists who come to Nepal are by air,” said Joshi who is now the Director General of the Confederation of Nepalese Industries (CNI).

The current arrivals of tourists in Nepal have reached almost 40 percent of pre-pandemic levels which is a very healthy sign. Tourism experts say the action plan to revive the hospitality industry should be devised in three stages – Survive, Revive and Thrive. According to them, the hospitality industry has survived the pandemic period and is currently in the revival phase.

Hoteliers say that the shortage of human resources is the major challenge for hotels at the moment. According to them, the scarcity of chefs in the job market is hitting the business hard particularly. “The current shortage of chefs is the result of attractive opportunities available abroad. Skilled human resources have gone abroad as hotels and restaurant business have entered the recovery mode globally,” said Banerjee of Radisson Kathmandu Hotel.

During the pandemic, hotels slashed the number of staff, including chefs, by huge numbers. At least 80 percent of chefs who lost their jobs during the pandemic are currently abroad for better opportunities, according to hoteliers.

Likewise, the government has recently banned the imports of liquors to save dwindling foreign currency reserves. The ban, according to hoteliers, is having a huge impact. The ban has been extended till October 15.

“This particular move of the government is having a negative impact on the hospitality sector. How can we fulfill the alcohol demands of foreigners when there is no foreign liquor in the market? When we can’t serve them what they want, it will definitely spread a wrong message,” said HAN President Rana.

Another challenge, particularly for hotels operating in the Nepal-India border regions, is the reduced stay of Indian tourists who only spend a day or two in Nepal, say hoteliers. “The length of stay is so low, and on many occasions, Indian tourists come to Bhairahawa just for a day. There is no contribution to the tourism sector,” said CP Shrestha, President of Siddhartha Hotel Association, the umbrella organization of hoteliers of Lumbini and Bhairahawa. “The government must work on increasing the length of stay. And for that, there should be more tourism activities for tourists. The government thinks its job is done just by completing the construction of the airport.”

Joshi thinks that poor infrastructures do not motivate high-spending tourists at all. “Nepal’s service delivery capacity is strong enough to cater quality services, but it is

Nepal’s airports and other tourism infrastructures that are disappointing. We need to improve our infrastructure, including roadways,” he opined.
Likewise, the road connectivity connecting Pokhara and Kathmandu is seriously damaged in many places. “Nepal’s reputation has suffered damage with such connectivity between a major tourism hub and capital,” said Rana.

According to the Nepal Tourism Statistics 2019, foreigners spend just USD 48 dollars daily on average. This number, according to tourism stakeholders, is extremely on the lower side.

If Nepal aims at bringing two million tourists to Nepal, it needs to find a market to brand its tourism destinations, say tourism stakeholders.

“Nepal has a wider scope in tourism compared to other Asian nations. The majestic destinations of Nepal, including the mountains and hills, need to be marketed in the Asian countries, including India to attract a huge number of tourists,” said Joshi, adding, “Despite the immense potential, there are no promotional efforts. If we put our promotional efforts in place and promote our two international airports, Nepal can attain higher arrivals than the 2019 figure next year.”

Shrestha suggests that the government can also work to bring a huge number of religious tourists from Buddhist countries like Sri Lanka, Japan, Mongolia and Thailand to Lumbini. “But to achieve that, the national flag carrier needs to operate flights regularly to these destinations,” he said.

Connectivity Remains a Bottleneck
For Nepali hotels to get a good number of international tourists, the operation of two-recently built airports is critical. Travel-trade entrepreneurs say there is a dire need to improve connectivity if Nepal wants to gain from the post-pandemic period in which tourist inflow is expected to surge.

The government has recently started the operation of Gautam Buddha International Airport in Bhairahawa, Lumbini. However, the tourism entrepreneurs with whom the HRM talked, said the international airport is not boosting tourism in the region as only one airline is operating flights to and from the airport.

“A huge investment has been made in the Lumbini region with the hope that the airport would bring a huge number of tourists. But only Jazeera Airways is operating flights to and from the airport, and it has targeted mainly migrant workers. How can the tourism sector benefit from such a situation?” questioned Shrestha.

Currently, the occupancy of hotels in Bhairahawa stands at 10-15 percent, with some exceptions having up to 30 percent. “When the government started the construction of the airport, investors also started building hotels in this region. But if the arrival remains the same, investors will go bankrupt,” said Shrestha.
The region, according to him, has as many as 150 hotels, including star-rated and small hotels. According to Shrestha, the government should operate the state-owned national flag carrier–Nepal Airlines– to major Indian cities like Delhi and Bangalore from Bhairahawa. “This will also reduce crowds in Kathmandu Airport,

and Indians, who want to come to Lumbini, can directly land in Bhairahawa,” he suggested.

The other international airport – Pokhara International Airport, too, has its own problems. The government has decided that the newly-constructed airport in Pokhara will come into operation from January 1, 2023, as the country’s third international airport.

Even though there are less than five months for the official launch, a lot needs to be done to ensure the airport runs smoothly. First, there is an urgent need to relocate the landfill site which is close to the airport. Second, the Rithepani hill needs to be flattened for the full-fledged operation of the airport.

According to Dr. Surya Raj Acharya, an infrastructure expert, the Pokhara airport is surely facing a huge loss. “It can’t handle big planes. There is a dumping site near the airport. Likewise, a hill needs to be flattened for the full-fledged operation of the airport. This project proves how projects are planned in Nepal. But as the airport is already constructed, it should be properly utilized for the prosperity of the nation,” he said.

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