Tourism industry is important for the benefits it brings and due to its role as a commercial activity that creates demand and growth for many more industries. Tourism not only contributes towards more economic activities but also generates more employment, revenues and play a significant role in development. It includes business tourism commonly denoted by the term MICE – Meetings, Incentives, Conferences, Events & Exhibitions.
According to Caroline Freund, Global Director of Trade, Investment and Competitiveness at the World Bank, the tourism industry is at a standstill. Even as policymakers around the world seek ways to mitigate the economic impact of the COVID-19 (coronavirus) pandemic, recovery can’t begin until the health emergency is under control and travel restrictions can be lifted safely. The longer the health crisis lasts, the more difficult for companies to survive — especially the small- and medium-sized enterprises that make up a big share of the tourism ecosystem — and greater the distress for workers.
And the governments are rightly worried. Up to 75 million jobs are at immediate risk in global Travel & Tourism due to the Covid-19 pandemic, according to the World Travel & Tourism Council (WTTC). The figure, based on research from WTTC, shows a Travel & Tourism GDP loss to the world economy of up to US$2.1 trillion in 2020. The latest projection of a 50% increase in jobs at risk, in less than two weeks, represents a significant and worrying trend, with an astounding one million jobs being lost every day in the Travel & Tourism sector.
In the U.S. there will be a $910 billion hit to the economy due to the decrease in travel, which is seven times the impact 9/11 had on the industry!!
More than half of global airlines could ‘die’ without aid, says IATA
The Association also says that the global passenger revenues could fall by $252 billion this year – 44 per cent down on 2019’s figures!! “The airline industry faces its gravest crisis,” warned IATA’s Director General and CEO, Alexandre de Juniac . “Within a matter of a few weeks, our previous worst case scenario is looking better than our latest estimates. But without immediate government relief measures, there will not be an industry left standing. Airlines need $200 billion in liquidity support simply to make it through. Some governments have already stepped forward, but many more need to follow suit.”
IATA praised several governments around the world for their state support for the airline industry, citing examples including:
- Australia has announced an A$715 million (US$430 million) aid package comprising refunds and forward waivers on fuel taxes, and domestic air navigation and regional aviation security charges.
- Brazil is allowing airlines to postpone payments of air navigation and airport fees.
- China has introduced a number of measures, including reductions in landing, parking and air navigation charges as well as subsidies for airlines that continued to mount flights to the country.
- Hong Kong Airport Authority (HKAA), with government support, is providing a total relief package valued at HK$1.6 billion (US$206 million) for the airport community including waivers on airport and air navigation fees and charges, and certain licensing fees, rent reductions for aviation services providers and other measures.
- New Zealand’s government will open a NZ$900 million (US$580 million) loan facility to the national carrier as well as an additional NZ$600 million relief package for the aviation sector.
- Norway’s government is providing a conditional state loan-guarantee for its aviation industry totaling NKr6 billion (US$533 million).
- Qatar’s Minister of Finance has issued a statement of support for the national carrier.
- Singapore has undertaken relief measures valued at S$112 million (US$82 million) including rebates on airport charges, assistance to ground handling agents, and rental rebates at Changi Airport.
- Sweden and Denmark announced $300m in state loan guarantees for the national carrier.
Meanwhile in India – Urgent Intervention Needed!
The Union tourism ministry may ask for a revision of the Goods and Services Tax (GST) for the tourism industry, and that earnings of the sector be made tax free for the next six months in view of the losses it has incurred due to the global coronavirus disease (Covid-19) pandemic, according to officials familiar with the matter.
The ministry had sought recommendations for the sectory from industry bodies, including the Indian Association of Tour Operators (IATO), Federation of Associations in Indian Tourism and Hospitality (FAITH), World Travel & Tourism Council, and the Confederation of Indian Industries on March 19.
The ministry will send these recommendations to the Union finance ministry’s task force with a request to include tourism as one of the sectors that need a financial bailout, said a ministry official requesting not to be named.
The foreign exchange earned by the sector in March 2017 was Rs 14,667 crore, Rs 17,222 crores in March 2018 and Rs 16,125 crores in March 2019. April forex figures for the years 2017 was Rs 14,260 crores, Rs 15,620 crores for 2018 and 17,061.
In the domestic trade, which accounts for the major chunk of the trade, over 1.5 billion tourist visits are clocked in annually. In 2016 there were 1.61 billion domestic visits, 1.67 billion in 2017, and 1.85 billion in 2019.
In 2019, 10.89 million foreign tourists visited India as per tourism ministry data. And forex earning in 2019 stood at Rs 2,10,981 crore.
The GST Council tweaked tax slabs for the industry in September last year. The GST for rooms with tariffs of Rs 7,500 and above was brought down from 28% to 18%, and for rooms that cost between Rs 1,000 and Rs 7,500 from 18% to 12%.
According to FAITH, around 4,500 hotels are being unable to run because of the pandemic. Subhash Goyal, chairperson of industry body Assocham’s Tourism Council and honorary secretary of the FAITH, said that the estimate is from members of hotel consortiums. Of the 4,500 hotels, 3,500 have shut down completely, he said, while many of the rest are running with skeletal staff.
“Of those that still have jobs, most are working without pay,” said Goyal, warning that there may be massive layoffs unless a bailout package is announced.
Pronob Sarkar of IATO said that since April-July are low months, the industry depends on earnings made between December and March. “With closedowns in March, people are functioning with reduced pay. If there is no bailout, we are staring at job losses of lakhs,” said Sarkar.
FAITH requests the Government to rapidly deploy a ‘Survival & Revival’ financial package. Excerpts of the letter:
COVID-19 has alarming implications for the Indian Tourism, Travel & Hospitality industry. There is a risk that most of the companies in this industry would be unable to service their financial obligations and will most possibly get distressed. It is thus requested to the Government of India to consider on an IMMEDIATE BASIS an overall relief package for this industry across all its subsectors to prevent large scale bankruptcy/insolvencies & large-scale unemployment. Indian tourism, travel & hospitality industry is highly diverse. There are micro, small, medium and large enterprises across the whole spectrum. All these tourism enterprises exist both across the organised and the unorganised space. There are roughly estimated to be more than 53,000 travel agents, 1,15,000 Tour Operators (in inbound, domestic & outbound segments), 15,000 Tour Operators in the Adventure Tourism business, over 2700 businesses in meetings, industries, conferences and exhibitions business , 19,11,000 Road Tourist Transporters (tourist cars & tourist coaches), 53,000 hospitality establishments & 5 lakhs+ restaurants in India. Together these 26 lakhs+ tourism, travel & hospitality enterprises across India are estimated to impact the employment of almost 5.5 crore Indians.
EXPOSURE TO THE INDIAN BANKING SECTOR OF TOURISM, HOTELS & RESTAURANTS
As of September 2019, the outstanding gross bank credit for the tourism, hotels & restaurants sector was Rs. 56,766 crores. This was just 0.58% of the total deployment of Gross Bank Credit of Rs. 95,57,487 crores (SOURCE-1). This was also just 2.2% of the total deployment of Gross Bank Credit to the services sector which was Rs. 25,30,553 crores (SOURCE-1).
Over the 18 months period from March 2018 till September 2019, the Gross Bank Credit deployed in the tourism, hotels & restaurants sector went up by just Rs. 4,671 crores i.e. from Rs. 52,095 crores to Rs. 56,766 crores (SOURCE-1). This was an increase of around 9%.
During the same time period, the total Gross Bank Credit increased by Rs. 11,58,291 crores i.e.from Rs. 83,99,196 crores in March 2018 to Rs. 95,57,487 crores in September 2019 (SOURCE-1). This was an increase of 14%.
While the total gross bank credit has increased in the country, the share of tourism, hotels &restaurant sector has come down from 18-month period from 0.62% to 0.43% during this period.
The tourism sector of India is not a risk to the Indian banking system and thus needs to be protected at all costs to prevent its assets from becoming non-performing.
GLOBAL EXAMPLES OF SUPPORT TO THE INDUSTRY DURING COVID-19
Globally it is being estimated that more than 100s of millions of jobs in tourism travel and Hospitality are at very high risk with hundreds of thousands of employees in this industry being asked to go on leave without pay almost every day. Countries around the world are rapidly putting up support & relief measures for the tourism, travel & hospitality industry as part of their overall economic support to their businesses as a response to COVID-19.
- In UK, tourism, travel & hospitality has been identified as a key frontline industry. The business rates taxes for this sector have been completely abolished for 12 months which are the highest overheads for this sector there. As part of their £ 300 bn support, the businesses have been given access to fully guaranteed, unlimited loan by the Government to meet their working capital requirements. Their COVID-19 business continuity scheme guarantees interest free loans for 12 months. Their VAT & taxes have been deferred. They are estimating their total Government aid to their businesses to go upto 15% of their GDP and have aimed at being bold and not conventional in their support to the industry during this epidemic. The Corona Job Virus scheme covers upto 80% of salaries of all their employees upto a pay of £ 2500 per month.
- In Australia, two safety packages worth AU$ 89 bn have already been announced in addition to an AU$100 bn banking facility. Additionally, the Australian Government has promised to look after all affected frontline employees by giving them a COVID-19 supplementary support of AU$ 550 each fortnightly till the time it is required. This will be in addition to their planned salary support (SOURCE-2.2).
- In Indonesia, immediate tax relief was announced to the tourism industry. To hotels & restaurants tax breaks have been given, to airlines & travel agents, financial incentives have been given, to domestic tourists for visiting domestic destinations, incentives have been announced and VAT discounts have been given to airlines. They are also compensating their states for losses from tax breaks given to tourism, travel & hospitality industry. Their initial stimulus package is estimated at almost a billion dollars. (SOURCE-2.3).
- In Thailand, their Finance & Tourism Ministries are working together to deploy a tourism relief package. They are laying out tax reliefs from the Government, support from the banks at reduced cost of funding and soft loans for working capital to prevent job losses in the tourism industry. Additionally, they have also planned to revive of the domestic tourism economy through incentives for events & seminars and tax incentives for domestic travel within the country (SOURCE 2.4).
REQUEST FOR IMMEDIATE RELIEF
- Extend immediately a blanket moratorium of 12 months on repayments of interest and principal amounts. This moratorium can be reviewed for a further increase if the situation deteriorates. For micro & small enterprises, explore a waiver period of interest beyond one year.
- Reduce the interest cost by 400 basis points and ensure immediate transmission through the banking & financial system.
- Advise all credit rating agencies to suspend all corporate ratings during this period and to not issue any ‘outlook’ statements which can adversely impact the credit risk profile of companies and, therefore, their cost of funding.
- IIFCL to issue tax free bonds for distress funding of COVID-19 revival which are guaranteed by the Government.
- For micro & small enterprises in tourism, travel & hospitality, explore the waiver of term loans below Rs. 20 lacs completely. Enhance the definition of micro & small enterprises liberally.
- Advise financial institutions (banking & non-banking) to take a highly liberal view and to relaxall stringent debt covenants (for example, focused around measuring their debt exposures against companies’ ebitda levels).
- Advise banks to relax the non-performing asset (NPA) criteria for the next 24 months.
- Advise banks to retain a long-term perspective on funding without disrupting the ongoing disbursement flow.
- Extend an instant approval of new loans without any collaterals.
- Immediately double the working capital limits for all the tourism, travel & hospitality companies.
- Guarantee all new working capital loans raised by micro, small & medium enterprises during this period.
- Interest on working capital which is raised during this period to have deferred payment schedules beyond 12 months.
- Make available long-term working capital loans secured against revenue.
- Additional liquidity facility on the lines of SBI facility – Provide 10% of funded exposure (not restricted to working capital facility as SBI has done) for a period of 1 year on the same security @ 7.25% pa
- RBI circular DBR.BP.BC.No.12/21.04.048/2018-19 on working capital limit utilization first 60% in the form of WCDL has caused hardship upon Hospitality industry and exemption from this circular should be provided to hotels.
- Offer specific bank guarantees at highly reduced collateral value or guaranteed by the Government.
- It is important to reduce cash outflows from tourism, travel & hospitality industry which will reduce the need for working capital and will thus reduce the pressure on the banking system. It is roughly estimated that actions on this front may immediately add almost Rs. 2,000 crores++ to the tourism, travel & hospitality industry without stressing the banking system. The following measures must be taken:
- Waive off all statutory, financial and non-financial obligations falling due from an immediate effect. These will include items such as Provident Fund, ESI contribution, GST payments, adjustments of advance tax, property taxes, excise & VAT and levies on utilities such as power & water.
- Immediately set up a Government corpus to support the sustenance salaries of all the affected employees in the tourism, travel & hospitality sector.
- The ESI corpus can be utilised to support 50% of the lost wages of the ESI paying employees who will miss their work during this period.
- Enable the GST & VAT already collected to be used by companies as working capital and to be deposited post 12 months without attracting penal interest.
- Amount blocked in Income tax refunds, should be released immediately with due interest.
- Deferral of deposit of GST can be effective only if the requirement of matching with GSTR 2A is done away with. The restriction of 10% of GST input credit due to non-reporting by vendors is blocking working capital tremendously. Claiming of input credit should be allowed as per books of accounts and reversed in case the credit is not available in the next one year.
- Address immediately the Property Tax issues across cities, for example, as going on in Mumbai for the past 10 years. Several crores paid under protest by Mumbai hotels is stuck. Request for a quick resolution and release of the amount thus paid along with interest.
- In UP as per excise law imported liquor needs to be consumed within specified time period from the date of purchase. If stock exists, that becomes useless. Such restrictions need to be abolished or at least made inactive for one year.
- Waiver of Custom and GST requested on Imported Liquor, Cigars for next one year.
- GST cess should be allowed to be adjusted for inter head i.e. payment of CGST, SGST or IGST.
- Extension of all subsidies which were due on 31st March to the industry.
ADVISORY TO OTHER STAKEHOLDERS
- Advise credit card companies to waive off interest payments for one year.
- Advise credit card companies to issue agency corporate cards without collaterals upto Rs. 50 lakhs and, thereafter, 30% collaterals on additional limits with a minimum credit of 35 days and to be accepted by all airlines at no additional costs.
- Advise all stakeholders, especially Government Departments, embassies & public sector units to fast track outstanding payments to this industry. Additional payments made to MSME vendors beyond due dates should not attract penal interest.
- VISA/ Master card may be requested to rationalize the commission % on credit card collections.
- Advisory to IATA (International Air Transport Association) to move the airline payments settlement cycle for travel agents from a weekly to a fortnightly basis with no further increase in financial security.
- Advise power utility companies to reduce the fixed charge on tariff and defer the payments of the fixed charge tariff by six months.
- Advise to insurance companies to defer all renewals.
- Advise insurance companies to retain a liberal view of the impact on revenue & profit coverage resulting from this epidemic. The Government could even look at setting up a fund to underwrite the losses emerging from this unprecedented revenue disruption to the Indian tourism, travel & hospitality industry.
Exhibition Showcase Launches Global MICE Alliance Campaign to bring together the industry in its fight against COVID-19
With many associations serving the vast MICE sector, almost every association is doing something for its respective members in these critical times; lobbying and approaching the policy makers. To bring together various associations serving the MICE industry on one platform, Exhibition Showcase has launched a special campaign called – Global MICE Alliance. The purpose of this is purely to serve the industry and promote its interests in unison. Activities in this campaign include – web conference to deliberate on steps needed to safeguard our industry, special FB group to update activities of various associations and video messages centring #TogetherWeCan. To become a part of the FB group please click here