Strong demand to boost profits of travel operators by 6-7% in FY23,: Report

Leading travel and tour operators are expected to witness 6-7 per cent growth in operating profit and recover 90 per cent revenue in this financial year, mainly driven by efficient cost structure, a report said on Wednesday.

After having reported losses for the past two fiscals due to Covid pandemic induced travel restrictions, travel and tour operators are expected to witness 6-7 per cent operating profitability in FY23 and FY24, Crisil Ratings said in a report.

The revenue is likely to be 90 per cent of the pre-pandemic levels or FY20, mainly buoyed by strong recovery in both corporate and leisure travel segments in India and abroad, it added.

“We expect operating margins to sustain at these levels next fiscal due to implementation of cost optimisation and automation initiatives undertaken by travel operators commencing from the pandemic period, even as revenues are expected to pass pre-pandemic levels next fiscal,” the report stated.

This marks a significant turnaround from operating losses of 25.8 per cent and 2.7 per cent in FY21 and FY22, respectively.

The improvement in operating performance, together with healthy liquidity and net debt free balance sheets, will help strengthen credit profiles of the players, the report said.

“Rising business travel, along with increasing return-to-office and preference for face-to face meetings besides increasing consumer preference for short breaks will push revenue past pre-pandemic levels in fiscal 2024. Interestingly, preference for short holidays is seeing momentum, especially within India and Asian destinations. With revival in European visa issuances, forward bookings for the upcoming summer holidays have also risen. Recovery of leisure travel to the US, however, may take longer,” Crisil Ratings Director Poonam Upadhyay said.

The report further stated that revenue from long-haul international leisure tours (the US and Europe being key regions) got impacted by visa issues this fiscal, limiting its recovery to 55 per cent of the pre-pandemic level this fiscal.

Improvement in these outbound, long-haul segments and inbound travel amid receding concerns of an extended global recession will further boost revenue growth, the report added.

Revenue recovery along with change in cost structure with continued cost optimisation measures, increased automation or tech-enabled initiatives, re-evaluation of business models, and downsizing of branch networks, which gained momentum during the pandemic, will ensure profits for travel operators this fiscal onwards, it noted.

“The implementation of cost optimisation and automation initiatives has substantially reduced the proportion of fixed cost to 33 per cent of total revenue from over 60 per cent before the pandemic, ensuring better operating profitability on a sustained basis. The improvement in operating leverage will help sustain profitability even as marketing spend is seen increasing next fiscal,” Crisil Ratings Associate Director Shounak Chakravarty said.

However, a steep increase in air fares, prolonged visa delays (especially for travel to the US), and inflation pressures could potentially dampen the growth momentum, the report said.

Also, the proposed increase in tax collected on overseas tour packages to 20 per cent from 5 per cent earlier in this year’s budget could temper international business of Indian travel operators, it added.