Leading operators in the Indian tours and travel sector¹ are set to report operating profits in fiscal 2023, after having reported losses for the past two fiscals due to pandemic induced travel restrictions. While operating profitability is expected to check in at 6-7%, revenue should drive past 90% of pre-pandemic levels, buoyed by strong recovery in both, corporate and leisure travel segments in India and abroad.

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.

This marks a significant turnaround from operating losses of 25.8% and 2.7% in fiscals 2021 and 2022, respectively.

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

An analysis of four major travel operators² accounting for over 60% of the domestic sector’s revenue, indicates as much.

Says Poonam Upadhyay, Director, CRISIL Ratings, “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.”

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% 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.

Revenue recovery, along with change in cost structure with continued cost optimisation measures, increased automation/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.

Says Shounak Chakravarty, Associate Director, CRISIL Ratings, “The implementation of cost optimisation and automation initiatives has substantially reduced the proportion of fixed cost to ~33% of total revenue from over 60% 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.”

As such, the tours and travel sector operate on a negative working capital cycle driven by customer advances and creditors, reducing dependence on debt. The leading players maintained a cash surplus of ~Rs 4,400 crore as of September 2022 as against debt of ~Rs 2,300 crore (mainly short term), ensuring strong balance sheets.

That said, a steep increase in air fares, prolonged visa delays (especially for travel to the US), and inflation pressures could potentially dampen the growth momentum. Also, the proposed increase in tax collected on overseas tour packages to 20%³ from 5% earlier in this year’s budget could temper international business of Indian travel operators, and will bear watching.

¹ Provides services such as air/bus ticketing and hotels/packages for leisure and corporate travel within India and abroad
² Thomas Cook Ltd (consolidated), MakeMyTrip India Pvt Ltd, Yatra, EaseMyTrip
³ Effective July 1, 2023