Tour operators’ revenue to grow @17%

Travel operators are poised for significant revenue growth this fiscal, driven by a surge in demand for domestic and international travel. Enhanced infrastructure, increasing disposable incomes, and strong government support are propelling this expansion.

Janice Alyosius

Travel operators are expected to see their revenues increase by 15-17 per cent this financial year.

“The growth is driven by increased domestic tourism and a greater inclination to travel abroad. Enhancements in infrastructure, higher disposable incomes, evolving travel habits, and the government’s efforts to boost domestic tourism are all contributing factors,” says a report by CRISIL Ratings

According to the report, the projected revenue increase comes on the heels of a significant 40 per cent surge in revenue last fiscal, which reached approximately Rs. 14,500 crore, exceeding pre-pandemic levels by about 20 per cent. Travel operators’ credit profiles are anticipated to remain strong, supported by healthy balance sheets and stable operating margins of 6.5-7 per cent, consistent with the previous fiscal year. This results in substantial cash flows and continued low reliance on debt. An analysis of four leading travel operators, which together represent around 60 per cent of the sector’s revenue, supports these forecasts.

Poonam Upadhyay, Director, CRISIL Ratings, comments, “The trend of ‘revenge travel’ seen after the pandemic has evolved into ‘regularised travel’ in recent years with a significant shift towards shorter and frequent vacations, for both domestic and overseas trips. Moreover, growing middle-class aspirations, rising urbanisation, affordable packages, steadily increasing income levels, and the government’s focus on boosting Indian tourism will maintain the strong momentum in the tour and travel sector. This will, in turn, ensure healthy double-digit revenue growth for travel operators this fiscal as well.”

In the domestic tourism market, growth is fuelled by micro holidays, such as quick getaways and staycations during long weekends, a rise in spiritual tourism, and improved infrastructure enhancing access to new destinations. Inbound travel, including foreign tourist arrivals, has rebounded to pre-pandemic levels, with significant demand from corporate and MICE sectors boosting domestic travel.

For overseas leisure travel, growth is driven by higher disposable incomes, visa-free entry from 37 countries, simplified visa processes (such as visa-on-arrival and e-visa facilities), and improved travel packages. Indian airlines’ increased focus on new destinations in Southeast and Central Asia is further fuelling international trips, setting new records for outbound travel this year. This growth in international travel continues despite the recent increase in the tax collected at source (TCS) on overseas travel packages effective 1 October 2023.

Anil More, Associate Director, CRISIL Ratings, adds, “Strong customer retention, diverse revenue streams, various cost-optimisation measures, and investments in technology/ automation undertaken since the pandemic will keep operating profitability of travel operators healthy at 6.5-7 per cent, in line with last fiscal, despite higher marketing spend. Interest coverage ratio will also continue to be strong at over five times, in line with last fiscal.”

The sector’s liquidity is expected to stay strong due to the negative working capital cycle from significant customer advances and low debt dependence. However, potential risks include changes in visa guidelines, growth in commercial air fleets, fluctuations in airfares, tax structure adjustments, and inflation.

 

 

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