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September 04, 2020

Post COVID take-off: Refurbishing the Tourism and Hospitality Runway!


- Ramit Mehta, Managing Partner [ Mehta Law Chambers ]
- Mohit Singhvi, Founder & Head [ Singhvi & Co., Advocates and Legal Consultants ]

Technology-and-Modernization

With the dawn of technology and modernization, the fear of exposure of the most vulnerable sectors, namely tourism and hospitality, of the Indian economy to insolvency is sky high as they are inter-locked and interwoven. These sectors which are majorly dependent upon the foreigners and has proved to be a pinnacle in fostering the growth of the country is under a serious threat and calls for immediate attention of the Government of India, the legislators to stare at the same with the intent to safeguard the rights of the ones involved in the industry who are basically bound with the duty of showcasing the rich culture, heritage, flora, fauna, unity, diversified unity and glorious history of the Republic of India...

According to Charles Krauthammer, “Ideas matter. Legislative proposal matters. Slick campaigns and dazzling speeches can work for a while, but the magic always wears off.”

The aviation and hospitality industries are substantial tributaries of the ocean of the Indian Economy. The impact of COVID-19 has been demonic and devastating. The high flying hospitality and tourism industries have been forced into an emergency landing as a result, put into the hangar to wait for take-off. Moreover, the runway to taxi and takeoff has also been burrowed with pit holes which certainly cannot allow the smooth take off of the industry again. They being such vulnerable industries, it is not only required that these sectors are being saved by the executive action, it needs legal revamping may be by the judicial intervention if found unsatisfactory using the powers enshrined under the Constitution of India, 1950. In the Vineet Narain v. Union of India1, the Hon’ble Supreme Court held that “it is the duty of the executive to fill the vacuum by executive orders because its field is co-terminus with that of the legislature, and where there is inaction even by the executive, for whatever reason, the judiciary must step in, in exercise of its constitutional obligations under the aforesaid provisions to provide a solution till such time as the legislature acts to perform its role by enacting proper legislation to cover the field.”

At the same time, it is also mandatory to understand that the reforms in aviation and hospitality were due from a very long epoch. Tax relaxations, rebates etc. for the industry are the need of the hour. Though, the recent remarks extended by Ajay Singh, CMD, Spice Jet have bolstered the hopes of the airline industry towards the post COVID-19 revamping. He said, “As we say in India, crisis gives an opportunity to bring in structural reforms, ”Considering the hurly-burly unearthed owing to the unforeseen outbreak of the Covid-19 pandemic, it becomes quintessential for the Aviation players to spotlight on the methods to overcome and navigate the challenges which are likely to surface subsequent to the cremation of the nightmare caused by COVID-19. There will be no surprise if we see the operation of the flights with certain restrictions being imposed including travelling to countries which have been known as the originating countries. The Directorate General of Civil Aviation, (hereinafter referred to as ‘DGCA’) has vide its order dated March 23, 2020 passed under Section 88(1) of the Aircraft Act, 1934; and orders dated March 26, 2020 and April 14, 2020 directed inter alia all aircraft operators to suspend the operations of all the domestic as well as international passenger flights. International Air Transport Association (hereinafter referred to as ‘IATA’) has identified India amongst the top-notch countries which have been sabotaged due to the pandemic considering the gigantic number of inbound and out bound vacation travelers. Given the outbreak of the COVID-19 contagion, it is not less than a conundrum to escape the bigger impact and accordingly Standard Operating Procedures (SOPs) have been issued by the Ministry of Civil Aviation on Exit Strategy for Airports, Airlines and Passengers to eliminate further propagation, while refurbishing the airline industry.

As regards the legal impact, both the airline as well as hotel companies may have to re-examine their respective lease agreements and may consider approaching their respective lessor for seeking waiver and relaxation in relation to the payment arising of the contractual obligations including ‘rental holiday’ on account of unprecedented and gargantuan cash scarcity which is experienced due to the complete lockdown of the economic activity since March 2020. Though the request cannot be made binding on the lessor and there is a strong possibility that the requests may be declined looking into the commercial reality in as much as the lessor also has to assess the aftermath of the crisis or not and per se cannot be a strait jacket formula and shall differ from case to case.  

It is also pertinent to mention here that globally, there are a plethora of airline and hotel companies which have already initiated the process for bankruptcy. In this context, the actions taken by the Ministry of Finance i.e. suspending the Insolvency and Bankruptcy Code, 20162 for a period of six months to stop companies from being forced into insolvency proceedings in such force majeure causes of default under the commercial agreements is commendable and is a right approach towards the upliftment of the companies. But the question is, will that suffice or will there be a dearth as far as economic resurrection is considered. The amendment was affected mainly on the following grounds:

  • that the pandemic has created uncertainty and stress for business
  • disruption of normal business operations

Apropos to the above, while worrying about the hospitality industry Mr. Pronab Sarkar, president IATO said: “This financial assistance is very much needed because of the government's directives both by the centre and state government to not lay off staff and to pay  full salary to all employees. Under the present situation of zero business, we are not certain for how long this situation will continue and when we are going to revive our business.” Apart from the above, reliefs inter alia such as free visa for all tourists for the next one year and relaxation in application of the GST for an epoch of one year for all outbound, inbound and domestic bookings, apart from deferment on all principle and interest payments on advances and exposures can prove to be a boon.

It shall not be forgotten that over the years, the Aviation and Hospitality Industries have played an imperative role of linking the world economies and have brought major transformation in drastically improving the revenue generation as well as culture admixture. As governments continue to look to stimulus measures for fostering growth, the airline and hotel industry will per se need the aforementioned3. The Federation of Associations of Indian Tourism & Hospitality, umbrella organizations of the trade associations in the tourism industry, have already asked for the constitution of a Joint Tourism Crisis Management Task Force headed by the Prime Minister in order to overcome and assess the probable overcoming measures required to be undertaken and also infusion of funds to restart the engines of growth.

The tourism industry is the catalyst which plays an important role in synchronizing the cultures across the nation and also globe. The said industry has put within its web the humans and cultures to connect with each other irrespective of the barriers be it geographical or lingual. Hence, it is incumbent upon the government not only to have a high headed approach for resurrection of the hospitality industry, but it should rather infuse stimulus packages for upliftment of millions of employees who are related to the Tourism and Hospitality industry. These industries have always stood one step ahead in ensuring luxury and comfort for all end users as the primary aim of hospitality businesses is to treat customers with warmth, empathy and professionalism.

Commenting on the crisis hanging over the hospitality industry in India, Anoop Bali, General Manager of Tourism Finance Corporation of India said, “The challenge before the hotels is to meet the operational costs in the current situation, let alone servicing the loan interest and principal.” First quarter of the FY 2021-22 will be a dooms day for the companies and even if the situation improves in the next one month, the next few months will be unstable as the travelers would still be reluctant to spend rather to move out for vacation. In the given circumstances, the government has to come forward and invent innovative ideas to see a spike in the creation of job opportunities. The hotel industry is one of the largest employers of the economy which provides livelihood opportunities to a large portion of the young population and hence any delay in refurbishing them would result into multiple issues and multifarious losses. The reporting obligation fastened on the hotels needs to be relooked and relaxed for the time being as well, in order to enable the hoteliers to focus more on generation of tourism rather than clearing complicated in compliances.4

Proposed Plan of Action                              

As a suggestive measure, the Government of India should plan to take into consideration the following measures which are quintessential in the humble opinion of the authors:

  • Bare minimum operations through limited manpower sufficient  for quick recommencement when the opportunity arrives; and
  • Implement a subtle digital and social media marketing strategy to retain mindshare of customers; and
  • Engage with suppliers/vendors to compute their capacity to re-engage with the hotel on the recommencement; and
  • Develop and maintain communication lines with key customers and team members; and
  • Continue to remain in discussion with relevant local government authorities and keep suggesting the way forward; and
  • Utilize this period for implementing various policies’ upgradation, training and internal development wherever possible.
  • Augmenting the airspace availability to ensure that more airspace is made available to commercial flights, which will not just reduce travel time between two destinations
  • Commencement of small distance flights for better connection and reach of the passengers, specially passengers.
  • Promoting Indian travel companies and restricting foreigners to come to India and incorporate companies to engage into travel and hospitality business.
  • Construction of more airports in order to allow the airline companies to engage into more operation and also to facilitate more and more options to the customers.

Conclusion

The upshot of the views expressed by the authors are isper se somber in nature and it requires some serious groundwork, as the economy resolves to get back on track. It would not be out of the blue to mention here that the industry has already faced mass-scale cancellations for travel bookings and hotel accommodations and which shall continue to prevail over the next epoch of 4-6 months. Given various travel restrictions imposed by the Indian government as well as governments across the globe, forward bookings for various conferences and leisure travel bookings to foreign destinations have already been cancelled. As a matter of fact, in India, most of the summer holiday bookings stood cancelled, thereby heavily impacting domestic tourism leading to a vulnerable situation. Apropos, since COVID-19 is a modern day contagious virus, it shall require modern day solution and a revolutionary approach to overcome. Until the COVID-19 pandemic is reined in, the human race will have to learn to live with the COVID-19 while avoiding its contact. Amid this, revised vision, reforms, business models and policies are required to be formulated and infused so as to repair the runway for refurbished take-off of the industry which will inject the revenue in the economy of the Nation. It would be interesting to see whether the graph of revenue or COVID-19 surges once the hotels reopen, of course under the strict compliance of the guidelines issued by the Centre and the states. The Legislature and Executive wings of the government have to act positively along with the Judiciary in order to fill the gap and provide robust support to the industries. Arguendo, it can be said that Judicial Activism is a sine qua non and adjunct to a healthy and developing democratic setup of a nation. Also, taking into consideration the varied ideals of democracy, Judicial Activism seems to be a necessary intervention to ensure that unheard voices cannot be buried by more influential voices.

Though we all should remember that:“Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the cells of the economic body, the producers and consumers themselves.” - Herbert Hoover

1 (1998) 1 SCC 226
2 Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020
3 IATA CEO Alexandre de Juniac, said in a statement.
4 Section 7,Foreigners Act, 1946



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