Even when it comes to taking a vacation, Bertie is a contrarian. He always opts to stay in Mumbai in December when the city offers its best weather. Yet, every Mumbaikar either seems to be headed for the hills or the beaches causing traffic to ease up in the city but hotel rates everywhere else to go through the roof.
Bertie was glumly reading a news piece about how room rates for the New Year’s night had breached the million rupees mark for some of the palace hotels and Vilases. His glumness did not emanate from the unaffordability but from the realisation that he sold his hospitality holdings too early.
In 2022, Bertie had caught on to the post-covid revenge travel theme quite early but after two blockbuster holiday seasons and an one-time demand lift from the G20 summit and the cricket world cup, he judged that the best of the earnings for the sector were behind and that hotel rates would normalize soon.
That does not seem to have happened as room rates have continued to march on. Bertie posed this question to a former luxury hotelier who answered in one word “Supply.” Bertie waited for elaboration. “Or the lack of it,” continued his friend. “Just as demand for hotels stalled in Covid so did the construction of new properties. That means properties that were supposed to be delivered now will get delayed by a year or two.” Bertie nodded. “So only a matter of time then,” he said hoping that he was not wrong, just early.
“Not so sure Bert,” said his friend. “Indians seem to have been bitten by the travel bug. Easier visas, the convenience of online bookings, aspirational urges caused by social media and a sense of YOLO (You only live once) that was underscored by the pandemic. All that is adding up.” Bertie was re-assessing his sell thesis now while his friend went on “You know what happened when the Chinese began to travel right? They propped up everything from US real estate to European luxury products for over a decade. We may be at the beginning of that.” Bertie is still sceptical as he believes in the power of cycles more than the ‘This time it’s different” stories that get spun at the top of the cycle. Time will tell whether Bertie was wrong or just early.
Insuring the future versus instant gratification
At a recent mid-cap companies conference, Bertie caught up with a couple of standalone health insurance companies. Unlike other general insurance companies, they focus only on selling health insurance policies that provide cover against hospital bills. Bertie was quite bullish on the space with a simple thesis that almost every family in the country had to shoulder a sizable, if not crippling, hospital bill during Covid. That experience, Bertie thought, would awaken people to the merits of having a health cover that would cushion the hit to the household finances.
Bertie was hoping to see this manifest in a faster volume growth trajectory for the insurers along with a lower cost of sales as the product transitioned from being a ‘push’ product that needed a lot of selling effort to a ‘pull’ product – something that consumers would themselves seek out. Neither of that seems to have happened as volume growth still remains a tepid mid-single digit despite the low overall penetration of health insurance and the incessant ‘suspected spam’ calls on Bertie’s phone testify that the product still has to be aggressively pushed.
In the meetings, Bertie posed this question to the management executives who did not have a convincing answer apart from the opinion that people have short memories. In fact, one of them went on to say that some consumers used the analogy that lightning does not strike the same place twice. Bertie had heard similar feedback from life insurance companies as well especially with respect to demand for their pure term plans. However, he suspects that the real reason for this apathy is that most consumers feel that they do not get anything in return for the premium that they are shelling out – not a shiny new phone nor a monthly SIP statement or Insta-worthy vacation pictures. No matter how logical it may sound, spending to guard against a low-risk future event will always be superseded by something that yields instant gratification.
Bertie is a Mumbai-based fund manager whose compliance department wishes him to cough twice before speaking and then decide not to say it after all.
