OYO ambitious plan to become
global hotel superpower has taken a hit, a never seen crisis is faced by them
which threatens to wipe out a large part of its business for the foreseeable
future and impact its $10-billion valuation Corona Virus Outbreak has hit the
travel and hospitality industry globally and it will take a long time for the
industry to recover.
Earlier Masayoshi Son announced Ritesh
Agarwal one of the star entrepreneurs backed by his SoftBank Group Corp and
said the OYO group is going to overtake the biggest hotel chains in the world
in the coming years.
As the SoftBank is still
incurring huge loss on its investment due to the failed IPO (Initial Public
Offering) of shared-office company WeWork. SoftBank booked for profits on OYO's
rising valuation abut as of now they are forced to take losses on their
investment. OYO valuation last year was at $10 billion. The situation is highly
messy where Ritesh Agarwal borrowed $2 billion
to buy shares in his own company as the valuation rose, and Son personally
guaranteed the loans from financial institutions, including Mizuho Financial
Group Inc whereas if the valuation of OYO drops then the two of them will incur
personal losses and banks may ask for more collateral. It has more than $1
billion of cash reserves which will keep the business running for next 36
months.
On 8 th of April, OYO’s
founder Ritesh Agarwal said due to corona virus there is a drop of 50-60 percent
in revenues and occupancy levels which has resulted in severe stress on the
company’s balance sheet. OYO plan is to terminate the agreement with hotels
that cannot generate a minimum revenue of $100,000 in a year, reducing the
number of hotels within its umbrella and decreasing the size of employees which
will bring down its monthly expenses down to around $25 million from the
current levels of around $40 million. OYO followed aggressive expansion
strategy last year to increase its footprint into Europe, Southeast Asia and
the US apart from India and China which led to huge losses up to $335 million
last year and they are now focusing on markets like India, Southeast Asia,
Europe, China and the United State.
OYO runs over 43,000 hotels with more than a
million rooms apart from this they have 130,000 homes around the world under the
umbrella of OYO Home, Belvilla, Danland, DanCenter, and Germany based
Traum-Ferienwohnungen brands. It will keep sustaining its presence to Japan,
Brazil, Mexico and the Middle East but at opportunity cost of leaving some
parts of India where, it has shrunk from 550 cities to 400 cities currently. OYO is now availing the services of renowned
specialists like Alvarez & Marsal and Accenture Plc to suggest turnaround
strategies the restructuring of its human resources is taken care by Aon Hewitt
last year.
As stated earlier that the
company was increasing its presence across geographies, many roles within the
organisation were rapidly replaced by technology one of the side effects of
scaling up too quickly, hence as a part of its restructuring exercise, the
company has cut about 15%-20% of its
overall consolidated workforce in India (about 12,000 people); in China 30% of
the 10,000 employees were downsized also reduced the non-discretionary staff of
6,000 by 50% in China and the current strength is of around 25,000 worldwide. India announced its lockdown from
March 24 where interstate borders were closed and travel via flights, trains,
and buses came to standstill, hence hotels across the country as well as globe is
suffering.
Earlier OYO founder announced
that he is foregoing his own salary for a year, whereas the leadership team is
taking pay cuts in the range of 25% - 50% while few employees were granted
voluntary leave with limited benefits. In the financial year 2019 the company
reported losses at the expense of expansion globally particularly China
increased to 35 per cent of revenue in financial year 2019 to $335 million which is explained by the fact
that in any new country, the revenue starts rising in from the second year
onwards, making up for the costs incurred in the first year of operations. The
global financial year 2018 loss was $52 million while India loss was $50
million in financial year 2018 and $83 million in financial year 2019. Its
revenue for financial year 2019 increased to $951 million from $211 million in financial
year 2018.
OYO was in trouble even before
the covid-19 hit the China due to the fraudulent behaviour by few of its China
employees and hotel partners apart from it many of hotel suppliers left the
platform as the company was not fulfilling its promises. Budget travellers are
increasingly opting for better chains such as Quanji and Atour Hotel Group in China as they are offering
more value-added services, but in the
short to medium term, China will be OYO’s best-looking market. Major recovery is
seen from covid-19 in China and domestic tourism will see a revival with the
upcoming summer months.
In the beginning OYO purchased
rooms from hotels at fixed prices a profitable proposition for the hoteliers as
they did not have to worry about occupancy but later OYO changed the model to a
dynamic one wherein the control of the room rates and inventory rested with
hotel owners and later on shifted to minimum guarantee price scheme wherein it
took the entire inventory and the responsibility to fill the rooms due to this
hotel were not allowed to feature their rooms on other booking platforms said by Amitabh Mohapatra, He is the current president
of Guest House Welfare Association in
Gurugram. Once oversupply of rooms was there, they were not able to achieve the
target and did not gave the assured minimum amount and delayed payments they
also started penalising hotel owners with hidden costs, excuses were given of
poor service, convenience fees and data subscription fees, guest complaints.
Some of the other complaints faced by OYO are
1. OYO
has been manipulating prices and artificially controlling demand with fake
bookings.
2. They have been indulging in discounting of
hotel room rates without the permission of owners
3. OYO has been charging below cost price and
agreed rates where hotel owner is feeling cheated cases of illegal charging of
hotel service fee from customer which were not passed on to the hotels
4. Manipulation of the micro-market rates
which aid in bringing more traffic on their platform forces hoteliers to reduce
room rates
5. The rating system is erratic and one-sided
6. They are not prompt enough to move the money
from their end to the partner end
OYO size has increased tremendously from the past and to
grow and sustain int the market they require huge funds which will be met by
SoftBank but they themselves are going through their own troubles. The key investors of OYO are SoftBank,
Lightspeed Venture Partners, Sequoia Capital, and Airbnb, while its smaller
shareholders are Didi Chuxing, Grab, and Sunil Kant Munjal, chairman, Hero
Enterprise. OYO’s asset-light model where it doesn’t own its properties and
lean operations expenses where unlike hotels it doesn’t invest in front office,
housekeeping, and F&B staff will help it survive this crisis.
List of OYO brands in India
1. OYO Rooms
2. Townhouse
3. Capital O
4. Collection O
5. Corporate and Executive hotel brand Silver Key
6. Palette Resorts
OYO has establishing itself as
one of the biggest hotel chain in India it became the second-largest hotel
chain in that country within 18 months after launching in late 2017, it has
expanded to 79 other countries while buying hotel brands in US and Netherlands, entered China by breaking the taboo about foreign companies entering there,
OYO has raised $3 billion over the span of past four years and is spending on
attracting and retaining hotels and customers, making technology investments
and building a large workforce. It faces a prolonged battle to save its
business from collapse. The company from the past months has moved fast to cut
expenses and conserve cash. OYO is invoking force majeure clause with its
hoteliers in India and refused to make fixed monthly payments now the payments
to hotel supplier is made on the basis of customer bookings.
OYO is offering some of its
properties as quarantine centres or for hosting medical workers and aircrew by
reaching out to governments in India and other countries to. All the travel and
hospitality firms along with OYO are hoping to get relief from the government. The
future of OYO and similar companies in that space are waiting for announcement
of favourable policies by the government.
OPPORTUNITY AVAILABLE
1. As businesses are heavily cutting costs a big opportunity for OYO post-Covid-19 world will be the
availability of budget option
2. After months of lockdown millions of people will
be out of their homes to enjoy themselves also the wedding industry, youngster
parties and corporate function will look for venue bookings
OYO CHALLENGES
1. Formulating
plans to survive the unprecedented situation
2. Ensure
to retain its credibility with key stakeholders
3. Focus
to increase the revenue and sustain its valuation
4. Maintaining
the service standards consistently and focus on sustainable growth
5. To
increase the demand which is falling due to travel restrictions across the globe
and to prevent the further spread of Covid-19
6. Transparency with the hotel partners and
fulfilling the promises made
GOOD MEASURES
1. They
have launched CO - OYO app which will help hotel owners in such a way that they
will be able to keep a tab on the bookings and entries made at the hotel
reception
2. Initiative
such as OYO Connect/OYO Direct/OYO Sambandh/OYO Globally, which will improve
the relationship with existing customers as well as asset owners
3. The
company had made cancellations easy for its customers alternatively, OYO was
giving travellers credits that could be used to rebook later
4. Working
on technologies and automation which will give them the edge over competitors
5. They
are improving their brand image and cementing the relationships with US
authorities and the healthcare community by offering its rooms for free to
American medical and healthcare professionals fighting coronavirus
6. Training
is being given to its business development officers in accounting and financial
matters, apart from usual sales training.
7. Behavioural
training is being offered for staff across departments Improving the code of
conduct and soft-skills
Thus at the end of the article I
will conclude that, Currently OYO has to contend with fallout of rapid
expansion, conflict with partners, restructuring and a pandemic which is giving
the company most difficult time, but as we know there is Silver lining to Dark
clouds so we hope that OYO will come back bigger and stronger.
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