OYO hits breaks amidst the pandemic
Back in September 2018, the world watched in awe as the then 5 years old Oyo Hotels and Homes raised a fat billion dollars from SoftBank. With a $5 billion valuation, the startup surpassed the combined valuation of the Taj and the Oberoi Group of Hotels, which have been around since before Independence. Since then, Oyo hasn’t stopped from expanding across geographies and we’re sure many must have wondered what could possibly go wrong with so much money in its pocket. Well, now it turns out that all Oyo needed was the World to keep running and with the recent turn of events, it certainly hasn’t stood up to Oyo’s expectations.
In the first 2 months of 2020, Oyo was busy consolidating its business to improve its clingy-red-bottom-line. As its top-line got further dependent on the international markets (36.5% of total revenue) we wondered whether with the wake of the Covid-19, will their optimism fall sick too? It wasn’t until the USA became the world leader in Covid-19 cases, the startup, which has already laid off 34% of its global workforce, sent thousands of its US employees on furlough (forcing someone to be temporarily absent from work, often without pay) for up to 3 months. To further save up the cash reserves for a better future, Ritesh Agarwal, founder and CEO, has forgone his salary for the entire year and the senior leadership have been asked to take a 25% cut on their salary.
Last but not the least, Oyo has also invoked the force majeure clause on its contract with hotel partners through which it is suspending payments like monthly benchmarks and any other amount outstanding. It is however no surprise that the hotel partners, who are otherwise also a audibly unhappy with Oyo, have been further antagonized by this action as they claim that the force majeure clause was never a part of the ‘original agreements’.
The hit taken by the tourism industry is especially evident from the recent unemployment figures reported in the USA amidst the pandemic chaos (Fig. in 000’):
Yes, lets gasp together looking at the leisure and hospitality bar and then lets further observe how Oyo has coiled into its home ground, India, where it finds maximum comfort:
Oyo is in talks with Delhi and other State governments to convert its hotel rooms into subsidized pay-per-use quarantine facilities or isolation wards. Apart from that, it has also teamed up with Apollo Hospital which aims to create 5,000 isolation wards. Under the name Project Stay I, the hospital has also roped in other Hotels (for accommodation), HUL (for consumer goods), SBI & Duetche Bank (for digital transactions) and Zomato (for food delivery). From what we understand, the idea is to create an end to end supply chain for providing medical assistance to those who have contracted the virus, while also effectively keeping them in isolation.
Paytm has also partnered with more than 300 hotels (including Oyo) in over 60 cities, to provide accommodation to healthcare workers which can be booked through the Paytm app.
We acknowledge the good business done by Oyo during such tough times: in developed nations like the USA, Oyo has resorted to furloughs and not further layoffs and in the less developed geographies, like India, where the government definitely requires a helping hand to fight the virus, Oyo has stepped up in innovative ways and in the process, has also managed to keep the front desk open. No one can be too sure of when the normal ways of life will return. Chances are, it will return last for the tourism industry. But as long as the fight against the virus is on, innovation seems to be the only key to survival.
Meanwhile, a glimpse into the Horwath HTL Sentiments Survey:
67% Respondents believe that the hotels will remain affected for more than 4 months
85% Respondents believe that revenue and occupancy rate will be hit by over 30%
81% Respondents believe that average daily rates (ADR) will fall by 10-40%