The fallout of the coronavirus pandemic has started showing up from here and there already. One of the worst affected due to the complete lockdown and travel restrictions has been the hospitality industry. Oyo Hotel and Homes, the startup that has had a fast track growth in the previous years is now taking a pause. The company is in the process of getting out of the agreements it had entered into with many hotels around the world, as per a report in Livemint. This, in a way, is a continuation of what Oyo has been doing over the past few months, but time it could be a larger exercise. Oyo may also put on the back-burner some of its plans to expand its presence into new areas.
At this juncture, the company is trying to terminate its contract with motels which have been making losses. Where the existing contracts are expiring, Oyo won’t renew them. This again, will be in the cases where the hotels are reporting losses. The details of which hotels and their locations in India and overseas have not been shared. The broader plan is to get out of the agreement with hotels that cannot generate a minimum revenue of $100,000 in a year.
Last year too, Oyo had done a similar exercise. SoftBank is the key investor in Oyo and holds 46% of its equity. Besides reducing the number of hotels within its umbrella, the company plans to prune the employee strength as well in areas where the chances of the hotels reopening appear slim for some time to come.
The underlying idea in this exercise is to bring down its monthly expenses down to around $25 million from the current levels of around $40 million.
The present actions by the hospitality major are in sharp contrast to the aggressive expansion it indulged in last year adding Europe, Southeast Asia and the US to its footprint besides India and China. The company had suffered losses to the extent of $335 million last year mainly due to these.
All these are based on reports from sources in the know and not officially confirmed yet by Oyo. These sources also claim Oyo has made a decision in principle to stay focused on markets like India, Southeast Asia, Europe, China and the United States. Some of the other markets where Oyo has opened up its activity, like Japan, Brazil, Mexico and the Middle East, the strategy will be to just sustain its presence. In terms of its geographical spread, in India alone, it has shrunk from 550 cities to 400 cities currently.
Earlier this month, Oyo’s founder Ritesh Agarwal had indicated that there has been a 50% to 60% drop in business due to the COVID-19 lockdown. The company is reported to have engaged the services of renowned specialists like Alvarez & Marsal and Accenture Plc to suggest turnaround strategies. To restructure its human resources, Aon Hewitt has been retained, say these sources. Oyo has an employee strength of around 25,000 now after having removed about 5,000 last year.