- India’s Oyo Hotels & Homes will combine its hotel and short-term residential businesses in Japan as early as this month due to Coronavirus Pandemic.
India’s Oyo Hotels & Homes will combine its hotel and short-term residential businesses in Japan as early as this month, as the pressure from the latest coronavirus outbreak is forcing the SoftBank Group-backed startup to restructure just over a year after its launch in the region.
The step is the latest in Oyo ‘s competitiveness battle worldwide, as the pandemic has placed pressure on a firm whose cash-burning plan, backed by SoftBank, has already been under scrutiny. This has laid off thousands of workers since spread to 80 countries, and furloughed thousands more after the epidemic hit the market for travel.
The merged company would “provide a common forum covering all the availabilities from hotel rooms, to rental residentials, to holiday rentals,” Oyo Hotels Japan managing partner Prasun Choudhary told the Nikkei Asian Review in a Monday interview.
He added that the merger had been “funded” by SoftBank, whose mobile unit is a joint venture partner in the hotel industry.
Oyo aims to reduce the sales and marketing costs by combining Oyo Hotels with Oyo Life, the residential brand. Choudhary also said a single Oyo brand will raise awareness in the industry. Japan is the only market in which Oyo conducts separate business lines under various firms.
Oyo Life was introduced in March 2019 to simplify rental of apartments through a mobile app, but its model of subleasing its property portfolio from its owners meant that it had to pay for homes irrespective of whether they were occupied. While aiming to offer 1 million rooms, it had signed contracts for only about 6,300 rooms and, according to sources, had managed to occupy 3,400 rooms by the end of June.
An individual close to the deal said the financial impact of the merger would be small for SoftBank. The two sides decided to cut back on the growth-at-all-cost policy of Oyo Life as part of the agreement, and concentrate on achieving profitability, the individual added.
“We are probably the only tech company to have all forms of living spaces in Japan. Branding the unified platform would be much easier,” said Ryoma Yamamoto, head of country Oyo Technology & Hospitality Japan. “The completion of online processes would be more critical than ever given the COVID-19 situation [to reduce the risk of infection],” he said, remaining bullish about Oyo ‘s expansion in Japan.
According to sources, Oyo Hotels had initially set a target of 75,000 rooms nationwide by March but has curbed its expansion pace. Choudhary said in another internal email sent to employees in March that the organization plans to slash staff expenses by more than half.
As of March, the unit said it had 5,857 hotel and Japanese style-in rooms under administration, and Choudhary said that the current number is “somewhere near that.”
Choudhary said the AI-based management system of Oyo Hotels, which sets occupancy-based room rates, helped to sustain an overall occupancy rate of just over 40 percent on July, 10 to 15 points higher than the industry average.
Choudhary claims that the travel subsidy plan for the Japanese government, the Go-To Travel initiative, scheduled to launch on July 22 with a budget of almost 1.1 trillion yen ($10.2 billion), would “benefit us very significantly.”
“Japan has always been an important business for us, not just because it’s the world’s ninth-largest hotel industry, but the fact that SoftBank is here makes it a very strategic Oyo market,” Choudhary said.
“There [have] been problems since we arrived in Japan, but this is still massive for us in terms of opportunities.”
