Ritesh Agarwal, founder, and chief executive of the hospitality unicorn, said that Oyo was not prepared for a market crisis that saw its occupancy rates fall to almost zero for a few months after the lockdown was introduced in March.
Speaking at the 47th National Convention of the All India Management Association (AIMA) on Tuesday, Agarwal said that the hotel inventory of the business has seen a revival of 40-45 percent in occupancy rates compared to pre-COVID levels.
We have always been prepared for crises and, through looking at the last four crises that the world economy has been through, we have also planned the organization for a 10% or even 20 % decrease in occupancy. But for a few months, we were not really prepared for an almost 0 percent occupancy… so for the first time we had to plan our company for almost zero revenue and have substantial long-term cash for survival,’ Agarwal said, adding that it is very early to provide estimates as to when the market in the hospitality industry will return to the levels of pre-COVID.
“It is difficult to predict when demand will return to the level of pre-COVID … it maybe 6 months to even 2 years, it depends on other circumstances,” he added.
Just before the lockdown and later furloughed employees, the startup had laid off about 5,000 employees, cut wages to keep spending on the check, and conserve cash in an unpredictable environment.
Since late 2019, well before the COVID outbreak in the country, Oyo has been laying off workers. From August, however, as travel demand rebounded, it began to reinstall employee salaries in a phased manner.
The comments from Agarwal come at a time when the company has been struggling to fulfill the hotel owners’ minimum business guarantee (MBG) payments. In recent months, for its “Townhouse” properties across India, Oyo has suspended contracts with over 250 hotel owners and stopped making minimum payments to hotel partners. The start-up invoked force majeure and served notices to property owners citing a negative business effect.
Agarwal said the start-up expects it’s budget and homestay categories to bounce back faster in terms of demand, especially in markets like India, Europe, and Southeast Asia, compared to the luxury and premium segment.
Our impression is that it will come back earlier as economic activity and leisure travel because people do not have offices to return on Monday morning, and hence they are looking at extended holidays … In the corporate travel category, we owners of small and medium businesses increasingly travel through cities and states, “Agarwal added.”
In the last two months, also at a time when the fundamental market demand for travel has shifted, Oyo claims to add signing on 40,000 new rooms per month to its platform. Agarwal added that meeting customer expectations for new travel use cases can be challenging for growth, but the company will comply with these emerging travel demands.
We don’t have the cost structure to be able to carry growth for the first time, and thus the priority is to ensure that customer and partner support is kept in the middle … and if that means that some portion of the growth would be stripped off, we’re probably okay with it because we were increasing 300 percent before COVID, and if we’re increasing 50-100 percent, that’s okay, “Aggarwal said.”
The travel and tourism industry has suffered immensely during the COVID and post COVID also as full-fledged traveling has not started yet. The industry personnels are hopeful of travel resuming soon which will help in property owners and the startup sustain also.
