Pushed By SoftBank, Oyo Reaches For Profitability

Hotel chain Oyo, which became one of the largest chains by offering hotel owners guaranteed revenues for carrying the brand, will phase out that incentive in a push to find profitability, according to a report by The Wall Street Journal.

The company is based in India and backed by investment giant SoftBank Group. It grew quickly by offering guaranteed revenues, which were sometimes 100 percent of revenue from a year before. Some hotels didn’t book enough, though, and Oyo was forced to pay, which led to some disputes with hotel owners.

Oyo has been ending that practice and is in the process of introducing new contracts to hotel owners, which have higher fees that the hotels have to pay, according to Chief Executive Ritesh Agarwal. The company has also laid off workers.

Agarwal said that the guarantees are ending because they served their purpose of illustrating to hotel owners that the Oyo brand can boost hotel stays and revenue. He also said there were problems with the guarantees, especially in China.

“In reflection, we are able to see that minimum guarantees work, but only when they are handled with great care,” he said.

Oyo gets about 15 percent of what a guest pays for a room, but only after losses on the guarantees are factored in.

Oyo has lost about $335 million as of the fiscal year ending in March of 2019, and its push to profitability has brought about a number of cancellations by hotels who say they no longer want to be associated with the brand. 

It’s also dealing with the current coronavirus pandemic, which is hurting tourism around the world.

However, people familiar with the matter say that investor SoftBank has been pushing the hotel chain toward profitability, especially after it was forced to eat billions in losses from work-sharing company WeWork.

If the company doesn’t come around, SoftBank could be forced to deal with another write-down.

Many hotels left the company because when it was time to pay out guarantees, the chain trimmed or got rid of the guarantee completely — even though they were able to do so under the contract, it angered owners, which at times led to them dropping the platform altogether.