Oyo Said to Offload More Loss-Making Hotels Amid Pandemic

Oyo Hotels and Homes, backed by SoftBank, plans to offload more properties around the world, three sources familiar with the matter said, as the coronavirus pandemic prompts it to speed up a retreat from a rapid global expansion.

The hospitality sector has been one of the worst affected by the coronavirus outbreak, with global and domestic travel coming to a near-halt.

While Oyo does not plan to completely exit any market, it will either terminate or not renew contracts with loss-making hotels, two of the sources said.

A fourth source aware of the plans added that Oyo had already ditched a number of loss-making properties as part of a broader restructuring that began last year.

The source also said the company may furlough additional staff in countries where travel curbs to prevent the spread of the virus persist for several months, making it difficult for hotels to operate.

The retreat comes just a year after a heady expansion beyond India and China into Europe, Southeast Asia and the United States, which made Oyo one of the world's biggest hospitality brands by room count. However, the push also widened its losses to $335 million (roughlys Rs. 2,500 crores) last year.

It was not immediately clear how many hotel contracts Oyo plans to end nor in which countries, said the sources, who asked not to be named as the discussions were still private.

Oyo did not respond to an email seeking comment.

Oyo will prioritise business and investment in India, Southeast Asia, Europe, China, and the United States while sustaining a presence in places like Japan, Brazil, Mexico, and the Middle East, said the fourth source.

The company has $1 billion (roughly Rs. 7,500 crores) of cash and the measures, along with other cost-cutting initiatives and furloughs outlined in early April, are aimed at reducing monthly expenses to about $25 million (roughly Rs. 187 crores) by June from $40 million (roughly Rs. 300 crores), the source added.

Other large hotel operators like Marriott International have also abandoned their financial outlooks and furloughed staff to conserve cash.

On April 8, Oyo's founder Ritesh Agarwal, said the pandemic had resulted in a 50 percent-60 percent drop in revenues and occupancy levels, putting "severe stress" on the company's balance sheet.

"Given how unprecedented the current situation is, it's natural for Oyo to prepare for the worst," said one of the three people cited above.

Heady expansion
Oyo is one of SoftBank's biggest bets with the Japanese group holding a 46 percent stake.

The six-year-old hotel startup had already consulted turnaround specialist Alvarez and Marsal and Accenture last year, two of the four people said, and more recently it tapped human resources advisor Aon Hewitt.

Alvarez and Accenture did not respond to emails seeking comment. Aon Hewitt declined to comment.

Between January and March, Oyo cut 5,000 jobs mainly in China and India, leaving it with about 25,000 employees, and amended contracts with hotels to remove revenue guarantees.

It also decided to end contracts with hotels that did not generate annual revenues of at least $100,000 (roughly Rs. 75 lakh), the two sources said. Emerging markets like India, Southeast Asia, and Latin America bore the brunt of the cuts, one of the two people said, adding that Oyo now operated in 400 Indian cities from 550 previously.

The measures helped Oyo halve its monthly costs to $40 million (roughly Rs. 300 crores) from $80 million (roughly Rs. 600 crores) in January, said the two people.

© Thomson Reuters 2020