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After downsizing his U.S. business, Oyo CEO Ritesh Agarwal defended the hotel chain’s business model, and gave no hint that he would be seeking to decelerate Oyo’s growth.
At the same time, Agarwal, in an interview with members of the editorial and research teams at Skift’s Manhattan headquarters, acknowledged that a key tech feature — dynamic pricing — hasn’t met expectations. He said Oyo is working hard to ensure that it uses more data points when making pricing decisions.
Agarwal said Oyo has significant learnings to achieve in order to improve its dynamic pricing, and there are “some learnings for our partners, as well.”
Dynamic pricing is when a hotel changes its rates based on demand and other factors.
When asked about Oyo’s challenges, including some hoteliers’ complaints about technology shortfalls, and minimum guarantees that might not always appear, Agarwal said: “Sure, I think one of the things I have said multiple times is that we don’t claim to be — and we are not — a perfect company.”
He argued that most hotel partners see the value proposition in Oyo, and the question becomes how fully can the chain execute on those promises.
“We certainly have had challenges and probably still have challenges, and look at the impact,” Agarwal said.
Oyo recently reported $335 million in losses in fiscal year 2019, which ended March 31, on what Skift Research estimated was $190 million in revenue. That came concurrently with mounting pressure on Oyo’s main funding benefactor, SoftBank, which is reeling from the second quarterly loss in a row for its once-vaunted Vision Fund.
In its fiscal year 2019 report, Oyo stated that in new markets, such as the U.S. and Japan, the focus would remain on building scale.
In Skift’s offices, Agarwal touted the chain’s growing roster of what he described as more than 300 hotels in the United States, up from around 60 less than a year ago. He said that’s a “reasonable” trajectory especially when considering where there is ample pushback against Oyo’s growth in the U.S. market.
In other words, although he didn’t say it, rival chains are pushing hard to limit Oyo’s growth.
The Skift Research Tally
Skift Research, however, counted 127 Oyo properties in the U.S. in October, and today that figure is 279.
“That is really good net growth but that number masks churn,” said Seth Borko, senior research analyst at Skift Research, who wrote a deep dive on Oyo. “By comparing the listings on the site then versus now, we estimate that around 16 percent of Oyo U.S. properties on the platform in October 2019 had left by Jan 2020.”
That number doesn’t mean much without context, so how does it stack up with some other plays in the hotel industry? One of the most appropriate comparisons might be Howard Johnson By Wyndham, which had 26 hotel closures on a base of 211 properties in the U.S., or a 12 percent churn rate, in 2018, the latest available statistics.
So newcomer Oyo had a U.S. churn rate of 16 percent versus 12 percent for HoJo, which traces its hospitality roots to 1986. (Marriott’s churn was 2 percent in the same period.)
“That means Oyo is running a bit higher than peers but perhaps it’s not too far out of line,” Borko said. “Plus there is more to Oyo’s U.S. growth than just property counts. From a keys perspective, the new locations appear to be bigger, like the massive 657-room Oyo Hotel and Casino in Vegas. So even if properties have high churn, if Oyo is trading those units for ones with higher key counts, its room total can still grow.”
Getting Out of a Contract
We questioned Agarwal on several hot-button issues brought up by disgruntled partners.
Some hotels have complained that it can be tough to exit an Oyo contract if so desired because they might have to pay fees for three years after dropping out.
Agarwal pointed out that hotels can generally give 30 days’ notice to exit their contracts, but if Oyo paid them an up-front capital expenditure then they would have to repay it over three years. He said Oyo would work wth hotels that might need longer to meet that obligation.
If Oyo provided the property with capital, then we’d like them to return that capital if they terminated the contract prematurely, Agarwal said. “That’s all we are asking,” he added.
Hotel Owners Can’t Alter the Rates at Their Properties
Some owners have complained that after signing up with Oyo, they lose all pricing control. For example, they can’t provide discounts to guests for any reason unless Oyo has approved them.
Agarwal pointed out that it is giving some property owners a minimum revenue guarantee based on a certain room rate. He said Oyo would be happy to give property owners more pricing flexibility in exchange for not giving them a minimum revenue guarantee.
“Either the commitment needs to go away or the price flexibility needs to be eliminated,” Agarwal said.
In fact, we spoke to one U.S. hotel owner who has a minimum guarantee. Oyo offered to negotiate away the minimum guarantee in exchange for the hotel having to pay a reduced franchise fee. The owner likely won’t accept the new deal, arguing that the chain’s minimum revenue guarantee was the main reason for signing on with Oyo in the first place.
Owners Complain They Can’t Refund Cancelled Stays
Some owners are angry that it is difficult to refund walk-in guests when they shorten the length of stay they booked. For example, if they were scheduled to check out on Thursday, but left on Wednesday instead.
Agarwal said Oyo doesn’t want provide such refunds to ensure that guests who booked online and those who booked offline are subject to the same cancellation policies. In other words, he said, walk-in guests shouldn’t be able to get a 100 percent refund for the night they cancelled because perhaps Oyo wouldn’t be able to fill the room on such short notice.
The conflict over these issues with some of these property owners won’t go away soon, although these sorts of gripes aren’t necessarily universally shared among owners.