Indian unicorn Oyo arrived in Brazil in 2019, shortly after having debuted in Mexico, its first Latin American market. In less than a year, without fanfare, the company was displaying the title of biggest hotel chain in Brazil in number of establishments. Since March, though, the COVID-19 pandemic has fallen like a meteor in the travel and hospitality industries, and Oyo is facing the crisis. Its Brazilian division offers a clear example of how the startup is dealing with a challenging scenario and preparing for a reality that will not return soon to the one seen before the virus.
“We focused on cash preservation, as it is essential in defining the difference between surviving or not to the crisis,” said Henrique Weaver, head of Oyo Brazil, in an interview with LABS. “We made all possible adjustments, from bringing marketing spending to zero, renegotiating with suppliers, reducing office expenses and, unfortunately, cutting jobs.”
The structure in Brazil has shrunk from 700 to 150 employees, and layoffs reached all sectors. “We had to make tough and difficult decisions to guarantee the company’s sustainability. We see this as a cut to be able to grow again, and not as something permanent”, says Weaver.
As one of the big bets by the Japanese conglomerate SoftBank, Oyo has partnered up with 43,000 hotels in 80 countries, and was valued at $10 billion, 7 years after it was founded in India by CEO Ritesh Agarwal. In Brazil, in less than a year, its brand was adopted by 500 hotels in more than 40 cities.
The company partners with independent hotels, invests in physical and managerial improvements, and they adopt its brand. The partner hoteliers also receive support in revenue management and, through Oyo’s proprietary algorithms, operate with dynamic rates, which vary every minute, following an optimal value for each location and situation. In return, the startup charges a percentage of the hotel’s revenues obtained from stays, excluding food, beverages and events.
Since the beginning of the pandemic, the rate it charges hotels has been reduced by 50%. “Cash flow is very important for the sector. Even with government aid programs, it is difficult for independent hotels to preserve cash and maintain their staff, since the occupancy rate is very low,” explains Weaver.
Half of the Oyo hotels in Brazil are closed, and reopening has been gradual. The occupancy rate, according to the executive, varies from city to city, but the average is around 15%. “Still, in a comparison on Booking.com, our occupation rate is 300% above the market average”, he says.
For its guests, Oyo eased the rules to cancel bookings. “We are not encouraging travel, instead we are tending to essential travel. We do not want to reopen ahead of time, without being safe”, says the executive. Weaver adds that right now they are focusing on preparations for the reopening, offering guidance on good hygiene practices, distancing guidelines and audited certifications, based on regular inspections of hotels.
It also created a solidarity hosting program, called Open Rooms, by which the company subsidizes free stays for health professionals who’d rather not return to their own homes as a precaution against the contagion of family members.
Oyo foresees a return with substantial differences. Its international expertise and data collected from markets where the pandemic has passed its most acute stage indicates an increase in the number of short trips to nearby destinations.
Before the pandemic, Oyo faced headwinds in its rapid expansion
Before the coronavirus crisis, Oyo had been through turbulence. In early 2020, it had already laid off 5,000 employees around the world. Losses in the last fiscal year amounted to $335 million, six times higher than what was recorded in 2018. In its report to investors, the company attributed the result to investments made in new markets. On the other hand, revenues of $951 million grew by 4.5 times.
At the time, the Indian unicorn was compared many times to WeWork, the troubled coworking startup with which it shared two immediate similarities: SoftBank’s backing and the offer of physical spaces mixed to technology solutions.
China occupancy rates offer a light at the end of the tunnel
Anyway, the sight of the company is now on the recovery. In China, Oyo’s second largest market, its hotels’ occupation rate ranged between 5% and 10% in January and February, and today it is reaching 40%. For the head of Brazilian operations, it may not be an exceptional number, but it offers “movement and light at the end of the tunnel”.
A project that was strengthened in Brazil was Oyo’s own structure for bookings, with a call center, a website and, mainly, an app. Own channels currently account for 20% of Oyo reservations; before the crisis, they represented 15%. “It is advantageous for the hotel, as it is cheaper. And the increase in direct channels also means that we are increasing customer loyalty.”
The company saw independent hoteliers increasingly interested in its solutions. They seek partnership during the crisis in order to improve revenues obtained per room. Worldwide, 3,600 new hotels have joined the Oyo chain in the past two months. The company does not disclose regionalized data, but in Brazil, according to Weaver, the movement was similar to that of other markets. “Growth will always be an important point for us, what has changed is the time horizon for it to happen in a sustainable way”, says the executive. “We are careful but hopeful about the future. The crisis will pass and the market will recover.”