OYO Hits The Brakes On Expansion Plans, To Cull Loss-Making Hotels: Report

SoftBank-backed hospitality unicorn OYO had started this year with a focus on restructuring its businesses, as part of which the company has laid-off thousands of employees. In a similar buzz, fueled by the Covid-19 pandemic, the company is reportedly looking to terminate tie-ups with loss-making properties across the world.

A Reuters report citing multiple sources said that OYO is planning to offload several properties across the world by terminating or not renewing existing contracts. The company had already removed several loss-making properties as part of its earlier restructuring plan.

The company is also expected to furlough more staff in other countries with extended travel restrictions. The priority for the company would reportedly be its businesses 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.

Some of the results of its earlier cost-cutting measures include de-escalation of OYO’s presence in India from 550 cities to 400 cities and halving costs of $80 Mn in January to $40 Mn in April

The report added that with $1 Bn cash, the company has been trying to further cut costs by such measures as well as furloughs. With this, the company aims to reduce its monthly expenses from $40 Mn in April to $25 Mn in June.

The company is said to have consulted turnaround specialist Alvarez & Marsal and Accenture Plc last year and more recently it tapped human resources advisor Aon Hewitt.

The development comes after OYO has found itself in the middle of a regulatory storm amid its ambitious expansion plans in the US. The company is under the scanner of multiple state governments in the US for signing franchise agreements with hotel owners.

Some American legislators claimed that the franchise contracts were illegitimate for not having received due approval in three states in the US — California, Maryland and Washington. In a conversation with Inc42, the company confirmed the regulatory hurdles but denied any wrongdoing.

The Covid-19 pandemic has negatively impacted the travel and hospitality businesses across the world. OYO, with its global presence, has been hit across divisions. OYO founder and group CEO Ritesh Agarwal said that the company’s revenues have gone down by 50%-60%.

As a result, the company has sent most of its staff on temporary leave, has introduced 25% pay cuts across the divisions while senior management has taken upto 50% pay cut and Agarwal has foregone his salary for the year.

On its part, the company is trying to support its hotel partners with capital and discounts. Also, it has tied up with several state governments to offer its hotels as quarantine centres as well as for stay of frontline healthcare workers.