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Is OYO Becoming A Threat To The Hotel Industry In India?

Is OYO Becoming A Threat To The Hotel Industry In India?

The hospitality partner has shifted to an asset-based approach from the aggregation model in the past two years

Oyo boasts a portfolio of over 35K hotels and 125K vacation homes, and over 1.2 Mn rooms in 80 countries

Amid continuous protests, how is OYO impacting the larger hotel industry in India?

OYO has been in the limelight for all the wrong reasons this year, as partner hotels protest against the company’s business model and policies in India, the US, Japan and Southeast Asia. With so much attention on the hospitality startup, one does wonder where OYO has become a threat to the hotel industry in India and around the world, with its aggregation plus self-managed inventory model.

OYO’s expansion in terms of presence and products as well as its market-soaring valuation have surpassed the expectations of many market watchers. However, the company has failed to satisfy the hotel owners completely and hence, it has found itself in several heated protests.

OYO Goes From Asset-Light Model 

When OYO came on to the scene, it looked to aggregate hotel rooms, which meant hotels were actually partners in the model. OYO promised standardised services and quality for travellers looking for affordable accommodation. After a hotel is brought on board as a partner, OYO revamped it to its standards and then let customers book through its platform or through other partner online ticketing agents, at a dynamic-pricing. In exchange for the rooms, hotels got a minimum guarantee amount for all OYO bookings, regardless of whether they brought in occupants.

But in 2017, OYO changed the game by moving to a franchise model and asset-heavy approach by self-managing a number of hotels. This allowed it to extend many more services than was previously possible. And moving on this path, the company launched a slew of property brands to encompass all price and consumer segments in the hospitality industry.

Today, the company has a portfolio of over 35K hotels and 125K vacation homes, and over 1.2 Mn rooms across 80 countries and 800 cities. Its verticals vary from holiday homes, full-service hotels and coworking spaces to budget hotels, corporate stays, serviced apartments, co-living options and more.

OYO said it has seen a 3.8x YoY growth in revenue in Aug 2019 (vs. Aug 2018), with 1.2 Mn rooms under management across hotels and homes. The company said it has a strong balance sheet of $2 Bn across group companies, a significant part of which will be further invested in the business.

However, on the ground, the company is marred by continued conflicts and complaints by various asset owners. The concerns, which first gained ground in December last year, have reached a level where court cases have been involved. The complaints against OYO and its “predatory” behaviour surfaced last year. In September, a Bengaluru hotelier Natarajan V R S, who alleged the OYO’s founder Ritesh Agarwal and two other company representatives of cheating and criminal breach of trust.

In August, Inc42 had extensively reported about the concerns of hotel owners and the continuous protests. At the time, independent protests by small hotel owners were being carried out in multiple Indian cities including Nashik, Pune, Kota, Manali, Jaipur, Ahmedabad and Delhi.

Is OYO A Threat To India’s Hotel Industry?

Hoteliers claim that the hospitality unicorn has been cheating them out of their promised returns and the minimum guarantees, which were the key component in OYO’s pitch to hotels in the initial days. Hotel partners claim OYO levies hidden and arbitrary charges, often without informing them. Many of these charges are not specified in the contract between the owner and OYO, according to the hotel owners that Inc42 spoke to.

However, OYO has continuously denied these allegations of large-scale breach of contract and predatory pricing levelled against it by the Federation of Hotel and Restaurant Associations of India (FHRAI)  – an all-India body of hotel owners and operators. After initiating action against online travel aggregators MakeMyTrip and GoIbibo in November, FHRAI had warned OYO of nationwide protests if it did not negotiate with the hotel owners body.

In response, OYO said it is aware of the recommendations made by certain bodies and is actively engaging with the asset owners, franchisees and lessors associated with OYO Hotels, on a one-to-one basis.

“We believe that the allegations are misguided and misplaced, and depict cartelization by small groups of people (not necessarily by franchisees and lessors associated with OYO Hotels) with vested interests, which is not in the best interest of the consumers,”  an OYO spokesperson told Inc42.

Does OYO Hold Dominant Position In The Market?

For OYO to be a real threat to the hotel industry in India, it needs to be proven that it is in a dominant position to be influencing pricing and enabling predatory discounts.

The Competition Commission of India (CCI) has also said it would continue to examine the hoteliers’ complaints against three big players in the hospitality sector — MakeMyTrip, Goibibo and OYO — for affecting their businesses, due to predatory practices, high commissions and non-uniform commissions. CCI has directed a government official to carry out a detailed investigation into the matter and submit a report to the commission within 150 days.

The hoteliers association Federation of Hotel & Restaurant Associations of India (FHRAI) had also alleged that the three players hold a collective dominance over the hospitality sector, which affects other hoteliers’ business even further.

Not According To CCI 

Following the complaint, the CCI responded that there is no provision for “collective dominance”, therefore OYO, MakeMyTrip and Goibibo cannot be considered to hold a dominant position.

In an earlier directive, the CCI said that while OYO claims to be the third largest hotel chain in the world, according to the commission OYO cannot be said to hold a dominant position in the market. CCI noted that the relevant market would be ‘Market for franchising services for budget hotels in India’.

The CCI added that OYO’s promotional discounts prove that its primary focus is to garner a high market share and not actually help hotel partners maximise bookings.

OYO maintained that OTAs such as MMT operate in a different market than OYO further claimed that its market share doesn’t exceed 4.3%. The company responded by explaining its business model, saying it provides a network of standardised hotels under the “OYO” mark and markets and promotes this network.

On the questions of price changes, revenue share and rules for GST collection, OYO stood its ground and said that those are mutually-beneficial terms needed for business management.

The company also defended its 3C policy based on ‘constant’ availability of rooms, ‘compatible’ rooms and ‘customer’ reviews. The company emphasised that it has no incentive in deprioritising or blocking any specific partner hotel or property from its platform.

It added that any discounts are absorbed by OYO and not passed on to the hotel. In any event the partner hotels are protected with committed minimum guarantee under the contract.

Author

Bhumika Khatri

Inc42 Staff

Hailing from a business-oriented family, Bhumika has always been crunching numbers in her head. Words are her escape and she looks to find hidden startup stories. Reach her on [email protected]

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