Home >Companies >News >Oyo wasn’t prepared for zero occupancy rate crisis: Ritesh Agarwal
Oyo founder and CEO Ritesh Agarwal. (Photo: Bloomberg)
3 min read
. Updated: 22 Sep 2020, 05:13 PM IST
The startup had laid off around 5,000 employees just before the lockdown and later furloughed employee’s salaries to keep expenditures on the check and save cash in an uncertain environment
Oyo was not prepared for a business crisis that saw its occupancy rates dropping to almost zero for a few months after the lockdown was enforced in March, said Ritesh Agarwal, founder and chief executive of the hospitality unicorn.
Speaking at All India Management Association’s (AIMA’s) 47th National Convention on Tuesday, Agarwal said that the company’s hotel inventory has seen 40-45% revival in terms of occupancy rates when compared to pre-covid levels.
“We have always been prepared for crises as we have even designed the business for a 10% or even 20% drop in occupancy, by looking at the last four crises that the world economy has been through. But we were not really prepared for an almost 0% occupancy for few months…so for the first time we had to design our business for almost zero revenues, and to have significant long-term cash for survival,” Agarwal said adding that, it is very early to provide estimates as to when the demand in hospitality industry would return to the pre-covid levels.
“It’s hard to estimate when demand would go back to pre-covid level…it could 6 months to even 2 years, it really depends on various other circumstances,” he added.
The startup had laid off around 5,000 employees just before the lockdown and later furloughed employees, cut salaries to keep expenditures on the check and save cash in an uncertain environment.
Oyo has been laying off staff since late 2019, even before the covid outbreak in the country. However, from August, it began reinstating salaries of employees in a phased manner as demand for travel rebounded.
Agarwal’s comments come at a time when the company has been struggling to meet minimum business guarantee (MBG) payments to hotel owners. In recent months, Oyo has suspended contracts with over 250 hotel owners for its “Townhouse” properties across India and stopped making minimum payments to hotel partners. The startup invoked force majeure and served notices to property owners citing a negative impact on business.
Agarwal said that the startup expects it’s budget and homestay categories to bounce back faster in term of demand, when compared to the luxury and premium segment especially in markets including India, Europe, and Southeast Asia.
“Our sense is that as economic activity, and leisure travel will come back sooner, because people do not have offices to go back on Monday morning, and hence they are looking at extended vacations…In the corporate travel segment, we small and medium businesses owners increasingly traveling across towns and states,” Agarwal added.
Oyo also claims to be adding signing on 40,000 new rooms every month onto its platform in the last two months, even at a time when the fundamental consumer demand for travel has been changing. Agarwal added that meeting expectations from consumers for new travel use cases can be challenging for growth, but the company will comply with these emerging travel demand.
“For the first time, we don’t have the cost structure to be able to bring the growth and hence the focus is to make sure that customer and partner service is kept in the center…and if that means that some part of the growth will get stripped off, we are probably okay with it because we were growing 300% before covid, and if we grow between 50-100% that’s fine,” Aggarwal said.
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