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Hotel unicorn Oyo adjusts Brazilian operations to Covid-19

. Jun 19, 2020
Hotel unicorn Oyo adjusts Brazilian operations to Covid-19 Oyo CEO Henrique Weaver. Photo: Oyo

Indian hotel unicorn Oyo arrived in Brazil in 2019, shortly after having debuted in Mexico, its first Latin American market. In less than a year, without much fanfare, the company earned the title of biggest hotel chain in Brazil by adopting a number of establishments. Since March, however, the Covid-19 pandemic has fallen like a meteor in the travel and hospitality industries, and Oyo is facing a crisis. Its Brazilian division offers a clear example of how the startup is dealing with this challenging scenario and preparing for a reality that will not return to pre-crisis terms at any time soon. 

“We focused on cash preservation, as it is essential in defining the difference between surviving the crisis or not,” 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.”</p> <p>Its 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 Mr. Weaver.</p> <p>One of the <a href="https://brazilian.report/tech/2019/08/02/softbank-uber-banco-inter-investments/">biggest gambles by Japanese conglomerate SoftBank</a>, Oyo has partnered up with 43,000 hotels in 80 countries and was valued at USD 10 billion, seven years after it was founded in India by chief executive officer Ritesh Agarwal. In Brazil, in less than a year, its brand was adopted by 500 hotels in more than 40 cities.</p> <figure class="wp-block-image size-large"><img src="https://brazilian.report/wp-content/uploads/2020/06/hotel-oyo-2-1024x682.png" alt="hotel oyo 2" class="wp-image-42845" srcset="https://brazilian.report/wp-content/uploads/2020/06/hotel-oyo-2-1024x682.png 1024w, https://brazilian.report/wp-content/uploads/2020/06/hotel-oyo-2-300x200.png 300w, https://brazilian.report/wp-content/uploads/2020/06/hotel-oyo-2-768x511.png 768w, https://brazilian.report/wp-content/uploads/2020/06/hotel-oyo-2-610x406.png 610w, https://brazilian.report/wp-content/uploads/2020/06/hotel-oyo-2.png 1376w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Oyo Mara Express hotel, in Vassouras, Rio de Janeiro. Photo: Oyo</figcaption></figure> <p>The company works by partnering with independent hotels, investing in physical and managerial improvements, and the hotel then adopts the Oyo brand. Partner companies also receive support in revenue management and, by way of Oyo’s proprietary algorithms, they operate with dynamic rates that 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, drinks, and events.</p> <p>Since the beginning of the pandemic, the rate it charges hotels has been reduced by 50 percent. “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 occupancy rates are very low,” explains Mr. Weaver.&nbsp;</p> <p>Half of the Oyo hotels in Brazil are currently closed, and reopening has been gradual. The occupancy rate, according to the executive, varies from city to city, but the average is around 15 percent. “Still, according to Booking.com, our occupation rate is 300 percent above the market average,” he says.</p> <p>For its guests, Oyo eased booking cancellation rules. “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. Mr. Weaver adds that they are focusing on preparations for reopening, offering guidance on good hygiene practices, social distancing guidelines, and audited certifications, based on regular inspections of hotels.&nbsp;</p> <p>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 infecting family members.</p> <p>Oyo foresees that the return of the travel economy will imply 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.</p> <p>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 USD 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 USD 951 million grew by 4.5 times.</p> <p>At the time, the Indian unicorn was compared to <a href="https://labs.ebanx.com/en/news/business/under-new-management-real-estate-startup-wework-officially-gives-up-on-going-public/">WeWork, the troubled coworking startup</a> with which it shared two immediate similarities: SoftBank’s backing and the offer of physical spaces mixed with technology solutions.</p> <h2>China occupancy rates offer a light at the end of the tunnel</h2> <p>Oyo&#8217;s sights are firmly on recovery. In China, the company’s second-largest market, its hotel occupation rate ranged between 5 and 10 percent in January and February, and now it is reaching 40 percent. 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”.</p> <p>A project that was strengthened in Brazil was Oyo’s own structure for bookings, with a call center, a website, and a smartphone app. Oyo&#8217;s own channels currently account for 20 percent of reservations at their hotels; before the crisis, this rate was 15 percent. “It is advantageous for the hotel, as it is cheaper. And the increase in direct channels also means that we are increasing customer loyalty.”</p> <p>The company saw independent hoteliers become 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 Mr. Weaver, the movement was similar to that of other markets. “Growth will always be an important point for us, what has changed is the timescale 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.”</p> <p><a href="https://labs.ebanx.com/en/articles/business/hotels-unicorn-oyo-operations-brazil-new-scenario/"><em>This article was originally published on LABS – Latin America Business Stories, a news platform covering business, technology, and society in the region for an English-speaking audience.</em></a></p> <figure class="wp-block-image size-large"><a href="https://labs.ebanx.com/en/"><img src="https://brazilian.report/wp-content/uploads/2020/06/labs-banner-_2x-1024x124.jpg" alt="https://labs.ebanx.com/" class="wp-image-41934" srcset="https://brazilian.report/wp-content/uploads/2020/06/labs-banner-_2x-1024x124.jpg 1024w, https://brazilian.report/wp-content/uploads/2020/06/labs-banner-_2x-300x36.jpg 300w, https://brazilian.report/wp-content/uploads/2020/06/labs-banner-_2x-768x93.jpg 768w, https://brazilian.report/wp-content/uploads/2020/06/labs-banner-_2x-610x74.jpg 610w, https://brazilian.report/wp-content/uploads/2020/06/labs-banner-_2x.jpg 1320w" sizes="(max-width: 1024px) 100vw, 1024px" /></a></figure> <p>

 
João Paulo Pimentel

João Paulo Pimentel is an editor at LABS. A journalist from Curitiba, Brazil, covering technology and business since 2004, he studied Media & Digital Communications at Erasmus University in the Netherlands and has worked as an editor and executive editor at local news outlets.

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