SoftBank-backed Oyo to offload more loss-making hotels

New Delhi

INDIA'S Oyo Hotels and Homes, backed by Japan's SoftBank Group, plans to offload more properties around the world, sources familiar with the matter said, as the novel coronavirus pandemic prompts it to speed up a retreat from a rapid global expansion.

The hospitality sector has been one of the worst affected by the coronavirus outbreak, with global and domestic travel coming to a near-halt.

While Oyo does not plan to completely exit any market, it will either terminate or not renew contracts with loss-making hotels.

One source aware of the plans added that Oyo had already ditched a number of loss-making properties as part of a broader restructuring that began last year.

The company may also furlough additional staff in countries where travel curbs to prevent the spread of the virus persist for several months, making it difficult for hotels to operate.

The retreat comes just a year after a heady expansion beyond India and China into Europe, South-east Asia and the United States, which made Oyo one of the world's biggest hospitality brands by room count. However, the push also widened its losses to US$335 million last year.

It was not immediately clear how many hotel contracts Oyo plans to end nor in which countries, said the sources, who asked not to be named as the discussions were still private.

Oyo will prioritise business and investment in India, South-east Asia, Europe, China and the US while sustaining a presence in places such as Japan, Brazil, Mexico and the Middle East.

The company has US$1 billion of cash; and the measures, along with other cost-cutting initiatives and furloughs outlined in early April, are aimed at reducing monthly expenses to about US$25 million by June from US$40 million. Other large hotel operators like Marriott International have also abandoned their financial outlooks and furloughed staff to conserve cash.

On April 8, Oyo's founder Ritesh Agarwal said the pandemic had resulted in a 50-60 per cent drop in revenues and occupancy levels, putting "severe stress" on the company's balance sheet.

Oyo is one of SoftBank's biggest bets with the Japanese group holding a 46 per cent stake.

The six-year-old hotel startup had already consulted turnaround specialist Alvarez & Marsal and Accenture last year, two of the four sources said, and more recently it tapped human resources adviser Aon Hewitt.

Between January and March, Oyo cut 5,000 jobs mainly in China and India, leaving it with about 25,000 employees, and amended contracts with hotels to remove revenue guarantees.

It also decided to end contracts with hotels that did not generate annual revenues of at least US$100,000.

Emerging markets like India, South-east Asia and Latin America bore the brunt of the cuts. Oyo now operates in 400 Indian cities, from 550 previously. REUTERS