This article first appeared in The Edge Malaysia Weekly on July 6, 2020 - July 12, 2020

JUST like every tourism player in the country, well-known hospitality chain OYO Hotels & Homes has not been spared from the Covid-19 pandemic and the Movement Control Order (MCO). But now that rules on interstate travel have been relaxed and the country is focused on boosting domestic tourism, OYO says it has an edge, as it is recovering at a faster pace than its competition.

In fact, the Indian-based budget hotel grouping has already started to see an improvement since the government further eased restrictions on movement on June 10. In a video interview with The Edge, Dr Mandar Vaidya, OYO’s CEO for Southeast Asia and Middle East, says OYO’s hotels are not only performing between 20% and 30% better than other hotels in the same category, but it is also doing better than the industry as a whole.

This is a positive development for OYO. “Globally, there has been a 60% drop in revenue [this year] … [and in] Malaysia, we were hit much worse,” he says. Even though hotels were considered essential services and allowed to continue operating, the restrictions imposed on unnecessary travel or beyond 10km of one’s home affected the hotel industry greatly.

Based on its data, the Malaysian Association of Hotels expects to see the lowest average occupancy rate in history this year at 25.41%. The local industry has also witnessed a string of hotel closures.

To get back on their feet, some hotels have resorted to dropping prices while others are offering attractive packages. Asked how OYO plans to compete with hotels that are of a higher category but have dropped prices, thus narrowing the pricing gap, Vaidya says OYO has distinct advantages.

He explains that people are not splurging because they have a smaller disposable income or they are concerned about the economy. This may have an impact on higher star-rated hotels but will not affect budget hotel groups. The pandemic is also revealing that “people are not looking to experiment and stay at a new hotel”, as hygiene is a major concern. Instead, they prefer to stay at tried-and-tested accommodations such as OYO hotels.

Between 80% and 85% of OYO’s guests are from the domestic market and are mostly millennials or locals living in the city where the hotel is located or in the outskirts. “This [guest demographic] has helped us. In a post-Covid-19 world, people want to go only as far as they can drive instead of flying or taking the bus,” Vaidya points out.

As borders remain closed for international travel and Malaysia focuses on boosting domestic tourism, OYO expects to benefit. Unlike other higher star-rated hotels, OYO is neither reliant on foreign tourists nor business guests.

Nevertheless, Vaidya remains cautious about the future. “About 30% to 40% of our business has come back, but we can’t be certain whether it will be back [to normal] in six months or a year. We have to wait and watch. But what we do know is that business from the OYO app and OYO website has come back at double the speed compared with all other [booking] channels,” he points out.

Traditionally, 40% of its Malaysian guests book through the OYO app while the rest are walk-in guests or those who book through online travel agencies. Furthermore, 60% of its guests are repeat customers.

Asked about OYO group’s performance, Vaidya says, “2019 was a watershed year for us in Southeast Asia and Malaysia was no exception. We saw the real growth push happen in 2019. We ended 2019 in Malaysia with 17,500 to 18,000 rooms. We had begun the year with 2,000 to 2,500 rooms.” This year will be very different, he adds.

OYO will focus on reopening as many hotels as possible while some of its competitors have decided to wait a little longer before reopening. On a positive note, Vaidya also expects to sign up more hotel partners post-Covid-19 than pre-Covid-19, owing to intense competition and its existing network and reach.

Interestingly, OYO has been able to sign on new hotel partners every month since the MCO. “Yes, people came to us,” he says, when asked whether independent operators had asked to join the grouping. He declines to disclose, however, the number of hotels OYO hopes to sign up.

Established in 2013, OYO entered Malaysia about 2½ years ago, but it was only a year later that it made headway and experienced rapid growth. Today, it has over 800 hotels and 2,000 vacation homes in the country.

Needless to say, Malaysia is an important market for the group. The penetration of the OYO app, relative to the population, places the country among its top four markets globally. In terms of revenue, Malaysia ranks among the top 10. “We expect Malaysia to climb that hierarchy in the next couple of years,” Vaidya says.

“Thing are looking better. Consumers are coming back to us faster than to the other budget hotels and certainly much faster than to the non-budget hotels, but we do have a very long way to go. We are nowhere close to 2019’s revenue levels. We are not in a position to predict when things will be back to 2019 levels.”

How does OYO make money?

In the hotel segment, OYO signs on a hotel partner and makes money from the franchise through commissions (about 20%) from bookings. While the hotel partner/operator handles the day-to-day operations (including front desk, housekeeping and general upkeep) and takes care of operational expenditure (opex), OYO handles the listing, promoting and also back-end dashboard. “The franchise fee comes in only if our partner makes money,” Vaidya says, distinguishing OYO’s model from other franchise operations, which take a fixed fee.

As for OYO vacation homes, the owner takes care of opex and OYO handles operations. The bookings can be made through the website or app and OYO will handle the guest check-in process.

OYO’s partners, Vaidya says, have seen a definite scale-up within two months of joining OYO, with some enjoying up to double-digit growth in revenue.

Group-wide, OYO saw revenue jump to US$951 million in 2019 from US$211 million in the previous year, with India and China leading the way. However, it posted a net loss of US$335 million in FY2019 compared with US$55 million in FY2018. It has over 35,000 hotels and 125,000 vacation homes in more than 80 countries.

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