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As Travel, Tourism & Hospitality Sector sees no bounce back, Oyo announced further layoffs, 600 – 800 employees shown the door even as it moves to revenue–sharing model.

Oyo has announced that it has laid off another 600 – 800 employees to reduce operational costs further.

Oyo, in the latest round of firings, has said that the same is being done primarily in two departments – renovation and operations as the company plan to shut down the functions of these two divisions and focus solely on revenue–sharing model with partner hotels.

As per sources, besides offering the laid-off employees regular compensation, including notice pay and leave encashment, the company has also offered these employees the option of surrendering 25% of the unvested deeply discounted ESOPs granted to them in the month of June this year in lieu of a cash benefit. The cash amount is said to be equal to 25% of their March fixed salary, 2020.

However, this is not good news either for the employees or the Oyo’s Partners.

  • The cost-cutting efforts comes at a time when Oyo’s biggest investor SoftBank faces setbacks in some of its marquee investments, especially WeWork, an office-sharing startup, which bailed out after a failed public listing.
  • Oyo is also facing a growing backlash from many of its hotel partners; it has been said that the companies internal projections have sounded to the board that the company may not make a profit in two of its biggest markets – China and the US – until 2022 even as incurring massive losses.
  • Oyo has also been reported in the New York Times for questionable practices to support its rapid growth, an example of which was given in a New York Times report – providing free lodgings to the police to deter and avoid trouble over illegal rooms.

However, the company at the time of this news report had said that they would be looking into all such allegations and take them very seriously.

Ritesh Agarwal had also hinted then that the company would be looking to revise strategy and focus on “profitable locations and buildings, and avoid growth that dilutes the margins of the company.”

It seems that the current layoffs of 600 -800 employees and the revenue–sharing model with partner hotels are in line with the statement issued back then.

Although, whether the partner hotels will be keen on the revised strategy is yet to be seen – as it looks like they have been left to fend for themselves, workout on the operations and management cost – hire their own management, and also share their revenues with Oyo.

In one of the earlier statements, Ritesh Agarwal mentioned that the economy and boutique hotels were on a path to recovery, especially in Europe, as people showed more keenness towards smaller hotels.

Oyo has been on a spring cleaning mode for most of this year –

  • In January – Oyo announced that it was laying off at least 1000 employees in India across all positions – senior, mid & junior level

The move was primarily to balance out the cash-guzzling expansion spree that took Oyo to new markets, including China and the US.

The move was credited to the fact that as Oyo goes deeper into tech-enabled synergy, enhanced efficiency, and duplication of roles and efforts across businesses and worldwide, some of the roles will become redundant. According to management, the move was also to focus on profitability and sustainable growth.

  • In March – Oyo had announced that it was looking to fire about 5000 employees across the globe, while the majority of the layoffs were in China; this was on account of the Covid -19 breakout and had hit the hotel room aggregator’s operations hard.
  • In September – Oyo extended the already announced furlough period of its employees by another six months to February 2021. The company had also provided the employees with a Voluntary Separation Programme (VSP)

Until the start of this year, Oyo had an estimated 10,000 employees in the country; at present, it is being said that the number may have dropped to 2,500.

Under the revised model, Oyo is re-strategizing its operations to a revenue-sharing model with partner hotels. As per the new model, Oyo will be charging the hotel partners a share of the entire revenue they earn on their properties while also ceasing to offer its previous minimum guarantee.

It is also looking to stop providing management staff to the partner hotels as it did previously to maintain consistency and monitor quality.

As per the new model, the hotel owners will be responsible for operations, and Oyo will only do the marketing of the same.

It needs to be noted that Oyo Management has not confirmed the latest round of layoffs, and no statement has been released on the same.

Ritesh Agarwal, the founder of Oyo, had earlier shared this month that he was looking to make the company IPO ready.

He has also mentioned that the company had healthy cash reserves close to $1 billion for operations.

With the onset of the Covid -19 pandemic, Oyo saw a drop in its valuations in August 2020 and saw its valuation drop from $10 billion to $8 billion.

However, compared to its competitors’ drop-in valuation, this was lesser. The company still retains its position as the third-largest startup in India after Paytm and Byju’s.

In one of his earlier statements following the Covid -19 pandemic, Agarwal had mentioned that he had estimated an overall drop of 15-20% in valuation and occupancy; however, in reality, the company took a hit of a decline in revenues to the tune of 50 – 60% globally in the month of March this year.

While he hinted at the IPO, he did not mention the timeline for the same, stating that the company board and management would decide the same and the right time.

In the meantime, the focus would be to make the company IPO ready. It will retain focus on its two core businesses – Hotels and Holiday Homes.

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