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Oyo expands hotel leasing business, 'Flagship' to 60 properties

Budget hotel accommodation aggregator Oyo (Oravel Stays Pvt. Ltd) that last year started leasing hotels and re-branding it as Oyo Flagship, has expanded it to over 60 properties across seven cities and plans to expand further, according to a top executive of the company.

January 19, 2017 / 02:52 PM IST

Priyanka SahayMoneycontrol  Budget hotel accommodation aggregator Oyo (Oravel Stays Pvt. Ltd) that last year started leasing hotels and re-branding it as Oyo Flagship, has expanded it to over 60 properties across seven cities and plans to expand further, according to a top executive of the company. Oyo primarily aggregates select rooms across multiple hotel properties and customises them as per its branding. The company competes with Nasdaq-listed MakeMyTrip, Yatra besides budget hotel startups such as Treebo and FabHotels. Gurgaon-based Oyo did an experiment with its core business model and started leasing properties under flagship early last year. The exercise was to allow the company to have a larger control over day-to-day operations of these properties, especially after it received a lot of flak on social media following few negative reviews posted by customers. Unlike just aggregating select rooms and customizing it, Oyo now leases a whole property, completely refurbishing it and then making it available for bookings. Oyo also deploys its own staff across these properties.   "It was an experiment and we learnt from it. We will go back to the table and come up with an expansion plan," said Abhinav Sinha, chief operating officer of Oyo in an interaction with Moneycontrol.  Oyo started off as a pilot from Gurgaon and has now expanded to Bangalore, Hyderabad, Kolkata and Mumbai besides Delhi and NCR. However, the whole process is capital intensive as the company has to pay a one time lease cost for properties, besides the refurbishing cost. The return on investment can thus be a big issue for the company. According to Sinha, the return on properties depend on the amount of investment required to refurbish it. "If it is a running hotel, then the investment needed is not much. The return on investment can be as low as 3-4 months," he said adding that if the property was not running and Oyo has to start from scratch, then the return on investment can even take two years. The company thus also plans to explore other possible manners to reduce cost for its flagship properties.   "The 60 properties that we have, we have taken them on lease but going forward, there will be many more models. There can be several solutions, scale comes because of innovative solutions," said Sinha.

The company did not clarify on possible alternatives. The price point of the flagship properties are marginally higher than the other properties to the tune of Rs 2,000-2,500. ##Competition from GoStays and Value+

This comes at a time, when the company is likely to face tough competition from the merger of online travel agencies (OTAs) MakeMyTrip and GoIbibo. The OTAs which used to list Oyo, in 2015, delisted the firm citing customer satisfaction issues and soon independently ventured into budget hotel business. MakeMyTip launched Value+, GoIbibo launched GoStays while Yatra has launched TG Rooms and TG Stays. Sinha however denies that the company is facing a major competition from the OTAs. "We see ourselves more as a hotelier than a technology company... we are in the business of transforming rooms. For consumers, Oyo and OTA is different. Oyo takes the ownership," he said. The company last raised around USD 62 million from existing investor Softbank in August, besides raising an undisclosed amount from debt fund Innoven Capital. The company which has business across 250 cities with over 70,000 rooms says it plans to add 25-50 more cities across leisure and pilgrim destinations by the year end and targets the room number to reach at least 100,000.

Oyo did not share any recent booking numbers. However in an earnings report of May last year, Japan’s telecom and internet group SoftBank said that the daily booked room nights for Oyo had grown 15 times in the quarter ended 31 March against the same period a year ago.

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first published: Jan 18, 2017 10:54 am

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