India's Oyo Hotels and Homes, which is facing complaints from a growing number of Indian hotel operators that have partnered with it over being blindsided by fee increases, now confronts a similar backlash in the US.

Several hotel owners in the US, where the company is looking to expand aggressively, have complained to travel intelligence platform Skift that the Oyo-mandated property management system frequently didn’t work or has poor functionality. The glitches hobble the ability of properties to set room rates or change and handle reservations, resulting in overbookings and poor customer service, according to Skift.

"Influx of drug users and prostitutes"

The Skift report says that handing over all revenue management powers to Oyo, hotel operators in the US were forced to cope with the company reducing drastically their room rates to “such an extent that they sometimes triggered an influx of drug users and prostitutes”. Other problems cited in the Skift report: alleged missed payments from Oyo, a lack of cash flow for property owners, and unresponsiveness in dealing with technical or customer service issues were likewise high on the complaint list.

All these troubles have striking similarities with Oyo’s fracas with hotel owners in India. Hotel owners in India told Reuters that they found to their dismay that room rates have been driven down, coming at a time when economic growth has slowed. Oyo charges hotels a roughly 20 percent franchise fee on room revenues when hotels join its network, but some Indian hotel operators say the startup often ends up taking half or more of revenues through fees that were not initially disclosed.

A group representing hotel operators in Bengaluru called for a criminal probe into Oyo last month, saying the company was withholding money because of unfair fee increases. Two hoteliers in the southern state of Karnataka filed separate police complaints last month accusing Oyo of deceitfully increasing commissions, and accusing Oyo's 25-year-old founder and CEO Ritesh Agarwal of fraud.

"Unfair fee increases"

The pushback against Oyo in India was limited to a small share of the more than 10,000 hotel owners in India who work with it, according to the Reuters report. But that and the fresh bout of troubles in the US comes at a crucial time for the emerging-market unicorn valued at $10 billion, when it is pressing ahead towards profitability and its major investor, Japan’s Softbank.

Softbank, which has invested nearly $1 billion in Oyo, through its Vision Fund, is struggling to raise funding for a second investment fund in the wake of the failed offering of office-rental company WeWork and amid questions about the path to profitability of other marquee investments like Uber. Oyo has not yet turned a profit, reported Reuters.

Oyo had told Reuters that it is in constant contact with its hotel partners. "We have always disclosed any changes applicable to contracts with asset owners," Oyo said in a statement.

Why are hotel owners upset with Oyo?

For their part, owners and managers say Oyo has introduced fees - including a "platform fee" and a fee for a "visibility boost" - which they only discovered in monthly statements.

Reuters interviews with 22 hotel owners and managers who run hotels under the Oyo brand in 10 Indian cities suggest the discontent has grown since late last year.

Several hotel groups have organised protests. Amitabh Mohapatra, head of one such group in northern India, says over 300 hotels have quit Oyo's India network this year, while Kunal Rajpara, who heads another group in western India, said a few dozen hoteliers from Ahmedabad ditched Oyo last month.

"The situation with Oyo has gone from bad to worse," said P.C. Rao, president of the Bruhat Bangalore Hotels Association. "We want to make sure the business of small hoteliers isn't hurt."

Skift reported that an Oyo spokesperson also seemed to acknowledge some of the issues that owners raised. “We have taken cognizance of the feedback and are addressing asset owner concerns and issues on a war footing,” the Oyo spokesperson told the platform.

Oyo shot out of nowhere to become one of the world's largest hotel chains with a simple promise of "hassle-free" online booking, transparent pricing and cheerful lodging. That billing is in serious danger due to the recent event.

First Published:Oct 24, 2019 4:58 PM IST