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Budget Chain Oyo Can Be a Nightmare for U.S. Hotel Operators Despite Its Hype

Dennis Schaal, Skift
Budget Chain Oyo Can Be a Nightmare for U.S. Hotel Operators Despite Its Hype

Oyo, the self-proclaimed “world’s fastest growing hotel chain,” boasts that technology is “deeply embedded” in its DNA. But hotel owners and general managers in the United States scoff at the claim as their lobbies fill with overbooked guests, and front desk staff resort to emailing check-ins to headquarters because the property management system has crashed.

Skift recently visited, talked on the phone, or exchanged emails with nine hotel owners, general managers, or properties in the United States who’ve recently transitioned their hotels to Oyo. Several complained that the Oyo-mandated property management system frequently didn’t work or has poor functionality, gives properties no ability to set room rates, offers little control over modifying or handling reservations, and leads to overbookings and poor customer service.

By giving all revenue management powers to Oyo, hotel operators were left to cope with Oyo slashing their room rates to such an extent that they sometimes trigger an influx of drug users and prostitutes. 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.

New Skift Research Report: An In-Depth Look at Hotel Chain Oyo’s Financials and Strategy

The criticism of Oyo raises the issue of whether the high-flying hotel brand, which like WeWork and Uber is bankrolled in part by SoftBank and has a valuation of some $10 billion, has overreached in its astounding pace of global expansion. With nearly 1 million rooms in its portfolio, Oyo may have scaled its business so fast across India, China, and the United States, among other geographies, that it just doesn’t have the infrastructure and technology to make good on its lofty promises.

Skift shared with Oyo the substance of the negative comments that some U.S. hotel owners leveled against the chain, and an Oyo spokesperson replied that the company is leveraging “world class technology” to improve customer experience, and boost occupancy and revenue for owners.

But the spokesperson also seemed to acknowledge some of the issues that owners raised when we contacted them.

“We have taken cognizance of the feedback and are addressing asset owner concerns and issues on a war footing,” the Oyo spokesperson said. “Most of these seem to be from the early days. It’s important to note that we have already acted on many of these suggestions and will continue to do so. Oyo is a high-value-oriented company with world-class institutions as partners, and hence we will take hard decisions against anything that is not remotely right.”

Oyo did cite a couple of initiatives which tended to confirm some of the hotel owners’ grievances. For example, on the issue of unruly guests attracted by rock-bottom room rates, the spokesperson said Oyo is “working towards introducing a guest rating system to appropriately manage the quality of clientele.”

And addressing hotel owner criticisms that they are powerless to modify room rates under the Oyo system, the spokesperson said Oyo is evaluating and introduced in October “in some countries” a tariff manager tool that enables properties to adjust room rates 40 percent higher or lower from the Oyo-recommended room rate.

Oyo also stated that when front desk personnel want to interact with Expedia, Booking.com, or any of their associated sub-brands to deal with a reservation issue that came via one of these online travel agencies, the property staff can’t do so directly but must go through the Oyo escalations team, an Oyo captain, or Oyo area general manager.

Here’s what Skift heard from Oyo operators: 

Oyo Hotel JFK Airport

Consider the visit we made one day last week to Oyo Hotel JFK Airport, the first Oyo-branded property in New York City, and a former Howard Johnson. “They try to simplify things to engage with partners,” said hotel owner Miriam Chang, referring to Oyo. “However, their system has a long way to go to improve.”

A view of the exterior of the Oyo Hotel JFK Airport.

The hotel general manager at the property, who declined to use his name, had a lot harsher things to say about the Oyo operation.

“It’s the worst system around,” the general manager said of Oyo OS, the web-based property management system, adding it’s unstable and frequently crashes. “We really don’t have any control of anything.”

While we visited the property, one of only two Oyo-branded properties in New York City, and sat in its small cafe with the general manager, the front desk staff had to email check-ins to Oyo representatives because the property management system wouldn’t accept them. We saw WhatsApp messages between the Oyo area general manager and front desk staff trying to locate missing reservations that had been made through Expedia, but couldn’t be found in the Oyo system.

A day earlier, the hotel had been overbooked because the Oyo property management system lagged or just didn’t work, the general manager said. “Expedia reservations didn’t come in but the people who made them did. One lady was getting really upset but what we could we do?”

Referring to concerns about the Oyo operating system, the Oyo spokesperson claimed the system is “successfully managing” 1.2 million rooms.

“We, however, also use a third-party system to connect with some online travel agents, which we are continuously working to improve and thereby ensure a seamless check-in experience for our guests,” the spokesperson said.

Oyo uses RateGain to connect to online travel agencies in some markets, but in the United States Oyo directly connects to Expedia Group and Booking Holdings brands, the Oyo spokesperson said.

On the issue of the front desk needing to email check-ins to Oyo because the Oyo property management system wouldn’t accept them, the Oyo spokeswoman claimed it is often an “integrity issue given our terms of engagement.”

“As an example, there have been instances where customers are checking in a day before and the hotel manager has not updated it or recorded it in the system, which results in significant revenue loss for Oyo,” the spokesperson said.

Not an Isolated Incident

The overbooking incident at the Oyo Hotel JFK Airport does not appear to be an isolated incident. For example, one Skift staffer booked at stay at Oyo Hotel Atlanta Airport Southeast through HotelTonight at 12:30 a.m. on October 11 for a stay that night. When the Skift staffer arrived at the property a short time later, front desk staff told him that Oyo had oversold the property so they didn’t have a room for him.

The front desk personnel at the Oyo property in Atlanta implied that this was not the first time a guest showed up with a reservation and the property couldn’t honor the booking because there were no rooms left.

Meanwhile, the general manager at the Oyo Hotel JFK Airport has worked at the property, about two miles from airport, for about four-and-a-half years. The property, which has fresh Oyo-branded signage, airport shuttles, rugs, credit card machines, and its signature-red pillows and bedding, went live with Oyo during the first week of September.

A room at the Oyo Hotel JFK Airport replete with Oyo red pillows

Previously, as a Howard Johnson brand, the property used Sabre’s SynXis central reservation system, which showed properties credit card information, and enabled the front desk staff to modify reservations. With the Oyo system, the general manager said, the property can’t handle it when the guest wants to change credit cards, is unable to give guests a senior discount, and can’t interact with online travel agencies about issues with reservations as it could when using the Sabre technology.

“We don’t see anything now,” the general manager said. “Any changes take forever.”

While the Oyo spokesperson acknowledged that improvements need to be made with connectivity to some online travel agencies, she added that it is “absolutely incorrect” that the front desk can’t view these bookings. But, it turns out, the front desk can view the online travel agency bookings — when they end up in the system — but must undertake the cumbersome process of going through Oyo corporate staff when there is a problem.

The Oyo spokeswoman agreed that front desk staff can’t modify bookings, a situation that the general manager at Oyo Hotel JFK Airport expressed frustration with.

“Oyo is the principle and we provide minimum [payment] guarantees etc. so we cannot allow the hotel to make this decision unilaterally,” the Oyo spokesperson said. “So we agree the staff doesn’t have the authority to take some of these decisions but can always contact the Oyo area general manager and propose exceptions in special situations.”

We asked a hotel general manager who isn’t affiliated with Oyo about that lack of price-setting and reservation-modification power at the property level, and she was appalled saying, “Wow. I have never heard of anything like that. Imagine owning a business where you can’t set your prices.”

Oyo, which lists its franchised properties through big online travel agencies, as well as its own Oyo website, has been driving increased occupancy at the 72-room JFK Airport property at much lower rates than under the previous brand. On a Thursday morning last week, the property was 82 percent occupied for that evening at a rate of around $111.

The rates would tend to be around $180 per night when the hotel belonged to the Howard Johnson franchise, but occupancy was much lower, perhaps 55 to 65 percent.

When it was a Howard Johnson property, the rooms rates were seldom lower than $128 per night — for a very good reason, the general manager said.

Namely, with the room rate in the $111 per night range this week, the airport property is attracting some druggies, prostitutes, and partying kids, along with travelers looking for a convenient room near JFK. “They take the remote controls,” the general manager said. “I’m pretty sure if the TV wasn’t nailed down they’d take that too.”

As mentioned, Oyo is working on a guest rating system as a way of weeding out problem guests.

In talking with some U.S. hotel owners and operators, though, one might get the impression that the Oyo property management system they described had been designed by people who know little about running a hotel.

The general manager said he thinks Oyo can eventually resolve some of the kinks, but he suggested the company contract with third-party technology solutions such as SynXis instead.

Susan Sheldon, a retired school psychologist from Orange County, California who was on her way to Turkey, sat near the front desk at the Oyo Hotel JFK Airport last week on a Thursday morning, luggage at her side, and indicated she was satisfied with her stay the night before. Sheldon said her “room was lovely” and had plenty of outlets although the aromatherapy scent in it was “overwhelming.”

“It was something like a sexy woman with too much perfume,” Sheldon quipped.

The second Oyo branded property in the United States, the Oyo Hotel AirTrain Plaza — JFK Airport, is just a couple of miles away from its sister property in Jamaica, New York, but isn’t nearly as nice-looking. The property is a former homeless shelter and we observed one guest in the lobby wrapped in a blanket for warmth.

Garbage cans in front of the Oyo Hotel AirTrain Plaza — JFK Airport.

Oyo Hype

Founded in 2013 in India by Ritesh Agarwal, Oyo has disrupted the budget hotel industry in India and China, creating standards and providing revenue management technology and marketing to disparate and sometimes-downtrodden budget hotels. In the process, it has raised nearly $2 billion in funding, backed by Uber and WeWork funder SoftBank, and has gained a $10 billion valuation as a hotel unicorn.

Skift Research found that Oyo may be the second largest hotel brand in the world — with nearly 1 million rooms — it now claims 1.2 million — under its brand. Oyo has been aggressively expanding around the world, and announced in September that it had signed its 100th property in the U.S., and already had a presence in 60 cities. The hotel chain now says it has more than 200 properties in the United States.

One issue with the Oyo story to date is that despite all of its strides and the legitimate disruption it has wrought, the reality may not match all of the public relations spin. For example, the brand harps about its “next gen” technology prowess, and claims to have a 99 percent retention rate among franchisees despite the technology flaws and owner dissatisfaction that we uncovered.

Oyo’s shortcomings, however, as described by some of the U.S. hoteliers that we contacted, line up in broad strokes with a variety of criticisms leveled by property owners and hotel associations in India and China. For example, there’s more heat from hotel owners in India here.

Oyo Hotel New Philadelphia, Ohio

Oyo OS, the India-based chain’s web-based property management system, “is messed up,” said Sachin Patel, who helps operate the family run Oyo Hotel New Philadelphia, Ohio, a former Americas Best Value Inn, as he complained that the system is cumbersome and gives properties zero control.

What’s worse, though, is that the Ohio property signed up with Oyo in early August with one of Oyo’s revenue guarantees in its contract, but Sachin Patel alleged he hasn’t seen any of those payments yet.

“I’m paying from my own pocket to pay the housekeeper,” he said. “I’ve never seen the check yet.”

Not referring specifically to Oyo Hotel New Philadelphia, Ohio, the Oyo spokesperson said there are “isolated situations where we are yet to reconcile accounts” related to recovering capital that Oyo invested in the property; revenue leakage that Oyo identified in audits, or the hotel partner was seeking “to move out before the lock-in of any value-added services.”

When the Oyo Hotel New Philadelphia, Ohio was branded Americas Best Value Inn, the room rate might range from $65 to $95 depending on the occupancy level, Sachin Patel said. But the rate last week for a November 6-7 stay was $34 per night.

“That pricing is insane,” Sachin Patel said, adding that the occupancy level is roughly the same as before. Revenue, because of the low room rates, is way down, he added.

Like others we spoke with, Sachin Patel was unhappy with having little control over room pricing under Oyo. The hotel operator said he can only set the room rate for walk-ins, and he must honor the online rate if the guest mentions it.

“They don’t know how to manage properties,” Sachin Patel said of Oyo as he griped about the room rates that Oyo sets. “You need to research a whole area when you are managing properties.”

The Oyo spokesperson maintained the hotel chains uses sophisticated data science algorithms for dynamic pricing, inventory allocation, and revenue management, and this “allows each hotel to drive max RevPar (revenue per available room) based on its micro location.”

An Oyo-branded credit card machine.

One of Oyo’s selling points is that it is trying to raise and maintain standards among its properties. But Sachin Patel was unhappy that Oyo’s “audits,” or inspections, take place too frequently, meaning around every other week.

Sachin Patel said the Oyo inspectors check every room — which isn’t necessarily a bad thing, in our view — and sometimes leave the shower on, necessitating a repeat visit to clean the room from the housekeepers. “If you touch a pipe in the boiler you can tell that the hot water is on,” he said.

The hotel operator claimed he’ll wait another two to three weeks to see if his payments from Oyo arrive, and will contemplate leaving the brand if they don’t.

Scottish Inn, Willow Park, Texas

Chirag Patel, the owner of the Scottish Inn in Willow Park, Texas said Oyo “got my attention” because it had raised a lot of money, nearly $2 billion to date, and made a compelling offer, including providing a revenue guarantee, to switch to Oyo from its now-previous brand, Choice Hotels’ Quality Inn,

“The purpose of a franchise is to help an owner grow the business,” Chirag Patel said. “It wasn’t happening.”

Chirag Patel, whose property transitioned to Oyo at the end of September, said he’s been in the hotel business for 20 years, and Oyo’s “process and business model” is not making owners happy.

Chirag Patel charged that Oyo and its preferred credit card processor, Adyen Merchant Services, are “handcuffing the hotel business” because they collect credit card payments, and hold onto them long after the guest has checked out. Other payment processors compensate the merchant within 24 to 48 hours, he said.

“For two weeks, I haven’t gotten one dollar from them,” the Texas hotel owner said. “If a customer pays cash that’s the only thing I get.”

Chirag Patel said Oyo claims they are working on the problem, and that’s the only explanation he gets from the brand about delayed or missing payments.

As stated, the Oyo spokesperson said there can be several reasons that accounts don’t get reconciled in a timely manner. “As for payment-related issues in the U.S., over 95 percent of our asset owners are completely satisfied with Adyen, and have no issues related to payments or other aspects,” the spokesperson claimed.

Chirag Patel also said he’s unhappy with a lack of reporting that he gets from Oyo about his hotel’s operations, and he’s miffed about his inability to raise the room rate if a guest booked seven nights, but checked out early, for example.

“Oyo’s young and I like that they have been disrupting the market,” said Chirag Patel. “The other side of it is they are not respecting the owners.”

Like other hotel owners we contacted, Chirag Patel is upset that Oyo slashed his room rates from around $80 per night under the previous brand to sometimes $27. “That’s below my costs,” he said, adding that the low room rate has attracted narcotics users and prostitutes.

“Since I went with Oyo, I’ve lost nine TVs that were smashed,” Chirag Patel said. “Beds have been torn up with someone using a knife, and I’ve had fights breaking out.”

He added: “That’s embarrassing for a hotel owner to have when I’m used to a different clientele.”

The Scottish Inn has only been in the Oyo fold for a few weeks, but the hotel owner said he’s considering seeking to terminate the relationship.

“Oyo could be part of something new and exciting that’s growing, but it has started off on the wrong foot,” Chirag Patel said.

Positivity at Oyo Townhouse Houston Brookhollow

Rick Patel, the owner of Oyo Townhouse Houston Brookhollow, said hitching up with Oyo has been a “game-changer” for the property since it enrolled in March.

The property, which he said was the first Oyo Townhouse brand in Houston, went from around 30 to 40 percent occupancy under the previous Quality Inn brand to nearly 100 percent under Oyo in October, for example.

Those higher occupancy rates have come at the expense of lower room rates, which last week were around $36 for a stay October 24-25.

Rick Patel said Oyo drives demand through the major online travel agencies, such as Expedia, Hotels.com, and Booking.com, and the owners have to pay their relatively high commissions as well as Oyo’s franchise fees. Those brand fees are lower, however, than they were under Choice Hotels, he said.

Rick Patel worries that despite the robust occupancy rates, profitability might be a challenge given the low room rates, and the high online travel agency commissions.

“The profitability is there but it’s not ideally what owners would like to see,” Rick Patel said.

On the positive side, though, Rick Patel said his property is getting the kind of support from Oyo that he was unaccustomed to as a Quality Inn franchisee. Oyo’s area general managers visit weekly to make sure everything’s in order, and that’s something “which we never had before,” he said.

But he worries that Oyo won’t maintain its brand standards across all its properties, and he’s also concerned that perhaps Oyo might locate another Townhouse property within five miles, which would hurt the value of Oyo Townhouse Houston Brookhollow if he ever tries to sell it.

Hotel Willcox in Willcox, Arizona

Sam Bhatt, the owner of Hotel Willcox in Willcox, Arizona signed with Oyo about a month ago, but he’s recuperating from surgery so the transition is in progress. He said he has confidence that Oyo will boost his property’s prospects despite relatively high fees.

“Oyo is a budget-friendly brand,” Bhatt said. “We are not a Holiday Inn Express or a Sheraton.”

He wasn’t happy with the property’s previous brand allegiance when it was a Magnuson hotel.

“Magnuson, I thought, would boost my revenue and support, but it went the other way,” Bhatt said. “They ruined my business.”

Bhatt said the property’s revenue under Magnuson wasn’t what he expected, and the brand’s representatives were difficult to get on the phone. Bhatt said he paid a $15,000 fee to sever ties with Magnuson.

Thomas Magnuson, co-founder and CEO of Magnuson Worldwide, said he couldn’t discuss the specifics of a property’s complaints due to confidentiality concerns. “If an owner decides to stop their contract there will be closure fees no different than a cable TV or mobile phone contract, but certainly less than the typical hotel franchise,” Magnuson said.

The Magnuson CEO claimed hotels that have “embraced” his brand’s revenue management, tech and branding have experienced an average 24.7 percent revenue per available room increase year to date compared to the same period in 2018.

Several hotel owner operators we spoke to complained they haven’t received promised payments from Oyo, have been trying to cope with room rates that Oyo drastically reduced, are subject to high fees and commissions, and have to deal with inexperienced Oyo representatives who have difficulty providing or obtaining useful answers from the home office.

The Oyo spokesperson “completely denied” that its property management system doesn’t have hotel operators in mind or that its area general managers are inexperienced. “We have hired some of the best talents in the region and continue to empower them with the tools and resources required to deliver high quality services to both the real estate owners and the customers,” the Oyo spokesperson said.

Seattle Hotelier Promotes His Oyo Ties

Sonny Parmar of Prem Hotel Group has converted a half dozen properties to the Oyo brand, and he’s very bullish about Oyo — so much so that he appears in Oyo video promotions, and talks about being proud to be “part of the Oyo family to bleed Oyo red.”

He said some of his properties were affiliated with Motel 6 previously.

“Honestly the way I look at it is that once Oyo becomes a bigger well-known name such as Choice or Wyndham it will be all the same,” Parmar said. “As a consumer you pull up the website or app, and you are going to be looking for price and ratings, and I believe  those are two things Oyo is doing well. And once they have the market presence they will be a top-tier brand.”

But critics wonder whether the high-flying Oyo brand will eventually see itself coming down a peg, or worse, if it can’t resolve some of these stubborn issues, and operator-unfriendly ways of doing business.

— The video was produced and edited by Skift video producer Jose Marmolejos. 

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