As Oyo booms, more Indian hotels cry foul and check out

Bengaluru, October 7 

Oyo Hotels and Homes 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.

But as the Softbank-backed startup pushes toward profitability, an increasing number of Indian hotel operators who have partnered with it are complaining about being blindsided by fee increases.

The backlash against Oyo — while limited to a small share of the more than 10,000 hotel owners in India who work with it — comes at a crucial time for an emerging-market unicorn valued at $10 billion and its major investor.

Softbank, which has invested nearly $1 billion in Oyo, 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.

In the background of the discontent is the disruption Oyo has brought to India’s lodging market — often to the delight of India’s middle-class travellers and to the dismay of hotel owners who have seen room rates driven down at a time when economic growth has slowed.

Oyo charges hotels a roughly 20% 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 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.

Agarwal successfully appealed to the Karnataka High Court for a stay order on one case in Bengaluru,  and a police official said the order barred police from investigating. In the other complaint, in the town of Chikkamagaluru, police are investigating, an official there said.

Oyo has denied the allegations and said Agarwal declined comment on the legal complaint. The company said it operates with a high level of “integrity, transparency and commitment” with its partners. — Reuters

To raise $1.5 bn in latest round of funding

• Oyo on Monday said it will raise $1.5 billion (nearly Rs 10,650 crore), as part of its latest round of funding, which will be utilised for expansion in the US and strengthening its vacation rentals business in Europe
• Oyo Hotels and Homes founder and CEO (Global) Ritesh Agarwal will infuse approximately $700 million as primary capital in the company. The balance $800 million will be supplemented by other existing investors, the company said  PTI

Two hoteliers file police complaints 

• 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 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
• Oyo has denied the allegations, saying the company operates with a high level of “integrity, transparency and commitment” with its partners