The Covid-19 pandemic has brought down the occupancy rates of budget hotel chain Oyo, forcing it to make sudden moves to stay afloat.
In Indonesia, the India-headquartered company reveals that it had put 50% of its 800 employees on “leave with limited benefits” – or a furlough – in May.
It has also changed its revenue model with hotel partners and implemented new hygiene measures to boost demand, though some hotel partners have bristled at these moves.
“In April, (the occupancy rate of our partners was) under 20%. Starting in May, we started to see [an incremental increase],” says Eko Bramantyo, Oyo’s country head for Indonesia. According to him, the occupancy rate in Oyo’s hotel chain right now is around 40% – still far from the typical 50% to 70% range in the country.
Bramantyo says that the extreme and sudden change has pushed Oyo to adjust its approach. Focusing on expansion and market penetration previously, they’re now battling for survival.
For Oyo, the decision to conduct furloughs was better than doing a mass layoff. “When conditions go back to normal, we still need [these employees],” explains Bramantyo. The move was also in line with the government’s direction for companies to avoid layoffs as much as possible, the company adds.
According to Bramantyo, the furloughed employees won’t get their monthly salaries, but they will still get a monthly allowance, mandatory religious holiday allowances, and health insurance.
Employees that Tech in Asia Indonesia spoke with confirmed this. “I’m still getting 1.5 million rupiahs (US$100) per month. I’m also getting health insurance and keeping office facilities like a laptop,” says one employee.
Another staff member, however, criticized the way Oyo’s management announced the decision to them. According to him, Oyo sent an email on April 23 offering two options: resign or accept leave with limited benefits.
He says that there was a one-on-one session between employees and their respective heads about the company’s condition, but there wasn’t an open discussion about the leave with limited benefits option. He had hoped that employees would have the chance to negotiate payment terms.
“For employees who rejected the resignation option, Oyo will one-sidedly put them on leave with limited benefits and communicate the decision over email,” he says, while furnishing the email he received.
No more minimum guarantees
Besides the furloughs, Oyo also changed its partnership model with property owners. Previously, the company promised a minimum guarantee (MG) every month to all partners who want to join its property chain. However, Oyo has since changed it to a revenue sharing scheme.
According to Bramantyo, the MG scheme can increase the number of Oyo partners significantly, but this puts heavy pressure on the company’s finances. Under the strain of the pandemic, he admits that Oyo now needs to adopt a more sustainable business model.
These measures, however, have displeased a number of hotel partners, who have turned to an Instagram account called @oyobikinrugi_ (“Oyo makes us lose” in English) to vent their frustrations. Many customers also aired their complaints to the same account, mostly about the unfinished refund processes.
A hotel owner, who changed his kost – a monthly room rental business – into a hotel because of Oyo, tells Tech in Asia Indonesia that the decision felt sudden and that the lack of notice has been a pattern. In the past, Oyo has changed properties’ room prices and promotion schemes suddenly and sometimes without giving hotel owners notice, he says.
“In the agreement, we are partners. But in fact, there are many one-sided decisions that they take. Our choice is only to accept that or stop being partners,” he adds.
Besides that, Oyo has also announced a new health protocol for all of its hotel partners in a bid to assure consumers about the company’s hygiene standards and drive up demand.
The hotel owner that Tech in Asia Indonesia spoke with believes that the sanitary protocol initiated by Oyo is a good initiative. However, he also said that it could potentially become a burden for partners who are already struggling with low occupancy rates because they would have to pay for the sanitation equipment themselves.
“Oyo just helped with marketing via the app. We still have to buy items like thermo guns and hand sanitizers,” he explains, adding that he needed to spend up to 3 million rupiahs (around US$200) to buy the necessary equipment.
Regarding those complaints, Oyo’s Bramantyo says that he is still discussing the new partnership model with partners. The country head is aware that there are some partners who don’t agree with the new approach and hopes that both parties can come to an agreement.
When it comes to customer refunds, Carlo Ongko, country stock head of Oyo Indonesia, explains that the company is committed to completing refunds as soon as possible, but that it must check the validity of every application. Oyo says it tries to fulfill all applications according to its service-level agreement, which gives the firm up to 45 days to process refunds.
In the last three months, Ongko says that he has completed 9,000 out of the 11,000 requests he’s received.
A long-term challenge
Bramantyo did not reveal Oyo’s targets in terms of occupancy or market share this year, as market conditions during the Covid-19 pandemic are still uncertain. Unpredictable regulatory changes from the government are also making the forecasting process impossible to do correctly, he says.
For example, Oyo prepared for an occupancy spike for Idul Fitri in May, according to last year’s trend. However, government decisions to tighten movement restrictions meant the occupancy target couldn’t be reached.
With Covid-19 still being a big problem in many countries, Bramantyo doesn’t want to speculate when the pandemic will be over. For now, he believes that Oyo is preparing for a challenge that will last a while.
“After doing a ‘consolidation’ inside the company, we’re ready to face difficult times like this until next year,” Bramantyo says.
This story was originally written by Gilang Kharisma for Tech in Asia Indonesia. Translation and additional reporting by Aditya Hadi.
Currency converted from Indonesian rupiah to US dollar: US$1 = 14,422 rupiah.