Like all players in the travel sector, Singapore-based budget hotel startup RedDoorz has been “drastically affected” by Covid-19, Amit Saberwal, the founder and CEO at RedDoorz, tells Tech in Asia. As a result of the pandemic, the company saw an approximately 80% decrease in the volume of travel bookings and hotel occupancy.
Its Singapore business was the first to feel the effects because of its heavy reliance on inbound travelers, which mainly consist of Chinese tourists.
At the end of January, RedDoorz’s operations in Vietnam took a hit when the outbreak evolved to become a regional issue, and travel advisories and restrictions were beginning to be implemented. Its Indonesia and Philippine businesses were the next to be affected, as Covid-19 escalated into a pandemic.
“As a firm, we have been taking some tough and necessary decisions that will ensure that we stay focused and committed towards […] property owners, employees, and investors,” says Saberwal. These measures include cost cutting, layoffs, and temporary furloughs, among others.
In 2019, the travel and tourism industry made up 12.1% of Southeast Asia’s total economy, offering 42.3 million jobs, according to the World Travel and Tourism Council.
To mitigate the spread of Covid-19, however, countries are implementing lockdown measures and encouraging people to stay at home. This has led to a halt in traveling, causing revenue loss and job cuts for startups in the sector.
Myanmar-based travel startup Flymya laid off a third of its headcount this year as bookings dropped, while Indonesia’s Traveloka has also reportedly cut around 10% of its employees amid customer requests for refunds. Similarly, SoftBank-backed hotel chain Oyo placed “a significant number” of its employees on temporary leave or furloughs, as it saw a 50% to 60% drop in revenue.
To keep its business going, Saberwal says RedDoorz has had to implement belt-tightening measures in two waves.
The first was carried out before March 15, which was when the crisis was just beginning to unfold in Southeast Asian markets. These measures included cutting costs – such as its digital marketing spend and travel expenses – implementing 15% to 35% pay cuts for senior management, applying a hiring freeze, forfeiting variable pay, and delaying work appraisals, among others.
The firm implemented the second wave in April when the effects of the outbreak started to deepen across countries, especially in Indonesia, RedDoorz’s core market. The company offered temporary furloughs and laid off “less than 10%” of its total workforce in Indonesia, Vietnam, and the Philippines, says Saberwal.
“We’re not ruling out taking more drastic measures based on how the situation develops,” notes the CEO. Startups need to make adjustments very carefully, especially when it comes to retrenchments because it won’t be easy rebuilding the team once it’s time to recover the business, he adds.
For its hotel partners, RedDoorz has adjusted its commercial agreements with them, shifting from fixed-payment agreements to a more flexible revenue-sharing model for all its properties. Under the new scheme, RedDoorz will share a variable percentage of the revenue with its partners, depending on the amount generated over a period of time.
Even as startups struggle to keep cash flow stable, Saberwal says RedDoorz has enough funds to last until 2022.
“I think 2022 is the bare minimum that people should be actually planning for,” he says. However, the company is not ruling out raising more cash during this period in order to prepare for when the economy recovers. “2020 is the year where we continue to focus on our path to profitability,” he adds.
For now, RedDoorz is still sitting on piles of money: It secured US$45 million in a series B round led by Chinese VC firm Qiming Venture Partners, Jungle Ventures, and its network of limited partners last July. One month later, the startup went on to close a US$70 million series C round led by Asia Partners.
“Given the large impact that Covid-19 has on the hospitality sector globally, including in Southeast Asia, the company’s [RedDoorz] near-term focus needs to be on managing cost,” said Oliver Rippel, the co-founder and partner at Asia Partners. “We should also make sure that we remain ‘recovery ready’ whenever that may be.”
Good time for much-needed fixes
Despite the shock waves caused by Covid-19, Saberwal still sees the situation as an opportunity for RedDoorz to make some improvements.
It’s an “opportune time” for independent property owners to realize the importance of digitization and having an online presence, he says. For instance, RedFox, RedDoorz’s dynamic pricing and inventory management tool, could help property owners optimize their revenue and operational excellence.
The downturn could also serve as a chance for the company to make improvements to its back-end tech solutions, adjust price management features, retrain and upskill staff, as well as conduct the necessary renovations required at its properties.
“It is a good time to be a startup,” Saberwal says. While some firms have more funds than others, there is always access to capital. “Decent companies will survive, and the better companies will become even better.”
When the economy eventually recovers, the CEO says RedDoorz will look to partner with more property owners.
Saberwal hasn’t closed off the possibility of M&As either. “Today’s fierce competitors could be tomorrow’s mergers. […] Survival is the number one thing. It could be an M&A, it could be a share swap, it could be working with a competitor, it could be whatever is best in the situation,” he shares.
For Saberwal, though, one thing is for sure: “The world is going to be changed forever post-Covid-19.”