That’s the headline on my most recent story, written with my colleague Phred Dvorak, out Thursday. It begins:
Oyo Hotels and Homes, which built itself into the world’s second-biggest hotel chain by total number of rooms, is phasing out an important tool that fueled its rise.
The India-based company and a key investment by SoftBank Group Corp.’s $100 billion tech fund grew quickly in part by offering independent hotel owners the unusual perk of guaranteed revenues if their hotels joined Oyo’s chain. Many hotels signed up, attracted by the guarantees—sometimes at more than 100% of the previous year’s revenue, according to former Oyo employees. However, some hotels didn’t produce sufficient bookings, leaving Oyo on the hook to meet those revenue levels and resulting in disputes with some hotel owners.
Now, Oyo is ending the practice of awarding those guarantees around the world and instead is rolling out new contracts for its hoteliers without them, Chief Executive Ritesh Agarwal told The Wall Street Journal. The new contracts also raise fees charged to the hotels, according to some hotels and former Oyo employees.
Mr. Agarwal said the company is taking the step largely because the guarantees have served their purpose of convincing hotels that Oyo could boost their occupancy and revenue. But he said Oyo had some problems with the guarantees, particularly in its biggest market of China, and that around 15% of Oyo’s rooms still had them as of the beginning of the year.
“In reflection, we are able to see that minimum guarantees work, but only when they are handled with great care,” he said. Oyo’s share of the money guests pay for their rooms is on average more than 15%, after any losses on the guarantees are subtracted, he said.