The adverse impact of COVID-19 pandemic is becoming more and more evident across the world. It is being speculated that nothing of this magnitude has been observed for more than 100 years since the 1918 Spanish Flu pandemic. Till now, over ten million people have been infected in over 200 nations with half a million deaths. The hospitality industry is among the worst hit due to lockdowns measures and travel bans.
Consequently, travel and hospitality companies are facing huge financial difficulties and are taking proactive steps to keep their businesses going. A similar incident apparently took place recently when Indian hospitality giant Oyo Rooms suspended contracts with over 250 hotel owners across India.
According to sources familiar with the knowledge of the matter, the company is planning to renegotiate MGB agreements after recording significant revenue drop due to nationwide lockdown. The hospitality giant has suspended MGB (Minimum Business Guarantee) agreements, a fixed amount to be paid to hotel owners monthly.
As per Oyo Townhouse property owners, Oyo has come up with new revenue-based share contracts, invalidating fixed payments that were previously agreed on. Reportedly, around 250 property owners co-own Townhouse hotels in a partnership with Oyo. Introduced in 2017, the Townhouse was established as a ‘mid-market boutique hotel brand’ that functioned on a franchise format across 19 cities.
As per the previous agreement between Townhouse property owners and Oyo, the startup had agreed to source online bookings and take care of online promotions for the property. All property owners are now forced to choose between agreeing to new terms or taking legal action.
Oyo said in the statement that as COVID-19 pandemic has impacted several industries and led companies worldwide to reconsider the terms of their contract; the company has also invoked related sections of its present contracts to move to a sustainable model of operations.
Meanwhile, property owners said that they had collaborated with Oyo as the fixed MBG payments seemed more lucrative than alternative options in the market.