OYO’s Chinese rivals merge amid coronavirus outbreak

ChinaTravelNews - OYO’s Chinese rival H Hotel, a budget hotel chain backed by Shanghai-based hospitality group Huazhu and venture capital firm IDG Capital, has now been merged with Huazhu’s economy hotel brand Elan, according to an announcement by the Huazhu Group on March 9.   

Separately, Huazhu Group agreed in 2017 to make a USD 10 million equity investment in OYO to become a minority shareholder (with a less than 5% stake), according to Huazhu’s 20-F filing to the SEC in 2019. The Indian budget hotel chain is heavily funded by Japan’s Softbank. 

H Hotel completed its series A funding led by the Huazhu Group and IDG in 2019. Since its establishment in November 2018, H Hotel has made quick moves franchising a total of 2,500 small hotels in Chinese cities of the top three tiers as of 2019. Elan Hotel, on the other hand, has more than 600 hotels in its portfolio.

The merger between the two brands did not come as a surprise amid the coronavirus outbreak.

The epidemic had severely dented the performance of the hospitality industry since the peak Spring Festival period and throughout the past 50 days. The China Hospitality Association reported that total hotel operating revenue in China fell by 67.81% year-on-year during the Spring Festival, and the average loss per hotel reached 401,600 yuan (USD 57,729).

Only 22% of the hotels in China work with chain brands, while the others were independent hotels weathering the storm alone. The ratio of chained hotels in China is considerably lower than in the US and Europe, at 70% and 40% respectively. 

Last week, an OYO employee revealed that the group had laid off around 60% of its employees in China. The tech team had cut 70% to 80% of its positions while the business development team trimmed 60% to 70% of its team size, and the high-profile Emerging Growth Market department was said to have laid off all staff. 

After the merger, H Hotel and Elan Hotel will operate as independent businesses, according to a source close to H Hotel. There is no official statement from Huazhu yet as to the positioning of the two brands or how to optimize their franchise policies, improve future operating models and strategy.

"The priority is to help member hotels resume operation following the epidemic. Down the road, it is highly likely that the Elan Hotel model, supported by Huazhu’s economies of scale, will be adopted as the blueprint for future franchise policy and operating model,” according to an informed source.  (Translated by Elena)

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