Indian entrepreneur and founder of Oyo Rooms Ritesh Agarwal. Photo: AFP / Chandan Khanna

Oyo Hotels and Homes plans to lay off 2,000 people by the end of January and those working in divisions such as sales, supply and operations will be the most impacted.

The SoftBank-backed hotels chain is looking to trim costs and automate some of its processes, Economic Times reported, quoting sources.

The company claims it has set up a “meritocracy-based” performance evaluation program and is weeding out poor performers after allowing them an opportunity to go through a performance improvement program. However, there are reports that even those with moderate to satisfactory performance are being given pink slips.

In Mumbai, Oyo had a team of about 180 people in sales and they fired about 120 in December. It had in August fired about 60 sales people at its offices in New Delhi and nearby Gurgaon.

Oravel Stays, which owns and operates the hospitality chain, has reported provisional net loss of 23.84 billion rupees (US $33.52 million) for the financial year ended March 31, a seven-fold increase from 3.6 billion in the previous financial year. The increased losses were because of a combination of increased operating and employee benefit expenses.

The company is also facing backlash from hotel partners in India and abroad. More than 500 hotels in India’s 100 cities have snapped ties with Oyo since April as the relationship had soured after various disputes, Economic Times reports. But Oyo has denied this and had said the numbers cited were “incorrect” and “inflated”.

Oyo charges hotels a roughly 20% franchise fee on room revenues when hotels join its network, but some Indian hotel operators say the startup often ends up taking half or more of revenues through fees that were not initially disclosed.

A group representing hotel operators in Bengaluru called for a criminal probe into Oyo in September, saying the company was withholding money because of unfair fee increases. In October some Oyo official were held hostage by hoteliers in the Sikkim state over nonpayment.

The hotel startup has also been accused of creating a monopoly. Federation of Hotels and Restaurant Association of India has approached the Competition Commission of India to register a complaint against the hospitality chain for allegedly levying charges without prior intimation. The Commission is also investigating the commercial agreement Oyo had with the travel portal MakeMyTrip.

The pushback against Oyo in India was limited to a small share of the more than 10,000 hotel owners who work with it.

In the US several hotel owners have complained that the Oyo-mandated property management system frequently didn’t work or has poor functionality. The glitches hobble the ability of properties to set room rates or change and handle reservations, resulting in overbookings and poor customer service.

The hotel operators also claim they were forced to cope with the company reducing drastically their room rates to “such an extent that they sometimes triggered an influx of drug users and prostitutes.” Their other complaints include alleged missed payments from Oyo, a lack of cash flow for property owners, and unresponsiveness in dealing with technical or customer service issues.

In Japan, Yahoo Japan, now known as Z Holdings, severed its ties with Oyo after it recently sold its shares in the apartment rental company Oyo Life. Oyo said it has bought back the shares for an undisclosed amount.

SoftBank, which has invested nearly $1 billion in Oyo, through its Vision Fund, is struggling to raise funding for a second investment fund in the wake of the failed offering of office-rental company WeWork and amid questions about the path to profitability of other marquee investments like Uber.

After the WeWork fiasco SoftBank has turned more cautious and plans to focus on companies that have clear pathways to profitability and public offerings.

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