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FHRAI warns OYO of nationwide protests over large-scale breach of contracts

In a letter dated 10 December, FHRAI has pointed out to OYO that it is endorsing illegal and unlicensed Bed & Breakfast apartments, flats in residential and commercial buildings, rooms in chawls and such other independent structures as Hotels.

SNS | New Delhi |

The Federation of Hotel & Restaurant Associations of India (FHRAI), the apex body of the Indian hospitality industry, warned room aggregator OYO of nationwide protests over large scale breach of contracts including misleading customers.

The warning to OYO comes five days after FHRAI put two Online Travel Aggregators (OTAs), MakeMyTrip and GoIbibo, on notice after members accused the aggregators of exploitive business practices.

In a letter dated 10 December, FHRAI has pointed out to OYO that it is endorsing illegal and unlicensed Bed & Breakfast apartments, flats in residential and commercial buildings, rooms in chawls and such other independent structures as Hotels.

“Such positioning of hotels is tantamount to misleading the guests. When a guest books in a hotel they expect to stay in a hotel and not in an apartment or a residential premise. This not only harms the reputation of hotels in India, but also constitutes potential safety hazard for the guest,” said Gurbaxish Singh Kohli, FHRAI vice-president and president of Hotel and Restaurant Association of Western India (HRAWI).

“It is a matter of fact that OYO rooms entered into contracts with number of Hotels for the sake of loading inventory or for exhibition of numbers. Unfortunately, it is reported that you have been reneging on all your obligations and in fact adopting exploitative and coercive methods against Hotels who have protested,” Kohli said in the letter addressed to OYO CEO and founder Ritesh Agarwal.

“Unfair and arbitrary revisions of commission rates, threatening legal notices, levying of convenience charges, obtaining Hotel client data base and approaching them directly, unfair levy of Audit denial charges, stopping of Minimum Guarantee amounts or abysmal drop of room rates in such cases, issues with OYO money, lack of transparency and internal resolution mechanism to deal with all issues of Hotels, inconsistent and variable rates of commissions across the board and unfair levy of  Room Deviation Charges, among others are some of the problem areas that are required to be addressed,” the letter reads.

“Although these pertain to breach of contracts between parties, the sheer number of such grievances from Hotels is a matter of concern,” quotes the letter.

Keeping in mind the interests of all stakeholders involved, the FHRAI has called OYO for a dialogue before the issue snowballs into a nationwide protest.

“Any internal dispute between the stakeholders of the industry will affect the customer. The current rift between hotels and aggregators is moving in this direction, and it is the Federation’s intention to avoid this eventuality. So we have decided to open up a bilateral talk with OYO and hope that we arrive at a win-win situation for all,” said Pradeep Shetty, Jt Hon Secy FHRAI.

Hotel operators allege that in the initial stage, OYO Rooms entered into a strategic partnership by sharing room inventories but gradually started tweaking contracts as it continued to grow in size.

“A number of FHRAI’s members, especially the budget and mid-market hotels, have blamed OYO for distorting the market dynamics of the hotel industry. They have alleged that predatory pricing, deep discounting, exorbitant commissions and constant tweaking of contracts have become common practice while dealing with the room aggregator,” said SK Jaiswal, Vice President, FHRAI.

Kohli said that FHRAI wishes to explore possibilities of amicably resolving the issues.

“However, at the same time, knowing well that our members are being pushed to the edge, we are obliged to safeguard their interest and will declare a nationwide protest against the room aggregator if things don’t look up soon,” he added.

OYO, however, strongly denied the charges, saying it believes that the demands made are representative of a certain level of cartelisation and will lead to consumers seeing a price hike.

Strongly rebutting the charges made by FHRAI, OYO said it is actively engaging with the asset owners, franchisees and lessors associated with OYO Hotels, on a one to one basis to address recommendations made by certain bodies.

“We believe that the allegations are misguided and misplaced, and depict cartelisation by certain groups of people (not necessarily by franchisees and lessors associated with OYO Hotels) with vested interests, which is not in the best interest of the consumers,” an OYO spokesperson said in a statement.

“The collective uproar by certain industry bodies that represents a very small section of asset owners part of OYO’s network, demanding a series of changes in the current working mechanism will lead to an increase in prices by over 40 per cent, and resultant unavailability of quality accommodations,” the statement said.

Emphasising that OYO has never charged over 25 per cent franchise fees unless it invests a huge amount of capex in the property, and does not intend to in the future as well.

“Like other players, we operate our leased and franchised assets, similar to any other mid-market hotel chain and we have a strict compliance culture,” the statement said.

On Wednesday, the FHRAI had written a letter to MakeMyTrip and GoIbibo outlining the most critical concerns of the hotel industry including the issue of distortion of market price, the demand for exorbitant commissions and the hosting of illegal and unlicensed Bed & Breakfast accommodations.

Read More: FHRAI puts MakeMyTrip, Goibibo on notice; warns of nationwide protest if issues not resolved amicably

Hotels have alleged that the OTAs charge commission that range anywhere between 18 and 40 per cent. The exorbitant commissions have been adversely impacting revenues, business and the livelihood of hoteliers.

(With PTI inputs.)