FHRAI warns OYO of action for contract breaches; firm strongly denies allegation

After putting online travel aggregator MakeMyTrip on notice, the Federation of Hotel and Restaurant Associations of India (FHRAI) Monday warned OYO of action, alleging large-scale breach of contracts, jeopardising consumers safety and violation of laws by the hospitality firm.  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.

In a letter to OYO Founder and CEO Ritesh Agarwal, the FHRAI said apart from breach of contracts, most of its members have grievances with OYO regarding endorsement of and hoarding illegal and unlicensed bed and breakfast apartments, flats in residential/commercial buildings, rooms in chawls and such other independent structures as hotels.

"Such positioning/endorsement is not only misleading, but also a potential guest safety hazard," the letter said. Unfortunately, OYO has been reneging on all its obligations and in fact adopting exploitative and coercive methods against hotels who have protested, it added.  The other issue raised in the letter is distortion of market price and predatory pricing. 

"However, it is also well known that you are further discounting over and above the listed prices offered by the hotels without their consent, thereby, causing loss of image to the individual Hotels and distortion of the market scenario," the letter said. It is also well known that the use of disparity clause in rates is one sided that is the hotels cannot discount their own rates, but OYO is clearly breaching the same clause for market cannibalisation, the letter said.

Another issue raised by the letter is that of exorbitant commissions charged by the hospitality firm. "It is reported that commissions being charged by OTAs are ranging from 20 - 35 per cent, thereby, adversely affecting the revenues, business and livelihood of Hotel owners. Such rates of commissions duly supported by enormous discounting from your end, have rendered hotels helplessly facing an atmosphere of unfair competition," the letter said.

Another issue flagged by the letter of FHRAI Vice President Gurbaxish Singh Kohli said: "We have to state that a large number of the room inventory available on your platforms are illegally operated without valid licenses from local/ state authorities."

While calling for an active engagement and dialogue between OYO and the hotel industry, the letter said: "We wish to further express our desire to explore possibilities of amicably resolving the issues mentioned herein before calling for a nationwide protest against your organisation."

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," a 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.