Budget hotel startups RedDoorz and Oyo are going premium to capitalize on changing demand

Hospitality startups like RedDoorz and Oyo have built their image around offering affordable and convenient accommodation online. However, these companies are also increasingly targeting the premium segment, with the recent launch of the midscale hotel line Sunerra from Redoorz and the business hotel line Collection O from Oyo.

Opened earlier this month in Jakarta, the first Sunerra hotel includes 142 rooms and various facilities, including a swimming pool, spa, and fitness and health centers. Sunerra is after. the company’s third line of products Lifestyle Hotel Sans, and community life poor KoolKost.

“Despite last year’s challenging macroeconomic environment, we remain determined to shape the future of the hospitality industry in Southeast Asia and Sunerra, our first midscale brand, brings us closer to realizing our ambitious vision for the company and the region,” Founder and CEO That said Amit Saberwal in an online press conference on June 9th.

Sunerra Hotels will also be available in other countries, although Saberwal did not provide details. “We envision Sunerra as a regional hotel brand because it can appeal to a wide variety of consumers in Southeast Asia. We hope to roll out Sunerra in our other markets in the near future, with some locations going live by the end of this year, ”he said KrASIA.

Indonesia is RedDoorz’s largest market and has done pretty well so far with its COVID-19 response. “It made a lot of sense to choose Indonesia as the first market for Sunerra,” said Saberwal. “In addition, the relationships we have with different types of property owners in the country have also been one of RedDoorz’s main strengths.”

Entry into the midscale segment is in line with Singapore-based RedDoorz’s vision of becoming the largest hotel company in Southeast Asia, added Saberwal. Founded in 2015, the company currently operates in Indonesia, Singapore, the Philippines and Vietnam and manages over 1,800 budget hotels in 150 cities.

RedDoorz isn’t the only one pushing into the premium segment. As of August 2019, SoftBank-backed Indian startup Oyo, which has a large presence in India, the USA, China, Japan and other Southeast Asian countries such as Indonesia, the Philippines, Malaysia and Vietnam, also has launched collection O, a range of budget premium hotels – three stars and more – in India, Indonesia and other markets.

The company is now operating six hotel brands in the portfolio, including lifestyle hotels for millennial travelers Oyo Townhouse; Capital O, a premium offering for business travelers; and SilverKey, a range of executive rooms in the heart of business centers.

Conquering a new market base

As of June 2021, most of the countries in the region will still have closed borders due to COVID-19. The impact on the tourism sector has been severe, with data from the World Tourism Organization (UNWTO) showing how international tourist arrivals will be in 2021 fell 87% compared to 2020. The Asia-Pacific region was the region where the effects of the pandemic were felt most, according to the UNWTO, with tourist arrivals falling by 96%.

Hospitality startups have struggled to stay afloat while enforcing strict hygiene and security protocols like automated check-in functions and contactless transactions, while limiting capacity in restaurants and other common areas. In early 2020, RedDoorz and Oyo had to cut staff to survive. RedDoorz announced in early April 2020 the layoff of “less than 10%” of the workforce in Indonesia, Vietnam and the Philippines after reports of 80% drops in bookings and hotel occupancy. In the same month Oyo employees on leave in the US and “other selected markets” with no indication of the number of employees affected.

However, some hope for the sector came from rising local tourism as nations in the region have cautiously eased local travel restrictions since late last year. In Indonesia, the authorities have tried to restrict domestic tourism Subsidization of up to 50% of the airline tickets to ten popular destinations in the country while start a social media campaign promote local travel destinations. A similar move was taken by neighboring Vietnam, where local companies like Vietnam Airlines offered discounted tickets on 18 domestic routes. Vietnamese tourism company 30% to 70% offered Discounts, while entrance fees to local tourist attractions have been cut in half. Other nearby countries have promoted similar measures.

Regional efforts to promote domestic tourism have helped the hospitality industry. For example a recently survey The Indonesian National Statistics Agency found that, despite the falling number of international tourists, hotel occupancy reached 35% in April 2021, more than doubling over the same period from 13% in the previous year.

RedDoorz’s Saberwal said domestic travel is “doing relatively well” in Indonesia right now, with some RedDoorz properties having occupancy rates 10-20% above the industry average. He claimed that the startup’s attempt to enforce hygiene and safety protocols increased public confidence in travel.

Agus Hartono Wijaya, country chief of Oyo Indonesia, said KrASIA that the occupancy rate of the company in the country is gradually increasing and is currently achieving a “95.5% improvement rate compared to the level before COVID-19”.

In light of rising domestic travel rates in the region, hotel companies are targeting demand for overnight stays with their midscale offers. A survey Conducted by online travel platform Wego in September 2020, unveiled the Staycation segment as one of the most desirable options for Indonesians, with tourists mostly looking for three-star and above hotels to stay with.

“Like you [budget hotels] As customers continue to move up to the middle class, we will see more experience-oriented offers in the middle segment. Startup hotel chains have proven that the mass market consumer wants more options, ”said Ridwan Hafiz, CEO and co-founder of travel aggregator Go Zayaanan KrASIA.

Wijaya confirmed by Oyo Indonesia KrASIA that the company’s premium offerings fare better than the budget-friendly Oyo hotel line in the country. “Capital O, along with other premium hotels [Collection O, and OYO Townhouse] show a 4% increase in occupancy this year compared to last year, while budget hotels show a downward trend of 7%, ”he said. Stays are one of the biggest driving factors, he added.

To prevent the virus from spreading further this year, the Indonesian government forbidden mass exodus, or mudik, before Eid al-Fitr, a religious holiday celebrated by Muslims around the world to mark the end of Ramadan. Stays became an alternative for families who were unable to travel during the nearly two-week vacation in May, according to Wijaya. The alternatives allow families to enjoy vacations in a different atmosphere without having to leave the city they live in, he added.

Expected growth in both budget and midscale segments

As budget hotel startups step up their game, Go Zayaan’s Hafiz said traditional three-star hotel chains would be hardest hit by the entry of companies like RedDoorz and Oyo. The mid-range hotel segment will “grow faster” when countries reopen their borders and international travel resumes, Hafiz said.

“Big hotels will be forced to improve their quality while also making prices more reasonable.” Still, he said, RedDoorz and Oyo will not cut their budget offers. “The fact is, the budget market is not going to go away and will continue to grow along with the wider travel and hospitality market. It’s a huge opportunity and it’s going to explode, ”he added.

Regarding Oyo, Wijaya said that while the premium line is doing well, the affordable hotel segment still holds great potential. The company will keep budget accommodation as a core offering while premium lines reach a different customer base, he added.

“The hospitality trend in Indonesia is a reflection of what is being seen in other countries, where smaller hotels will be more of a choice for many travelers than high-occupancy hotels,” said Wijaya. “The affordable hotel segment will recover faster than the premium and luxury segments as people have less disposable income and worry about the economy.”

RedDoorz’s Sabarwal also said his company’s focus will remain on the budget economy segment. “But we are very excited about the growth opportunities that the newer brands in our portfolio offer,” he added.