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Startups

Singapore budget hotel RedDoorz cuts costs but adds nicer rooms

'Struggling owners were reaching out to us' amid COVID-19, founder says

RedDoorz operates over 1,800 accommodations in Indonesia, Singapore, the Philippines and Vietnam. (Photo by Rie Ishii)

JAKARTA -- COVID-19 has led many startups to review overheads in order to survive, but budget hotel chain RedDoorz -- a company in the pandemic-decimated travel sector -- had to dig deep.

The Singapore-based company, which operates in four countries in Southeast Asia, reduced its employees to 950 from 1,500 as it scrapped its plans to expand into Thailand. Salaries were cut across the board, including for executives. It developed its own software to replace third-party services, saving millions of dollars. Contracts with property owners were redrawn.

The company now runs on "a third of the cost from pre-COVID days," according to founder Amit Saberwal.

With the heavy lifting now done, RedDoorz believes it is in better shape to continue its battle with the likes of India's Oyo Hotels & Home in Southeast Asia's once-burgeoning budget accommodation sector when the world returns to something like normal.

The 5-year-old startup is beginning to lay the groundwork for the eventual recovery in travel. On Thursday it launched a new line of accommodations in Indonesia -- its biggest market -- alongside its existing no-frills hotel chain and long-term-stay properties. The new line, dubbed Sans, looks to be 2- to 2.5-star accommodations, a step up from the existing 1- to 2-star hotels on its platform.

The new segment came about because the startup "figured out there was a market for [existing RedDoorz users] looking for better experience" as its early customers became older and could spend a little extra, said Saberwal, but it was also aided in part by the pandemic.

"A lot of property owners [with higher-category accommodations] were reaching out to us," Saberwal said, as they too struggled with travel restrictions in Jakarta and beyond. Their thinking was that by joining the platform of RedDoorz -- which operates over 1,800 accommodations in Indonesia, Singapore, the Philippines and Vietnam, and expects to reach 2,200 by the end of the year -- they could enjoy economies of scale and have more visibility when people search for places to stay.

RedDoorz gathers independent hotels and endeavors to hold them to common standards regarding matters such as clean sheets and towels as well as reliable internet service. Its proprietary system provides big-data analysis to predict demand and set room rates accordingly; the hoteliers benefit from economies of scale, helping them to hold costs down.

RedDoorz founder Amit Saberwal said the company now runs on "a third of the cost from pre-COVID days." (Photo by Shotaro Tani)

While the pandemic has inadvertently given RedDoorz a new avenue to pursue growth, others in the budget accommodation sector have not been as fortunate, particularly Airy Rooms, which stopped operations at the end of May after seeing a "very significant decline in sales and very high refund requests from users."

And like RedDoorz, SoftBank-backed Oyo was forced to lay off thousands of staff members and furloughed thousands more after the outbreak hit travel demand.

Countries in Southeast Asia are negotiating travel corridors with countries like Japan, China and South Korea to at least allow business travel to resume. But with coronavirus cases still on the rise in the region, the recovery in international tourism remains bleak.

Still, Saberwal believes there is light at the end of the tunnel. There is a lot of "pent-up demand" as domestic travel begins to resume, and "that is the reason we are getting ready for recovery," he said.

Indonesia's nationwide hotel occupancy rate in August came in at 32.9%, a sharp recovery from April's low of 12.6%, according to the country's statistics agency. RedDoorz's occupancy rate in Jakarta is now hovering around 50%, above the industry average and recovering from the April low of 30% according to data collector STR, albeit still lower than the annual average. Indonesia's hotel occupancy rate for 2019 was 54.8%, while RedDoorz properties that have been on its platform for a longer time averaged nearly 80% last year.

"Domestic travel and tourism, local business travel and budget leisure trips will be the first parts of the industry to recover," said Anurag Srivastava, founding partner at Singapore-based Jungle Ventures, one of the investors in RedDoorz. "RedDoorz will be a massive beneficiary with regional travel coming back first, since their core business is concentrated with the local, domestic budget traveler. So, our first focus is full recovery, which we hope to achieve in the next couple of months."

The planned initial public offering of the U.S.-based Airbnb may also provide a welcome boost to the whole sector as it charts a path to recovery. Like many others in the travel sector, the lodging giant went through a period of distress due to the pandemic. But now it is reportedly looking for a $3 billion IPO, which could give it a valuation of $30 billion -- substantially higher than the $18 billion it was valued at in April.

An IPO is "still some way off" for RedDoorz, especially after its cost cuts have extended its runway "beyond 2021," founder Saberwal said. But he said it is thinking about an additional fundraiser next year.

"The opportunities the post-COVID world will bring gives me a lot of confidence that we need to do a fundraise next year," he said. "We don't want to be in a situation where the opportunities are presenting themselves but we are not able to execute because we did not have a few extra million dollars."

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