FabHotels cuts pay to keep business viable

FabHotels has implemented pay cuts in an attempt to stop losing money as the Covid-19 pandemic weighs on the hospitality business.

The decision was made due to a “worsening business environment,” co-founder Vaibhav Aggarwal tells Tech in Asia. “We had to take these unfortunate tough calls to keep business viable and to protect the interests of the larger organization,” he says.

Employees costing the company less than US$331 have taken a 15% pay cut, while those costing higher have taken a 20% cut. FabHotels’ two co-founders have also agreed to slash their salaries by 50%.

FabHotels co-founder Vaibhav Aggarwal

In March, FabHotels let go of some 120 employees, but Aggarwal says the move was performance-related.

The budget hotel aggregator joins a slew of startups that have implemented pay cuts, furloughed staff, or laid off employees. Startups were forced to focus on profitability in the wake of increased investor scrutiny following the WeWork fiasco in October 2019. But the path to profitability has been difficult due to Covid-19 and the resulting business downturn.

FabHotels’ cost-cutting moves have less to do with extending the runway and more to do with breaking even at the net profit level within the next 12 to 15 months. The company is “sufficiently well-capitalized” to achieve that by the early part of the next financial year, Aggarwal says.

“Our industry is obviously in direct line of fire, and we are seeing a significant hit on our occupancies,” he says explaining the need for pay cuts. The startup has also been able to keep gross margins stable at 20%.

As India eases its lockdown measures, the accommodation sector is seeing demand from stranded corporate employees, medical staff, and international and domestic travelers, says Aggarwal. The government requires all travelers to self-isolate as they enter India or move between states.

Meanwhile, FabHotels has launched cleaning and disinfecting initiatives such as “100% Safe Place to Stay” across its properties. These initiatives are in line with what four- and five-star hotels are undertaking, Aggarwal claims.

Image Credit: FabHotels

FabHotels is not alone in cutting salaries.

Last month, rival and market leader Oyo asked its employees to take a 25% pay cut after reportedly furloughing thousands of staff. The SoftBank-backed startup operates around the world, with a significant presence in India and Asia Pacific. The hotel industry in these regions are bearing the brunt of the Covid-19 economic fallout.