FabHotels moves in on India as market leader Oyo downsizes

When Vaibhav Aggarwal went to Bangalore for a friend’s wedding seven years ago, he wasn’t too pleased with his accommodations.

He had paid around US$50 for a room at a hotel that promised a fancy lobby and restaurant. But three booking changes later, he had to settle for a room that “worked,” Aggarwal tells Tech in Asia. That experience planted the seed for Casa2 Stays, a budget hotel aggregator that he co-founded with Adarsh Manpuria in 2014. The company runs and operates the FabHotels website and brand.

The six-year old startup is rapidly emerging as a worthy competitor to market leader Oyo Hotels and Homes. This comes as negative news about the Masayoshi Son-backed hotel room aggregator shows no signs of abating. Earlier this month, Bloomberg reported that Oyo is culling its global staff by about 5,000 to 25,000 people. Oyo is downsizing its operations following years of rapid expansion as it focuses on profitability in 2020. The steepest cut would be in China, where the Covid-19 pandemic has triggered a slump, the company said.

In comparison, FabHotels is under no such pressure, contends Aggarwal.

“Our mantra has always been sustainable growth rather than growth at any cost,” says the Wharton-educated entrepreneur, who got a master’s degree in business from the University of Pennsylvania’s Wharton School. “The average hotel owner, who is anywhere between 40 to 60 years old, doesn’t fully grasp the intricacies of managing a hotel,” he says, adding that they mostly sell rooms online or to corporations.

FabHotels co-founder Vaibhav Aggarwal

Right from the start, FabHotels focused on hospitality because it yielded a high return on investment as well as offered a promising profile of customers and “good” operational support, says Aggarwal. The average daily rate per night of about 1,900 rupees (US$25.61) is double that of Oyo’s 950 rupees (US$12.80), the co-founder claims. This translates into higher returns for our hotel partners, he says. Oyo uses dynamic prices across its multiple brands, a person familiar with the company’s thinking said.

Discovering a niche

Looking back at the Bangalore snafu, Aggarwal says he realized there was untapped potential in a market crowded with online travel and hotel aggregators.

Another friend who attended the 2013 wedding had booked a room for about US$20 a night. “While this small hotel lacked a lobby and a restaurant, the room was spick and span for an overnight stay,” Aggarwal recalls. “I wondered why such properties were not more easily discoverable.”

He and Manpuria decided to start FabHotels the following year after speaking to fellow travelers and corporate administrators who handle business trips. A common complaint was the lack of budget hotels for corporate travelers, shares Aggarwal.

When FabHotels began operations, it was bootstrapped with about US$100,000 and listed only four properties over 12 months. At the end of July 2015, Accel Partners and Qualcomm Ventures led the seed investment round with around US$2.3 million in total.

Photo credit: FabHotels

Today, the startup has about 11,000 rooms, and two-thirds are in India’s top eight cities and biggest business centers, says Aggarwal. More than 40% of FabHotels’ business comes from direct tie-ups with corporates, with 90% driven by business travelers, he says. FabHotels aims to have about 22,000 rooms in its inventory in the next 18 months.

Profitability over growth