China’s hotel market has seen a recent faltering in its steps toward recovery. Local flare-ups of Covid-19 have led to Chinese authorities imposing a series of local and regional restrictions.
Those restrictions are hitting the performance of hotels, which had previously seen several good months of improving occupancy, as China looked to have shaken off the worst of the pandemic.
Taking a longer term view on the potential of the Chinese market, is Thai-based hotel group Minor. It recently signed a new partnership agreement designed to expand several of its brands into the country.
China’s domestic travel market is still restricted as authorities continue to urge locals not to travel. Air fares for the upcoming Chinese New Year period, generally a very busy time, remain low as demand has failed to materialise. Travel platform Ctrip says most people are heeding official advice, and staying in their workplace cities rather than travelling home to their families – and as a result, it has noted more than 80% of its users are looking to travel locally. Hotels, particularly luxury ones, are benefitting from a trend to book into local properties for the holiday.
At Huazhu, which operates a massive network of budget hotels across China, fourth quarter preliminary results saw blended revpar off just 2.4% from the equivalent 2019 quarter. At RMB186, the figure was up on the RMB179 in the previous quarter. Blended room rate has almost completely recovered, while occupancy reached 80.6% in the quarter, against 82.2% in 2019.
The company said it expected to declare Q4 revenues ahead of previous guidance, as “travelling demand shows resilience, and recovery in previously affected cities started accelerating after adjusting down the risk level in those cities (from mid-to-high risk to low risk).”
In China, the company opened 393 hotels during the quarter, but 114 hotels left the portfolio, giving a net size of 6,669 hotels at the end of the calendar year.
At Minor, the group is teaming up with new partner Funyard Hotels & Resorts, for an expansion into China. The aim is to bring its Anantara, Avani, Oaks, Elewana, Tivoli and NH brands to mainland China.
Funyard is part of Country Garden, a major Chinese property investment group, effectively acting as its hotels arm. The company operates around 200 hotels in China, many under its own brands including Funyard, Beelan, Kylin and Fondney. It has a joint venture agreement running with Hilton, to grow the Home2 and Homewood extended stay brands in the country – which appears to be delivering a fast-growing list of new openings; and an agreement to develop Oakwood branded apartments in China as well.
Dillip Rajakarier, CEO of Minor Hotels, said: “China’s hospitality market is extremely competitive, but full of opportunities. We hope to fully exploit our respective advantages and jointly explore new opportunities in industry development, capitalising on Funyard’s rich experience in China and Minor’s international expertise in the global hotel and resort segment.”
Ji Hongjun, President of Funyard Hotels & Resorts, remarked: “We and Minor Hotels are both convinced that China’s resort market is full of potential. Funyard Hotels & Resorts has plenty of managerial experience and local resources in the domestic market, while Minor Hotels is an outstanding establishment in the global hotel and resort market. We look forward to working with Minor Hotels to tap into the Chinese resort market and bring new energy to Chinese and even global tourism.”
Huazhu also now has its European division, through its acquisition of Deutsche Hospitality. Despite the extension of lockdown measures restricting business in its home market, Huazhu said revenues would be in line with previous guidance. The company added in a statement: “In addition, we are taking further cost and cash flow measures, such as negotiating with landlords to reduce our rental costs, reducing or eliminating discretionary corporate spending and capital expenditures. We also actively sought new business opportunities in the government’s fight against Covid-19, such as offering hotels to support government for pandemic prevention and control.”
HA Perspective [by Chris Bown]: The Chinese government is still playing whack-a-mole with its sporadic Covid-19 breakouts, and is still restricting foreign travel. But remarkably, its domestic hotel business is largely back to normal – any other hotelier worldwide right now would give anything to be just 2.4% down on last year’s figures, as Huazhu is.
We’ll shortly hear from the big brands, in their next quarterly results, how the mid and upper–upscale Marriotts and IHG properties are faring, though it’s likely they’ll be missing the international business traveller more.
As for Minor, fresh from its fundraise, Funyard looks to be a good partner. Already driving signings for Hilton, and joint venturing with Oakwood, it looks to be a company that is comfortable in partnerships. So long as it can sign suitable properties for the Thai-based group, this could be a great way into the Chinese market.
Additional comment [by Andrew Sangster]: The Huazhu numbers were for hotel operations rather than company financials but they nonetheless provide good evidence of how strong the recovery is. And it is strong. Remarkably strong given that China’s borders are effectively closed.
For countries with a similarly strong domestic market (in Europe, the UK and Germany are good examples) then a similarly sharp rebound might be expected as lockdowns are eased.
It is much less clear what happens in regard to cross-border travel. Vaccinations are clearly a key component but until there is widespread deployment globally, governments are likely to come under pressure to protect citizens by keeping borders closed.
But if this all nets to a result that sees revpar down just 2.4% in Q2 2021 compared to Q2 2019, I think most operators in Europe will take it.
In the meantime, even with just domestic travel, consolidation has picked up speed in China. According to Huazhu, the number of branded chain hotel rooms increased by 2.8% between Q4 2019 and Q3 2020. Independent hotel rooms, however, shrunk by 5.7%. This too is likely to be replicated in Europe.