Chinese domestic market rebounds

Leading Chinese hotel operators are seeing a return to previous levels of business, as 2021 unfolds. But their overseas holdings dragged down performance in the last year, and are still acting as a brake as pandemic lockdowns remain in place.  

Fast-growth budget hotel operator Huazhu saw overall net revenues down 9% for the full year, but up 6% in the final quarter as the Chinese market recovered. The company declared an ebitda loss of RMB244m for the full year, with losses in Europe at its subsidiary Deutsche Hospitality wiping out profits in China.  

At Jin Jiang Hotels, which has a broader spread of hotels across market segments, revenues were down 34.5% year on year at RMB9,897m, while net profit attributable to shareholders fell 90%. Overseas holdings including Louvre and Radisson in Europe, were hit by mandated closures through the year. Across mainland Chinese hotels, average revpar was down 24.2% on 2019 levels, at RMB119.24. 

The Chinese market has not been free of lockdowns, with local restrictions being used to reduce covid-19 infection spikes. But by mid-March 2021, travel restrictions have largely been removed, with Huazhu reporting occupancy at 79%, only 7% off the 2019 figure at the same time of year. Huazhu claims its performance is 21% ahead of national averages.  

The strong improvement inthe Chinese market was clear from Jin Jiang’s final quarter figures, which showed revpar just 2.75% off Q4 of 2019, with occupancy levels less than 1% behind those of the previous autumn.  

At Huazhu, it was a similar story. Q4 occupancy was 1% lower than the 2019 comparable, with revpar down 2.4% year on year.  

Teo Nee Chuan, CFO at Huazhu, commented: “Our European business recovered during the last summer and since been negatively impacted by the second and third wave of the pandemic since September 2020.” 

As a result, Q4 blended revpar was down 24% on 2019 comparables, with revpar down 74%.  

Huazhu used a USD500m bond issue, and a USD900m secondary listing in Hong Kong to raise funds, enabling it to half corporate debt through the year, to RMB5bn at the year end.  

“We’re pleased to share that both of our convertible bonds are well in the money,” said Chuan. “Therefore, the convertible bond investors will more likely to convert their shares into Huazhu shares.” 

Huazhu provided an outlook that sees Chinese revenues 7-9% below 2019 levels, for full year 2021. It was less confident predicting the likely outturn at Deutsche Hospitality, where there are many more uncertainties around reopening in Europe. 

Huazhu managed to accelerate its growth in China during 2020, opening 1,649 hotels and increasing the pipeline to 2,449. At the same time, it culled non-standard hotels from the system, as it upgraded brand standards. 

Huazhu is growing its DH brands in China, with five IntercityHotels and three Maxx by Steigenberger signed into the pipeline.  

A recently signed JV with Sunac China aims to help drive development of the Blossom House and Steigenberger brands in China, aiming to deliver 200 sites over the next five years. Huazhu chairman Ji Qi commented: “Our collaboration with Sunac is the first breakthrough of our upscale hotel segment, and we expect to have more similar kinds of cooperation with different kinds of asset owners, not just real estate developers, also government-related entities and financial institutions.” 

“Up to today, we plan there will be 26 hotels signed up in this year and another 50 hotels to be signed up next year.” He noted that IHG has averaged seven hotel openings a year in China, and Marriott just 11: “So I think we are going to accelerate our expansion in the upscale hotel segment and use some more innovative structures and approaches.” 

Jin Jiang had 9,406 limitedservice hotels open at the year end, with a further 14,458 signed.  

Businesses outside China were a drag on the group, with revenues down 55.9% and a EUR105.5m loss. Revpar was down 46.55% for the year, with no improvement in the final quarter as European lockdowns saw revpar falling still further, down 54.13% year on year.  

Jin Jiang is also accelerating the presence of its Radisson group brands in the home Chinese market. Radisson signed 72 hotels and resorts in China during 2020, under brands including Radisson, Park Plaza and Liyi.   

In February 2021, the group added its first Radisson Collection property, which opened with 185 rooms in Shanghai.  

At the end of 2020, Hilton and Jin Jiang signed to continue a partnership that has helped Hilton create a strong network of Hampton branded properties in China. The agreement has seen 155 open with a further 350 in the development pipeline; the next target is to have at 600 Hamptons open, under a management licence agreement that now runs to 2034. The agreement was first signed in 2014 with Chinese hotel group Plateno, which Jin Jiang subsequently took over.  

HA Perspective [by Chris Bown]: Foreign tourists, who needs them? Not Huazhu, whose largely budget operation is very much driven by domestic demand. And it has been growing its corporate accounts, effectively offsetting any weakness from domestic tourism. At this end of the market, things look very much back to normal.  

Less so at Jin Jiang, where its portfolio is spread across market segments. Yes, it is seeing a similar return in limited service, but right now, higher end hotels will struggle to get consumers to pay as they used to – recent Chinese government figures suggest that while travel volumes are close to 2019 levels, tourist spending has yet to recover.  

And that means the hotels of Marriott, IHG and the like, which will be dependent on incoming business and tourist visitors, will wait a while longer for their business to pick up. China, like much of the rest of the world, is still being cautious about welcoming overseas visitors for now.  

Additional comment [by Andrew Sangster]: The most important slide in Huazhu’s presentation deck for its full-year results was one that had just four English words “China’s dual circulation strategy”. 

This is the approach, adopted in the country’s latest five-year plan that was first announced last year, to boost China’s domestic demand while at the same time creating the right environment for foreign investment and support for export industries. 

It was not surprising then to see Deutsche Hospitality’s brands being put to work in a domestic Chinese environment or, as Huazhu describe it, a “China-focus strategy”.  

As reported in our story, Huazhu pointed to the relatively slow growth of international hotel brands in China, saying IHG has managed an average of just seven upscale hotels a year and Marriott just 11 upscale. In contrast, if Huazhu’s JV works out, they will deliver 40 upscale properties a year on average. 

But Huazhu is not about to become a predominately upscale hotelier. Most of the 15,000 hotels (yes, that is properties not rooms) it plans to open over the next five years are in the economy and midscale segments. This year, Huazhu estimates it will open between 1,800 and 2,000 hotels while closing 500 to 550. 

What all this means for the European development plans of Deutsche remains unclear. In the short-term, the focus appears to be on operational issues, in particular the digitisation of the Deutsche estate. The objective is one platform that offers the proverbial “seamless guest journey” and “efficiency-driven hotel operation”. 

Huazhu appears well on the way to delivering this, claiming to be between 30% and 80% of the way on each of its key areas such as one infrastructure, one channel, one CRS, one ERP, one CRM and one backbone. And a new version of Huazhu’s app, H-World 3.0, is coming soon.  

The situation with Jin Jiang remains opaque, as it has been since the 2015 acquisition of Groupe du Louvre for EUR1.2bn. At the time this heralded a push into the foreign hotel sector by a number of Chinese groups including Dalian Wanda, HNA and AnBang. These latter three have all come spectacularly unstuck with Jin Jiang picking up some of the pieces of HNA’s forays, notably Radisson. 

But for Jin Jiang, the focus appears to be on its eponymous brand name, rather than any of its overseas acquisitions. Radisson was only mentioned in the full-year results report of parent group Jin Jiang Capital when it said it was now the second largest hotel group in the world with 950,000 rooms and 9,494 hotels. The global pipeline is 510,000 rooms. Louvre was not mentioned at all. 

Growth outside of China seems to be driven by the overseas brands. Where Jin Jiang’s Chinese brands have ventured outside of their domestic market, the preferred approach appears to be one of consolidating under the international brands. 

For example, back in October, Louvre announced it was rebranding 10 hotels that had been part of the Plateno chain and bore the 7 Days moniker, to become either Kyriad or Campanile. Less successful appears to have been Louvre’s entry in the Chinese market. The number of hotels actually opened has not lived up to the hype put out in 2017 when it was claimed 1,200 hotels would open in Asia within three years. 

It is difficult to know what to make of the current situation in China. It looks and smells a bit like a “China first” strategy employed by the authoritarian government that will make it heavy weather for any non-Chinese companies in the domestic market. While some international brands might gain traction, it looks like Chinese-owned international brands will take the development lead. 

Less than a decade ago, global brand companies put forward the vision of China becoming a market as valuable to them as the US market. This looks increasingly unlikely given the scale of the competition from domestic players. 

Outside of China, will Jin Jiang maintain its policy of taking it steady? If the experience of Louvre is anything to go by, one might be sceptical that Radisson will get the tailwinds behind it that would be expected following the Jin Jiang acquisition 

But so far, Radisson has maintained a respectable pace of openings in the current set of circumstances, signing over 40 hotels in EMEA and 84 in Asia Pacific in 2020. New brand developments are also happening with the October launch of Radisson Individuals, a conversion brand. 

Radisson wants, over the next five years, to be one of the top three hotel brands in the world. In Asia Pac, the plan is to triple the portfolio over this period through organic growth and a master brand development agreement with Jin Jiang International. 

Juggling these international ambitions with the domestic focus is at the core of how Jin Jiang will comply with its own “dual circulation strategy”. 

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