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China’s economy slows, hotel development grows
May 8 2012

Economic growth slowed to a three-year low during the first quarter in China, but hotel companies still are forging ahead with development plans.

Highlights
  • Residential development is slowing in China, and that could affect hotel development, according to Marriott International’s Arne Sorenson.
  • “The vast market potential of the Chinese hotel industry remains unquestioned,” Hilton Worldwide’s Tim Soper said.

REPORT FROM CHINA—China’s recent economic slowdown hasn’t deterred hotel companies from trying to better their foothold in the densely populated nation.

Economic growth slowed to 8.1% during the first quarter in China, the lowest reading since the first quarter of 2009. Fourth-quarter growth was 8.9%.

Hotels, though, have shown modest year-to-date increases, according to data from STR Global, sister company of HotelNewsNow.com. Year-to-date through March, China’s occupancy edged up by 0.5% to 55.9%; average daily rate increased by 3.1% to 801.45 Chinese Yuan Renminbi ($127.61); and revenue per available room grew by 3.7% to 448.39 Chinese Renminbi ($71.39).

During Marriott International’s first-quarter earnings conference call 19 April, president and CEO Arne Sorenson said residential development is slowing down. “And often, residential development includes a gleaming, new, fancy hotel, often with one of our brands on it,” he said.

As of 31 December 2011, Marriott had 57 properties comprising 22,831 rooms in China. The country is Marriott’s fourth-largest market behind, in order, the United States, Spain and Canada.

 

Arne Sorenson, president and CEO of Marriott International

During the conference call with analysts, Sorenson said Marriott has a 10% share of rooms in China and a 15% share in rooms under construction. Despite the recent real-estate hiccup, he expects development to continue in China. “We will continue to see China grow pretty robustly,” Sorenson said.

 

Development efforts
The country had an existing supply of 1.37 million rooms. China has approximately three times as many rooms in its existing supply as Japan, which is No. 2 in the region in terms of rooms in the existing supply.

Wyndham Hotel Group also is trying aggressively to grow its brands in China, CFO Robert Loewen said. The company has 500 hotels in its system in China.

“China is by far our largest international market,” he said. Wyndham has approximately 64,800 rooms in the development pipeline in China.

High-end hotels in China are “struggling a little bit,” Loewen said, but there is strong demand for economy and midscale properties, which is in Wyndham’s wheelhouse. The company operates hotels under such flags as Super 8, Days Inn and Howard Johnson.

Loewen said the company is weighing whether other brands might work in China.

“Demand is still by far outpacing development,” he said.

In an emailed statement, Tim Soper, VP, operations for Greater China and Mongolia at Hilton Worldwide, echoed Loewen’s comments.

“The vast market potential of the Chinese hotel industry remains unquestioned,” Soper said.

Hilton has more than 90 hotels in its China pipeline, and during the next five years, the company intends to expand its presence in Greater China to more than 100 hotel properties from the 30 it has open today. Hilton is focusing on cities and urban centers that have commercial, industrial or political significance, as well as regions that have potential to be developed as resorts.

Soper added that long-term growth in China will be fueled by these key factors: Economic development that leads to the proliferation of a middle class; the Chinese government’s focus on domestic consumption; growing incomes; and China’s emergence as a popular tourism destination.

Several global brand companies are tailoring their offerings in the region to better appeal to the Chinese traveler. U.K.-based InterContinental Hotels Group, for example, recently launched its Hualuxe brand.

Meanwhile, Swiss hotel operator Mövenpick Hotels & Resorts announced a new brand identity in China, Rui Xiang, which means “brings you enjoyment and luck with Swiss quality.” Despite the new name, the hotels themselves will remain consistent with Mövenpick’s other offerings.

Domestic brand growth
It’s not just the global brands that are targeting China for growth. For instance, 7 Days Group Holdings Limited added 376 hotels in China during 2011. The company has more than 1,000 hotels in its portfolio in China.

And the company that has developed solely economy hotels since its inception in 2004 is in the process of rolling out a new upscale/luxury brand, CFO Eric Haibing Wu said. During the next three years, Wu said 7 Days expects to have more than 50 of the upscale hotels open in Tier 1 Chinese cities.

The new brand will feature ADR of 800 Chinese Yuan Renminbi ($127.10) per night. Yu said that is 50% the cost that existing competing global hotel chains are pricing rooms. The new 7 Days brand will be without amenities such as a gym or pool, he said, and thus will be able to offer a lower ADR than its competitors.

“The China traveler looks for value,” he said. “Personally, when I travel to a new city and am staying at a 5-star hotel, I almost never get to use the swimming pool.”

China challenges
Soper said one of the primary challenges facing hotels will be to avoid a real-estate bubble. Development must be “focused and disciplined,” he said.

 

Robert Loewen, CFO at Wyndham Hotel Group

“Our approach is to first evaluate owners on a comprehensive list of criteria to assess their suitability as our long-term partner,” he said. “We then follow up by evaluating the long-term viability of specific projects based on a variety of critical success factors that we learned from our rich industry experience. At the same time, we also ensure that the projects we pursue are closely aligned with government priorities.”

 

China also is addressing another potential hiccup for hotels by building up its infrastructure, Loewen said.

The country plans to have a total rail system size of 120,000 kilometers (74,565 miles) by 2015. China also intends to nearly double its high-speed rail network to 16,000 kilometers (9,942 miles) by 2015.

Wu said there has been a modest slowdown in China’s economy, but that it hasn’t affected the economy segment of which 7 Days is a part. “In China, the population is huge, so we haven’t felt any pressure on the demand side.”

Likewise, Wu said the company is not concerned about the development pushes from such global brands as InterContinental Hotels Group. “We feel very minimal impact for our company from the international brands,” he said.

China outlook
Soper is bullish on the outlook for the Chinese hotel sector.

“We are definitely optimistic about the long-term prospects for China’s hospitality sector … (but) it is critical for industry players to expand in a focused and disciplined way,” he said. “Furthermore, it is not just about the number of hotels we open, but more importantly, how we can innovate to deliver the best and most differentiated guest experience, which will determine our success in the market.”

Sorenson said China will continue to dominate the conversation when it comes to global expansion.

“We expect China to be among the fastest growing (hotel) sectors,” he said.

COMMENTS   Show All
EDWIN SHIPANUKA
6/13/2012 2:35:00 AM
The rate at which the industry is growing more new tachniques needs to be employed to suite the prevailing demand to high class excellent serviceand the need to meet the client needs
Anonymous
6/13/2012 12:37:00 AM
china hotel industry still has good prospects,but my salary is still bad
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