China’s 1.3-billion population represents a big opportunity for international hotel companies to capitalize on outbound demand.
REPORT FROM CHINA—Hotel companies are looking to capitalize on the significant demand potential in China as the country’s economy grows and the government loosens travel restrictions.
China, with its population of approximately 1.3 billion, represents a treasure trove of demand for hoteliers. And some companies are already beginning to note a pickup in business relating to Chinese tourists.
Referring to a Credit Suisse report, Lyle Lewis, executive VP, operations, Carlson Hotels, Asia Pacific, wrote in an email that outbound demand could increase fivefold in 10 years in China to 120 million outbound travelers.
There are 56 million outbound travelers from China today, noted Keith Barr, regional managing director, greater China, for InterContinental Hotels Group. Within 10 years, there will be 100 million outbound Chinese, he added.
To capitalize on the expected growth, IHG is developing a yet-to-be-named, China-specific brand. Once travelers get used to the brand, it will be expanded outside of China into other markets.
“No one has built an international company brand that’s based in China, for China, based upon Chinese-consumer insight … and eventually, we’ll see that brand start in China and eventually go abroad,” he said.
Barr declined to discuss the specifics of the new brand.
“It’s good business to be committed in China today for just the business in China … We’re going to link them into the global travel piece in time,” he said.
China joined the World Trade Organization in 2001. Since then, the country’s outbound demand slowly has been on the rise, said Daniel J. Voellm, managing director, Hong Kong, for HVS Global Hospitality Services.
“Over time, China has opened up more,” he said. “There’s more economic activity.”
The Chinese government also has played a role in the outbound demand story. While travel had to be with government-approved tour operators previously, this requirement has loosened, said Bill Hanley, president of Vantage Hospitality Group’s Lexington brand.
Vantage is participating in trade shows that address the tourism operator market.
“We have alliances with the operators, and they are going to be a major, major source of business in (the United States),” he said. Vantage has eight hotels comprising 1,400 rooms in China from its Lexington and China’s Best Value Inn brands.
Ironically, however, one of the biggest challenges Vantage faces in grabbing its slice of China’s outbound demand is with the U.S. government.
“You can’t get a visa,” Hanley said. “In spite of some of the solutions, we require face-to-face interviews. I think there are only four locations in China where you can get that. In a country of billions of people, and you’ve got hundreds of millions of people who go to apply for visas, we can’t accommodate it.
“We’ve got too many government agencies who are involved in it,” he added.
Demand within China
While specific data is sketchy, there are signs hotel demand within China is also strong. Economy hotel operator Home Inns and Hotel Management said in its fourth-quarter earnings report filed with the U.S. Securities and Exchange Commission on 8 March that 2010 occupancy increased to 93.5% from 91.5% in 2009.
Noting the Credit Suisse study, Carlson’s Lewis said half of China’s 1.3 billion citizens intend to travel on vacation this year. Of that group, 90% plan to travel within China.
“Tapping into this market by creating an appealing holiday product is key,” he said.
Ken Greene, president and managing director, APAC region, Wyndham Hotel Group, said events such as the Olympics and the World Expo in Shanghai have encouraged travel within the country.
“It’s like the turn of the century in the U.S. when families didn’t travel that often and when they did, they stayed with family,” he said. “Eventually, they started to stay in a hotel, and then roadside hotels started to be built and families would stop along the way.
“You’re seeing layers of that happen throughout China.”
HVS’s Voellm said China’s growing economy and middle class has created a good atmosphere for hotels. “There is a big demand for 5-star hotels,” he said, adding, “It’s a slow shift that the bulk of the country is moving up.”
China has a star-rated supply of 1.6 million rooms, Voellm said. The country’s supply pipeline, however, “is impossible to track,” he said.
Major coastal cities are seeing a lot of international demand, but they are in danger of oversupply.
“Demand has been slow to catch up in some spots,” he said.
Areas seeing rapid development include the cities of Tianjin (eastern China), Hangzhou (eastern China), Chongqing (east-central China) and Shenzhen (borders Hong Kong), René J.M. Schillings, managing director, Top Hoteliers, wrote in an email. Tianjin and Hangzhou had just three or four international branded hotels five years ago, but both are up to more than 20 international openings today, Schillings wrote.
Every region across China is seeing growth, Greene said, especially as it relates to 4- and 5-star hotels because companies want to be in top tier cities and because the government is asking for more 4- and 5-star development.
“As they get filled, what you’ll start to see is it spiral outward,” he said. “You’ll start to see 3- and 4-star hotels pop up.”
HotelNewsNow.com’s Jason Q. Freed, Stacey Mieyal Higgins and Patrick Mayock contributed to this report.