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Turn-down downturn: luxury hotels report China revenue declines as demand dips

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Turn-down downturn: luxury hotels report China revenue declines as demand dips

Softening demand for business travel, fiercer competition and a scale-down in consumer spending have all had a hand in lower prices for the China operations of several of the world’s largest hotel chains, a trend the companies have confirmed in their quarterly results reports and earnings calls.

Six international chains operating in China during the second quarter all registered a year-on-year decrease in revenue per available room (RevPAR) and average daily rate – two important metrics for hotel profitability – with China the only major market reporting negative trends for both figures.

Among the chains, Wyndham saw the largest decline in RevPAR with a drop of 17 per cent, while IHG saw a 7 per cent decline. Hilton, Marriott, and Hyatt all recorded drops ranging from 3 to 5 per cent, with Accor also logging negative growth.

In terms of average daily rate, Marriott, IHG and Hyatt each reported decreases of around 5 per cent.

Zhou Mingqi, founder of tourism consultancy Jingjian Consulting, said high-end international hotel chains primarily catering to business travellers have faced significant challenges this year due to a reduction in the volume and expense of corporate travel.

Executives from Marriott, Hyatt and Accor attributed the decline in performance to a slowing Chinese economy and more tepid consumer spending on their respective earnings calls.

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Bridge in China swamped with tourists during Lunar New Year holiday

Bridge in China swamped with tourists during Lunar New Year holiday

“RevPAR in Greater China declined as macroeconomic pressures led to softer domestic demand. The region was also impacted by an increase in outbound high-end travellers,” said Marriott CEO Anthony Capuano on the company’s July 31 earnings call.

Following a spike in 2023 driven by the lifting of Covid-19 restrictions, demand for international hotel chains in China has slackened this year, as has the domestic hospitality sector as a whole, Zhou said.

“During past holiday seasons, hotel prices in China typically experienced sharp increases. This year, however, prices remained relatively stable.”

Retail sales grew by 3.7 per cent in China in the first half of 2024, a much slower rate compared to last year, when 8.2 per cent was recorded for the same period.
Qunar, a Chinese travel booking platform, reported relatively flat pricing trends during May’s Labour Day holiday period, with three-star hotels experiencing the most pronounced year-on-year decline at 9 per cent and two-star properties lowering their prices by 7 per cent.

Despite these setbacks, most international hotel brands still consider China an important market, with many seeking to expand their business by establishing a presence in areas off the beaten path.

Our experience has been that there are highs and lows, there are ebbs and flows, but that the trend line is actually upwards in China

Elie Maalouf, IHG

Of the 31 hotels in IHG’s development pipeline, only five are located in traditional first-tier cities. The remaining projects are concentrated in “new first-tier cities” and second-or-third-tier cities. Hyatt has a similar focus, with around 80 per cent of its pipeline devoted to properties outside the first tier.

On IHG’s second quarter earnings call, CEO Elie Maalouf expressed optimism about the Chinese market, citing the continued growth of the middle class and its inherent potential for the travel industry.

“Our experience has been that there are highs and lows, there are ebbs and flows, but that the trend line is actually upwards in China,” Maalouf said.

Zhou, however, remained cautious, noting the rise of domestic hotel brands has intensified competition across the board. The ongoing property market crisis, he added, poses an additional challenge.

“In the past, international hotel chains served as a catalyst for real estate development. The presence of a high-end hotel could elevate a neighbourhood’s perceived status. However, this dynamic is no longer as prevalent,” Zhou said.

“International hotel chains will continue to invest in China, due to the fact that they generally adopt an asset-light model. However, the days of their rapid expansion in China may be over.”

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