• China operator looks to economy

Concerns over China’s economy have not prevented operators from within the country and outside continuing to see it as a key focus for expansion.

Domestic operator China Lodging is continuing to look to the economy sector for growth, while Choice is expanding its portfolio in the country to include its more upscale brands, Clarion and Quality.

At China Lodging, Qi Ji, founder, executive chairman & CEO, said that the group expected to “further capture the opportunity for consolidation in the economy hotel market” in the coming years.

The CEO described the group’s pipeline as “robustly growing”, reaching, he said, a record high of 505 hotels at the end of the second quarter. China Lodging has continued to pursue the manachised model, with the pipeline including 45 leased hotels and 460 manachised hotels contracted or under construction.

Ji described China Lodging’s midscale hotels as seeing “remarkable progress” with 137 hotels in operation and 83 hotels in the pipeline and low teen year-on-year increase in revpar, but it was the economy segment where he saw the greatest scope for growth.

Ji commented: “We remain confident in the growth of China economy hotel market as only 20% of the market has been consolidated so far. Our economy hotel brands, HanTing Hotel and Hi Inn, both are well on track to expand across the country.”

The group has recently launched a new flag, Elan Hotel, which was described as a “non-standardised” economy hotel brand.

The group reported 20.6% year-on-year increase in revenues to CHY1.32bn (USD213.3m), above the high end of guidance, and forecast growth of 20% to 22% on the year for the third quarter, as the company continued to expand. As had been warned in the previous quarter, revpar continued to fall, dropping to CHY164 from CHY167 in the same period last year, as occupancy remained static and rates fell.

At Choice Hotels International, the company said that it was expanding its portfolio after signing an agreement with Boli Hotel Management Company to open up to 30 hotels over the next five years under the Quality and Clarion brands.

“With several Comfort Inn hotels already located in China and performing successfully, it is a natural step to introduce other brands within the Choice Hotels portfolio to the region,” said Mark Pearce, senior vice president, Choice Hotels’ International division.

He added: “Our partnership with Boli Hotel Management Company is a significant milestone not only because it marks the launch of our development efforts for Clarion and Quality hotels in China, but because it represents the opportunity for local developers to partner with an international hotel company.”

In contrast, Hongkong & Shanghai Hotels took the opportunity of its interim results to highlight its expansion outside China, with a new hotel announced in Burma and the soft opening of the first hotel under the group’s Peninsula brand in Europe, in Paris. The company has two hotels in mainland China, in Shanghai and Beijing, but did not give specifics on their performance.

The company did, however, comment that the Hong Kong residential sector, on which it relies for the bulk of revenue at its Repulse Bay apartment development, was facing “a challenging environment this year, with reduced demand from finance professionals and expatriates”. It expected this weaker demand to continue “for the time being”.

Clement Kwok, managing director & CEO, said that the past six months had been “a very busy and exciting period for the company’s development”, with not only the news of the new hotels, but also plans for The Peninsula London.

Kwok said that the company had seen improvements in most of its key hotel markets, with the exception of Thailand, “although room rates and margins continue to be under pressure from intense competition and increasing costs”. He forecast “good pickup” in the traditional autumn high season for many of the hotels.

For the half year, revenue increased by 7% to HKD2.72bn and Ebitda by 19% on the year to HKD660m “despite challenging market conditions”. Kwok said: “We continue to face the challenge of rising costs, not only from inflation but also as we bring assets back into operation after renovation and expand our offerings and services to cater for increased demand.”

Unlike China Lodging and Choice Hotels International, the group remains focused on ownership, which, Kwok said, meant that the group would be “ready and able to ride out the shorter term fluctuations in the markets in which we operate”.

At the end of July the IMF repeated its projection that the country’s economic growth would dip to 7.4% this year, and decelerate further to 7.1% next year. The fund had previously cut its earlier forecast of growth of 7.5% this year, and 7.3% next year.

The IMF’s projection for this year is beneath the country’s own target of 7.5%, but the fund warned against using stimulus measures this year and next to try and push it higher. In its annual economic consultation with China, the IMF said: “Consumption and the labour market are holding up well, and the global recovery is expected to support activity going forward.”

 

HA Perspective [by Chris Bown]: China is such a massive market that seemingly divergent strategies can still deliver good results. China Lodging is clearly heading all out for market leadership in the economy sector, and as the country’s economy develops, there is every opportunity for it to move upmarket as its customers’ spending power improves over the years.

But expansion is financially demanding, and there are suggestions that the lending climate in China is getting tougher. Witness private equity player Hony Capital, which has just bought into rival Chinese hotel operator Jin Jiang, purchasing a 12.43% stake. 

In contrast, Choice’s announcement is at an altogether more modest scale. And like the other global hotel groups, the company is looking to test the local appetite for the group’s more mid-market brands. The move is, however, a welcome confirmation that the group is still set on international expansion, having seen precious little international portfolio growth activity recently.

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