• Huazhu continues midscale push

Huazhu announced that it had become “more confident” in its midscale expansion, with rooms in the mid and upscale markets now accounting for 80% of the group’s pipeline.

The company said it was trialling growth outside China, with a hotel in Singapore, while commenting that its domestic penetration was still “limited”.

Jenny Zhang, CEO, Huazhu, said the company would “continue the fast expansion of midscale hotels by leveraging multiple brands. There are about 400 cities in China that we believe are suitable for midscale hotels. This means a huge market, well above what we’ve already penetrated in our midscale brand.

“In the future, we aim to have two or more midscale brands, reaching or exceeding 2,000 hotels each.”

By the end of the third quarter, the group, which changed its name from China Lodging earlier this year, said that its mid and upscale rooms inventory had increased by 39% from a year ago, accounting for 36% in total rooms in operation. The pipeline for mid and upscale rooms accounted for approximately 80% of the total number of rooms in the pipeline, up from 66% a year ago. Of the hotels in the pipeline, half were conversions. The company said that it expected hotel openings to accelerate to between 800 and 900 hotels next year, with 75% to 80% under mid and upscale brands.

During the quarter, the revenue from mid and upscale hotels increased by 36% to CHY1.4bn (GBP156m), or 61% of total net revenue, up from 43% a year ago. Across the estate, the company saw revpar rise by 7.1%, drive largely by rate.

At the end of the quarter, the group’s open portfolio reached 4,055 hotels. It opened 235 hotels and closed 83 hotels in the third quarter, giving a net opening of 152 hotels in this quarter. Half of the closures were attributed to expiring leases, with quality control accounting for some of the remainder.

The group reported revenue growth of 15.9% to CHY2.77bn. Ebitda increased 38.5% year-over-year to CHY1.17bn for the third quarter For the full year, it has forecast revenue growth of close to 22%.

Looking overseas, Zhang said: “China is a very huge market, our penetration in China is still very limited. If you take the room count perspective, China Lodging accounts for only 3% of the total rooms supplied in this market. So our top priority will be domestic expansion.

“With that said, we are very interested in learning more about other markets. So we have started a few tests in different countries and areas in Asia and the Singapore hotel is our first hotel overseas. We’re still in the learning phase, so I cannot really give accurate prediction about how many hotels we’re going to open in the next few years.”

Zhang said that the company would expand overseas with leased and owned hotels, before looking at franchising.

Ctrip was also looking outside the domestic market, with CEO Jane Sun commenting that the group’s global brands, Trip.com and Skyscanner, represented over 90 million monthly active global users, putting them in “the prime position to capitalise on our opportunity to bring more foreigners to China”.

James Liang, chairman & co-founder, said: “In past years, China’s new passport issuance maintained annual growth of approximately 20%. Moreover, the Chinese passport can now allow Chinese to travel to 74 countries and territories around the world with no visa or visa on arrival requirements. In spite of the short-term fluctuation in the outbound travel growth, Ctrip is dedicated to expand our core competencies in international destination to meet the long-term demand of Chinese international travellers.

“Foreigners travelling to China accounts for fewer than 30 million overnight trips once you take out visitors from Hong Kong, Taiwan, and Macau. According to the Ministry of Culture and Tourism, there is a vast potential to increase its volume when compared to United States which has over 75 million in-bound visitors every year. And according to global research firm Euromonitor in the recent report, China is set to become the world’s number one tourist destination by 2030.”

The OTA reported a 21% increase in accommodation revenue grew 21% year over year, to CHY3.6bn, driven by volume. The group said that in the mid to high-end hotel segment, it had seen growth at double the hotel industry rate.

Total net revenue was up 15% CHY9.4bn, with the company forecasting that net revenue next quarter would rise by 15% to 20%, with accommodation reservation expected to grow at about 20% to 25%.

HA Perspective [by Katherine Doggrell]: The Chinese are coming, the Chinese are coming but, like Donald Trump’s migrant caravan, as far as hotels go, thus far it’s all hype unless you count one site in Singapore. But the advance parties are closing in – Ctrip owns Skyscanner, which is a standard first, if not last step in the travel planning of, one suspects, most people reading these words. To labour the Trump caravan analogy, the reality is one of peaceful friend making: Huazhu also has a stake in AccorHotels, while AccorHotels also has a strategic relationship with Ctrip. Meanwhile, AccorHotels’ CEO & chairman Sébastien Bazin sits on the Huazhu board with Qi Ji, founder of Ctrip.

But while there is clearly money to be saved on joint Christmas parties, this is all good preparation for global expansion which hasn’t quite happened yet. With a population of 1.4 billion to encourage to pack their bags in China, it’s not as though either party has to scrabble around for customers and so the focus for the moment is to move away from the cheap, volume business and build their houses on something more substantial and profitable.

It is these brands with which Huazhu is likely to make the first moves outside China, relying on the desire for the familiar as all those Holiday Inns have gone into China in the other direction. One wonders when the company will lean on its shared board members and look to own the consumer all the more completely.

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