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One of China’s biggest hotel operators recently began to consistently outperform pre-pandemic business levels across its entire portfolio. The rest of the world should take note.
Shanghai-based Huazhu — which has nearly 7,000 hotels across brands like Joya and HanTing in China as well as Steigenberger Hotels in Germany — moved from operating at just over half of pre-pandemic rooms revenue in February to 95 percent a month later, company leaders reported this week. Over the Labor Day holiday in China earlier this month, Huazhu’s hotels averaged a 25 percent increase in business from 2019.
Huazhu’s revenue per available room, the hotel industry’s key performance metric, was 7 percent higher than 2019 for the month of May, as of the start of this week. The company chalks up its rapidly accelerating recovery — and its ability to maintain the momentum — on vaccine distribution.
“As the vaccination process is taking place smoothly in China, we are confident that China’s economy will further recover from the pandemic and drive the growth of business travel,” said Qi Ji, Huazhu’s founder and CEO, on an investor call this week.
The upbeat message around vaccinations comes as the U.S. reported this week half of all American adults are now fully vaccinated against coronavirus.
Even without the Labor Day holiday, Huazhu leaders say the company would be outperforming 2019 revenue levels for the month of May. Both business and leisure travel demand are on the rise in China. Marriott even saw business travel in China eclipse 2019 levels by 5 percent in March, the company reported earlier this month.
Huazhu isn’t entirely looking at the pandemic in the rear-view mirror. The company faced a tough winter with a surge of new cases in provinces around Beijing. There was also a resurgence in cases this month in Anhui province to the west of Shanghai and Shenyang in the northeastern part of the country.
It typically takes a city about two weeks to recover from a resurgence and for hotels to get back to their normal recovery pattern, Hui Jin — president of Huazhu — said. That timeline matches what Marriott also sees in its own China recovery.
Huazhu still reported a relatively small $38 million loss for the first quarter, but even that is a win compared to some U.S. companies like Hyatt, which posted a $304 million first quarter loss.
The company sees more growth opportunities ahead in smaller cities than larger ones like Beijing and Shanghai, which continue to lag in the recovery from the pandemic. March and April rooms revenue in Huazhu’s hotels in smaller cities eclipsed 2019 levels while the larger cities were still underperforming.
That strength is reflected in Huazhu’s construction interest: More than half of the company’s 2,649-hotel development pipeline are in smaller cities.
“That again shows the resilience of economic conditions in lower-tier cities,” Jin said.
There is one area of growth where Huazhu falls in line with just about every other hotel company around the world: lifestyle hotels.
These hotels with a greater emphasis on food and beverage and experiences are a major growth driver at Accor, which expects to generate a quarter of its franchise fees from lifestyle hotels in its own development pipeline. Accor has just over a 3 percent stake in Huazhu and a development partnership for midscale and economy hotels across brands like Novotel and Ibis in China.
Huazhu’s own lifestyle hotel portfolio includes the 28-hotel CitiGo brand, which it acquired this month for just over $117 million, and Crystal Orange, a boutique hotel operator with more than 100 hotels in major cities. Huazhu acquired Crystal Orange in 2017 for $540 million.
Company leaders appeared particularly optimistic on the recent CitiGo transaction, as those hotels in major markets could appeal to younger travelers looking for amenities like coworking spaces and local experiences.
“The brand could help further enrich Huazhu’s lifestyle brand and create more opportunity for Huazhu to explore in the lifestyle segment,” Jin said.