China's drop in hotel performance due to an outbreak in the southern part of the country may only be temporary. But it is a reminder that travel's recovery momentum is erratic — even in a country with tough control measures and strong vaccine distribution.
A surge of new coronavirus cases in China around the southern city of Guangzhou halted the country’s status as the world leader in the hotel industry’s recovery from the pandemic.
Both the U.S. and the UK vaulted ahead of China last week in terms of which country’s hotel industry performed best, a notable feat given China has largely dominated the travel comeback from the health crisis. The average hotel occupancy rate last week in China was just over 55 percent while it was 63 percent in the UK and nearly 62 percent in the U.S., according to STR.
The setback is expected to only be a brief one, but it underlines just how volatile the travel recovery can be even with greater vaccine distribution around the world as well as China’s tighter control on outbreaks.
“[The] U.S. [is] now firmly in the lead,” Richard Clarke, a managing director covering hotels at Bernstein, said via email before later adding, “China will be back on track in no time.”
Revenue per available room — the hotel industry’s key performance metric — was nearly 22 percent off pre-pandemic levels in China last week compared to down just over 12 percent the week prior.
Chinese authorities say the Guangzhou outbreak of cases is largely the same Delta variant catastrophically impacting India. However, the outbreak is still small compared to other parts of the world, with a little more than 200 new cases reported in Guangdong province — of which Guangzhou is the capital — since late May. The seven-day average of new cases in the U.S. is just more than 14,000, according to the Centers for Disease Control & Prevention.
But even that smaller case count is enough for the Chinese government to go into localized lockdowns to get the virus once again under control. That is a major headwind for China’s overall hotel performance, given Guangdong province is China’s largest in terms of economic output. Guangzhou has the second-highest number of hotel rooms in development of any Chinese city, according to Lodging Econometrics.
China’s hotel and travel comeback has been a rare dose of optimism over the last year while the rest of the world struggled to control the virus. The country’s tough lockdowns and strict curtailing of travel are largely what fueled China’s travel rebound even before vaccines were in widespread distribution.
China and the U.S. have typically been in the top two positions, respectively, for hotel performance during the recovery due their similarly strong pool of domestic travelers. But the U.S. has almost entirely relied on leisure travel while companies like Marriott and Huazhu both reported business travel demand in recent months eclipsed pre-pandemic levels in China.
Hyatt’s business travel demand in China is about 80 percent of 2019 levels compared to the 35 percent seen in the U.S., the company’s CEO Mark Hoplamazian said this week at the Goldman Sachs Travel and Leisure Conference.
While China’s strong performance rallied the global hospitality industry around how fast the world’s travel recovery could be once the virus was under control, it’s response in controlling the virus dealt hotel operators financial blows — even if only temporarily.
A winter outbreak of new cases in provinces around Beijing and further north knocked hotel room revenues from nearly back to normal in January to roughly 40 percent off 2019 levels. Huazhu leaders last month noted they were monitoring the impact of new cases in Anhui province to the west of Shanghai and Shenyang in the northeastern part of the country.
The good thing for hotel owners is travel demand typically snaps back fast after one of the localized lockdowns lifts. Marriott’s occupancy rates in cities like Qingdao earlier this year jumped from 20 percent to 60 percent only two weeks after travel restrictions were once again removed. That relatively rapid return is an industry norm, hotel executives say.
“Normally, from our observations, every time there was a resurgence of Covid-19, it [takes] roughly two weeks to recover for that city,” Hui Jin, president of Huazhu, said on an investor call last month.
Photo credit: A surge of new coronavirus cases around the Chinese city of Guangzhou (pictured) sank hotel performance in what had been the world's top-performing country. jo.sau / Flickr