China must weigh whether the economic pain is worth the price of such tough lockdown measures in response to outbreaks that pale in comparison to those seen in markets like the U.S.
China, usually seen as the global leader in the hotel industry’s recovery from the pandemic, took a massive fall last week in its hospitality comeback due to the Delta variant. Prior industry optimism about the country’s ability to quickly rally after a setback doesn’t seem to apply this time around.
Average occupancy rates across Mainland China fell from 70 percent to just shy of 40 percent in a matter of two weeks, according to STR’s most recent data. Revenue per available room, the hotel industry’s key performance metric, is now at roughly half of 2019 levels.
The swift descent stems from the country’s tough crackdown policies and travel restrictions, which led economists to lower expectations on the country’s economic recovery trajectory. The hotel downturn is a brutal collapse for a country that saw at points last month mid-week occupancy rates — typically when business travel occurs — reach close to 80 percent, an outperformance of 2019 levels.
“We know from many places globally that Delta is harder to shut down and it spreads faster,” Jesper Palmqvist, the Asia Pacific area director at STR, told Skift via email. “In light of this, and even if for previous outbreaks we’ve seen faster and more V-shaped recoveries, we now expect a somewhat slower and more U-shaped pickup this time.”
The latest outbreak, impacting more than half of the country’s provinces and municipal regions, is significantly more widespread than the Delta variant outbreak in Guangdong province in late spring. Even that smaller outbreak earlier this year took longer to recover from than prior case surges in China.
The weaker efficacy of Chinese vaccines like Sinovac compared to those from companies like Pfizer and Moderna are helping fuel the rapid spread, analysts say. China has responded to the latest outbreak with another round of lockdowns and travel advisories, but they are more widespread this time compared to the more concentrated Guangdong outbreak.
Government leaders are reportedly considering the economic feasibility of this type of mitigation effort, especially in the greater context of the virus. China reported 82 new cases yesterday and 811 in the last week, according to Johns Hopkins University & Medicine. The U.S. — with its economy largely open — reported 135,177 new cases yesterday and 859,515 in the last week.
“I don’t think ‘zero tolerance’ can be sustained,” Xi Chen, a health economist at the Yale School of Public Health, told the Associated Press this month regarding China’s containment policy. “Even if you can lock down all the regions in China, people might still die, and more might die due to hunger or loss of jobs.”
Leaders at hotel companies like Marriott have touted China’s ability to quickly contain an outbreak and generally regain its recovery momentum within a matter of two weeks, as previously seen with outbreaks in Beijing last winter and summer.
Those tough measures, coupled with China’s essentially sealed international borders and strong domestic travel base, played a major part in hotel companies seeing their strongest performance in China for a bulk of the pandemic.
But the longer snap back from the Guangdong outbreak and now this latest case is a fresh reminder the recovery from the pandemic is extremely uncertain, even in countries with the most stringent containment efforts.
It’s the latest wake-up call for a hotel industry that has appeared overly optimistic in recent weeks about its recovery trajectory in spite of rising cases around the world.
While Marriott CEO Anthony Capuano on the company’s most recent investor call touted Mainland China for exceeding pre-pandemic performance levels in April and May, he acknowledged there was a setback in June due to the Guangdong outbreak. Marriott leaders expected a snap back in July, but it isn’t public yet how much the company was impacted by the latest Delta cases.
Hilton CEO Christopher Nassetta similarly noted April and May exceeded 2019 performance levels at the company before sliding in June and later regaining steam. IHG CEO Keith Barr remarked “China is back to normal” earlier this week on an investor call.
The latest data suggests otherwise.
Have a confidential tip for Skift? Get in touch
Photo credit: China's latest outbreak of new cases is believed to have originated from a flight into Nanjing (pictured). Pxhere