Skift Take

Finally, a hotel leadership team is honest and admits the Delta variant is a real threat on the hotel industry’s recovery. Huazhu's candor is something the C-suites at Marriott, Hilton, and Hyatt should replicate.

It wasn’t long ago when major hotel companies expected a full recovery in China sometime this year. That’s no longer the case.

Shanghai-based Huazhu, one of China’s biggest hotel operators that also runs Steigenberger Hotels in Europe, posted a $59 million second quarter profit Wednesday. But company leaders cautioned the road to a full pandemic recovery is bumpy. The second quarter strength largely came from the months of April and May, even briefly outperforming 2019 levels, before an outbreak of new cases emerged in Guangdong province.

A more extreme, recent outbreak of cases impacted more than half of China’s provinces and ushered in a new wave of lockdowns and travel restrictions. The uncertainty around flare-ups has Huazhu leaders anticipating a full recovery isn’t likely this year — a notable break from the optimism collectively shared by most hotel executives in recent weeks.

“We have to admit that the Chinese government has imposed a very strict traveling restriction and prevention and control measurement,” said Hui Jin, president of Huazhu, on the company’s investor call Wednesday. “That’s really affected our business performance recently.”

The CEOs of Marriott, Hilton, and Hyatt all shared various upbeat takes on their respective second quarter earnings calls over the last month, despite a surge of cases threatening the return of business travel and leading to the cancellation of several high-profile events in the U.S.

But while the U.S. continued to ride a relatively high occupancy rate streak from summer leisure travel, Huazhu leaders couldn’t ignore what was happening in their own backyard.

China’s world-leading hotel recovery tanked this summer due to the Delta outbreak in the country. Average occupancy rates fell from 70 percent to just shy of 40 percent in a matter of two weeks, according to STR. Revenue per available room, the hotel industry’s key performance metric, went from exceeding pre-pandemic levels for some hotel companies to less than half of 2019 levels on a national average.

Huazhu expects company-wide revenue per available room to return to as much as 75 percent of 2019 levels in the third quarter and just shy of a full recovery — somewhere between 90 and 95 percent of 2019 performance — in the fourth quarter.

The company saw its European performance recover to as much as 60 percent of 2019 levels over the summer, but leaders are cautious there as well regarding how governments might respond with containment measures against the Delta variant.

“Looking ahead, uncertainties brought by the pandemic may exist for a longer-than-expected time, and we expect to be well-prepared to overcome any business turbulences in the near-term,” said Qi Ji, Huazhu’s founder and CEO.

Questioning Lockdowns

A major cause of the hotel industry’s performance cratering in China this summer stems from the government’s stringent lockdown measures and travel policies, effectively shutting cities off from the rest of the country. The measures were generally heralded as a success earlier in the pandemic in the sense that they led to China leading the world in terms of a hotel industry recovery.

But some analysts have begun to question how effective the policies are in the era of the Delta variant. Wider vaccine distribution has led to fewer hospitalizations and deaths in the event of a breakthrough cases of the virus in vaccinated individuals.

“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.”

Government leaders are reportedly considering the economic feasibility of this type of mitigation effort, especially in the context of its significantly lower number of reported new cases to other parts of the world. There were 27 new cases in the last day and 237 in the last week in China, according to Johns Hopkins University & Medicine.

Yesterday’s total case count in the U.S., where containment measures now largely boil down to a growing number of municipal mask mandates and private sector vaccine requirements on employees, was more than 135,000. In the last week, there have been more than 1 million new cases reported in the U.S.

No Time for a Victory Lap

China’s hotel performance plummet shouldn’t be seen as a reason for the U.S. to stay the course on an open economy without any mitigation efforts. Ramping up vaccine requirements and mask mandates to curb the spread of the Delta variant is vital in preventing an American hotel industry performance implosion.

The kind of leisure travel propping up U.S. hotels at the moment will dissipate in coming weeks as students return to in-person learning. Fall business travel is almost certain to be less than previously anticipated due to more companies pushing back their planned return to the office.

While hotel CEOs aren’t ready to acknowledge the threat of what the contagious strain might mean for fall business travel, at least one airline executive indicated the looming threat, according on an Airline Weekly report.

“We do anticipate there will be a slower recovery in business demand than what we’ve seen, but there will still be a recovery,” Vasu Raja, chief revenue officer at American Airlines, said at a Raymond James investor conference on Wednesday.

Back in China, the Huazhu leadership team is taking a similar long view.

“We have high confidence in China’s future economic growth and think the upward trend of the China lodging industry remains intact,” Ji said.

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Tags: coronavirus, coronavirus recovery, Huazhu, marriott

Photo credit: Huazhu leaders aren't convinced of the travel industry's recovery momentum continuing into fall due to the Delta variant. CEphoto, Uwe Aranas / Wikimedia

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