Two big Chinese hotel chains are thriving despite hospitality’s woes, thanks to the growing popularity of chains in China and a vast untapped market.
Amidst lockdowns and travel restrictions, hoteliers worldwide have been feeling the pain of the pandemic. Third-quarter results were encouraging, but this year, the eight biggest Western hotel groups saw their share prices drop by 14% on average. The picture is rosier to the East. In China, hotel chains Jin Jiang and Huazhu are enjoying high demand as domestic travel picks up. Both are confidently pursuing overseas opportunities as well.
Jin Jiang is the second-largest hotel group in the world by capacity, and Huazhu is the fifth-largest by market cap. Both are based in Shanghai, and both are among the fastest-growing hotel chains in the world. In the third quarter, Jin Jiang’s occupancy rate was 74% and its market value increased by three quarters, to $6.4 billion. Huazhu had an even more robust third quarter, with an occupancy rate of 82%. Having recovered 40% of its revenue per available room from the previous quarter, its market value is now $16 billion, surpassed only by Marriott and Hilton Worldwide.
Both groups own portfolios of brands, similar to Western hospitality companies, which enable them to reach a variety of different customers. Jin Jiang operates at every level from budget to the upper end of the mass market. Huazhu is broader, with a portfolio that runs the gamut from economy to luxury. In terms of growth strategy, both hoteliers prefer shifting construction costs to franchisees in exchange for lower franchise fees, according to The Economist. This enables them to expand rapidly. Combined, they now have over 7,300 hotels under development, most in China.
The thriving hotel groups are benefitting from the growing popularity of hotel chains in China. With higher incomes, Chinese travel much more and have also become more discerning. Guests appreciate the consistency and predictability of more standardized accommodations, and Jin Jiang and Huazhu were quick to recognize this. Yulin Zhong of 86Research believes both are poised to gain even greater shares of the domestic market. There is plenty of room. In the U.S., where chains have long since been established, chain hotels accounted for 72% of all hotel rooms at the end of 2019. In China they accounted for only 27%.
Jin Jiang and Huazhu are intent on pursuing growth in overseas markets as well, and their strategies include acquisitions. To further its global ambitions, Jin Jiang acquired a majority stake in Radisson in 2018. More recently, in January 2020, Huazhu purchased Germany’s Deutsche Hospitality. Tie-ups like these not only allow the companies to expand their global footprint; they also give them the opportunity to learn the preferences of foreign clientele and avoid spending millions marketing unfamiliar brands to prospective guests. When travellers come out of quarantine worldwide, their rooms will be ready.
