Hoteliers Brave Room Glut in China
Hoteliers say China remains their most important country for growth, with Accor SA, Hilton Worldwide Inc., Marriott International Inc. and InterContinental Hotels Group each planning to open more than 100 properties in the country in the coming years.
"There's a lot of supply growth, but demand will eventually catch up," says IHG Chief Executive Richard Solomons.
Mr. Solomons acknowledges that the pace of construction has created short-term oversupply in certain parts of the country in recent years. Beijing and Shanghai, for example, added hundreds of hotels in anticipation of the 2008 Olympics and Expo 2010, respectively. But he says he expects domestic demand will pick up the slack quickly.
IHG's revenue per available room, an industry standard for business health, rose 9.7% in the first half from a year earlier. Mr. Solomons says growth was lower in recent months, without disclosing the figure. IHG, the world's largest hotel company by number of rooms, operates under the InterContinental, Holiday Inn and Crowne Plaza brands.
France's Accor, which runs about 130 hotels in China under the Ibis, Sofitel, Grand Mercure and Pullman names, says China's cooling economy has decreas! ed the company's revenue growth per available room in the country to between 6% and 8% in the past three months from 12% to 15% in the first half.
"It's too soon to say it's a definite trend," says Michael Issenberg, chairman of Accor Asia Pacific.
Accor has signed contracts to open 100 more hotels in China. The company is focusing on developing its Ibis budget brand. Accor has 59 Ibis hotels in China, 40 of which the company owns outright, an unusual move in China where most international hotel chains operate under management contracts and don't own the properties.
IHG, which opened its first hotel irn China in 1984, says it expects to add 150 hotels in the coming years to the 172 it already operates. The company generated $ 1.9 billion in revenue in China last year, up from $ 1 billion 2009.
China now makes up 10% of IHG's global revenue, though Mr. Solomons says he expects the country to match the U.S. as the industry's biggest hotel market in terms of rooms by 2025.
In a bid to lure more Chinese travelers, IHG started a Chinese-only brand, Hualuxe. Aimed at the "up! per midma! rket" and catering to Chinese clientele—boasting 24-hour noodle bars and favoring tea rooms over cocktail bars—the first Hualuxe is scheduled to open in 2014.
So far, most hotel development by international brands has been in major cities, mostly as part of mixed-use projects sanctioned by the government. But hotel companies now are building in smaller cities in China's interior and developing resorts for a newly affluent middle class that only recently has begun to afford leisure travel.
Marriott is developing resorts in Yunnan province and the Yellow Mountain region of Anhui province.
"We're particularly bullish on domestic leisure spots," says Paul Foskey, executive vice president of lodging development for the Asian-Pacific region at Marriott.
Industry observers have said the glut of rooms is a short-term issue. "I'm cautiously optimistic," says Torsten Stocker, a partner at consulting firm Monitor Group. "It's less a matter of continuous oversupply in the market than how some brands will do a better job in building their brands than others. The bigger issue is:
How do you actually find people to run and manage these hotels? There's a shortage of well-trained people."
IHG says it expects it will need to hire 100,000 employees in China over the next five years.
Source: Wall Street Journal By Jason Chow
CHINA
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