ChinaTravelNews, Ritesh Gupta – The past two years or so have witnessed economic activity coming to a near-standstill or being quite miniscule on several occasions across many parts of China. The situation has been quite treacherous for the hospitality industry as the business recovery gets disturbed often. Taking a diligent approach to cope up with the same, Huazhu Group has highlighted that it has been strengthening its capabilities in order to deal with the “ups and downs of the economic cycle”.
Taking care of stakeholders
Talking about the same during Huazhu’s Q1 earnings call, Jin Hui, CEO of Huazhu said the group has proudly focused on it customers, franchisees, and employees, relying on its contingency plan as well as operational sustainability of its properties in the last couple of months.
Revenue increased 15.2% year-over-year to RMB 2.7 billion (USD 423 million) for the quarter compared to the first quarter of 2021. China business recovery was on track in the first two months of this year, but it was interrupted by lockdown in several cities due to the massive spread of Omicron Variant from March onwards.
The group referred to few testimonies, featuring feedback from its customers, including the loyalty program members. Hui referred to a letter from a particular guest, who is expected to turn into a loyal guest. Be it for increasing brand awareness of the group’s brands or the way guests felt at home during their prolonged stay at the properties, the team is confident about its growth strategy.
Describing franchisees as critical and reliable partners, Hui shared that because of unfavorable business environment, the management chose to come up with supportive measures and policies to support franchisees at this juncture. For the January-April 2022 period, Huazhu chose to reduce its management fee for hotels in certain areas. “Last year, Huazhu was the only company which (was) constantly providing fee waivers or reductions (reduction of management fee) to franchisees. This year we again provided new fee waiver or deferral payment policies for hotels in medium and high-risk areas and also for the new signed hotels,” he said.
Some of the other initiatives include helping franchisees to prepare for certain tax credit refund, extending legal aid to franchisees for negotiating rental waiver or reduction, and also paving way for franchisees to apply loans from various financial institutions. As for sustaining operations of franchisees, Huazhu also focused on retaining the front-line staff and also offering supply chain support, for instance, meeting food requirements or daily operational necessities.
Growth strategy remains unchanged
The highlight of the quarter was sustained hotel network expansion in China and healthy business recovery of its European business.
The group shared that its hotel network expanded by 15% in the first quarter of 2022 to 764,859 rooms compared to around 662,500 rooms in Q1 of last year.
Providing an insight into hotel group’s planned new signings, Hui said the plan is to sustain expansion in China’s lower-tier cities. “By the end of the first quarter, lower-tier cities contribution was still improving. It contributed 37% and 55% of hotels in operations and pipeline respectively. Near half of the new signings in the first quarter were attributed from lower-tier cities,” said Hui. At the same time, he admitted that the impact of the virus outbreak and restrictions, including a prolonged lockdown in certain areas, hugely impacted Huazhu’s new signings in April of this year. “The signing numbers in April declined significantly compared to last year,” he said. Hui added that the construction process has slowed down significantly which is going to have some negative impact on the group’s overall new openings for the year.
Deutsche Hospitality’s improved performance
Hui expressed satisfaction over Deutsche Hospitality's (DH) business performance in Q1. According to the group, RevPAR recovery trend has shown a promising recovery-related trajectory in 2022. The blended RevPAR in 2022 as % of 2019 was 47% in January and rose to 80% in April of this year.
“Our DH RevPAR recovery was constantly in uptrends from January to April with April RevPAR recovered to 80% of 2019 level and the recovery trend is further improving in May,” said Hui, who added that with improvement in the situation in Germany and Europe overall, the team expected business traveling will also gradually recover in the next couple of months as mainly driven by the resumption of meetings, conferences and exhibitions events. Leisure traveling was the main driver for the strong recovery in Q1.
On the other hand, blended RevPAR of Legacy-Huazhu for Q1 declined 25% compared to 2019.
Legacy-Huazhu hotel turnover grew 11% year-on-year to RMB 8.8 billion in the quarter and DH recorded a 70% of growth to the turnover of RMB 683 million.