H World continues foray into less penetrated areas
03/25/2024|10:31:28 AM|ChinaTravelNews

ChinaTravelNews, Ritesh Gupta – H World’s expansion plans continue to stand out, for its focus on geographic coverage as well as the pace with which the hotel chain is spreading its hotel network.  

In its fourth quarter (Q4) earnings call, the hotel company stated that it had 3,098 unopened hotels in the pipeline at the end of 2023. The figure included 3061 properties from its Legacy-Huazhu business, compared with 2544 at the end of 2022. Legacy-DH also had 37 unopened hotels in the pipeline, including 21 leased hotels and 16 manachised and franchised hotels.   

The team stated that it’s Q4 and full-year 2023 results received a boost year-on-year, owing to three factors: strong travel demand, continued product upgrade; and market penetration and synergy through regional offices.  

Restructuring and expansion in lower-tier cities  

Speaking during the company’s earnings call, Jin Hui, CEO of H World singled out the group’s foray into lower-tier cities in China.  

“We kept on penetrating in lower-tier cities in China. As of 2023, around 40% of hotels in operation were located in Tier-3 and 4 and below cities, representing a two-percentage point increase compared to 2022,” said Hui, referring to H World’s Legacy-Huazhu business. Tier-2 cities accounted for 42% and tier-1 cities for 18% in 2023, both going down by 1% each over 2022.     

“At the same time, 55% of hotels (for Legacy-Huazhu business) in the pipeline were located in lower-tier cities. Also, the percentage number was lower compared to 2022. Its absolute number was higher,” said Hui. Tier-2 cities represented 36% of the hotels in the pipeline, whereas the remaining 9% belonged to tier-1 cities at the end of 2023.  

“As of 2023, the number of city coverage was 1,257, adding 131 new cities penetration compared to 2022. In addition, our capabilities of localized development and operation in the previously less penetrated or weak areas in China has been improving significantly, and we achieved initial results post our organizational restructuring by establishing regional headquarters,” he added. Eventually the goal is to target 2000 cities, although no definite year was mentioned.  

Referring to how regional HQs had contributed, Hui spoke about new signings in less penetrated areas. In the South, West, and the Central China, the total new signings last year rose 100%, 80%, and 40% year-over-year, respectively, and went up by more than 200%, 130%, and 110% compared to the pre-COVID year of 2019, respectively, said Hui. “… (we identified) opportunity several years back, and we started to build our organizational capability, our human resources to support the lower-tier cities penetration opportunities.” It was also highlighted that pre-opening costs maintained a low level as the group continued to move towards asset-light model.  

Iron Triangle brand strategy  

The hotel chain has crafted a specific brand strategy, titled Iron Triangle, to work on its economic and the middle-scale segments. This approach consists of three major brands - HanTing, JI Hotel, and Orange.

In case of Hanting, out of 1121 economy hotels in the pipeline, 731 properties belonged to Hanting. For JI Hotel and Orange in the mid-scale segment, there were 936 hotels planned out for JI and 315 for Orange out of 1503 hotels at the end of 2023. "In 2023, we have upgraded products for all these three brands," said Hui, referring to Hanting 2.7, JI Hotel 5.0 and Orange LOHAS. 

“The proportion of Hanting 1.0 version significantly declined from 28.5% as of 2020 to only 4.4% as of 2023. While the proportion of Hanting 2.7 and above version steadily increased from only 34.4% as of 2020 to 71.2% as of 2023,” shared Hui, who added that the newest version 5.0 for JI Hotel was introduced at the end of last year. “As of 2023, LOHAS accounted for 58% of the total pipeline of Orange brand,” he said.  

H World has been working on a multi-brand strategy in the upper-midscale segment.  

“Our upper mid-scale segment development is continuously progressing. As of Q4 of 2023, there were 645 upper-midscale hotels in operation (Legacy-Huazhu business), representing a 23% year-over-year increase and a 7% quarter-over-quarter increase. And there were 386 of upper-midscale hotels in the pipeline, representing a 34% year-over-year increase and an 8% increase on a sequential basis. Combining the hotels in operations and hotels in the pipeline together, the total number of our upper-mid hotels reached 1,031 last year,” said Hui. In this category, Crystal Orange stood out, 119 hotels in the pipeline. “Being one of our core brands in the upper-midscale segment, Intercity brand launched its new products in 2022. Number of pipeline hotels has increased to 53 at the year-end, demonstrating high market recognition and acceptance of the brand and the products,” said Hui.