The shadow of slowing or declining performance growth continues to envelop several major international hotel groups. Especially since the second quarter of this year, especially in the Greater China region, this trend has become more pronounced.
After the release of the semi annual report, Marriott International executives predicted that demand and pricing trends in Greater China would continue to be weak in the second half of 2024, with RevPAR (revenue per available room) showing negative growth. In the third quarter, due to the acceleration of summer outbound travel, there would be the most significant decline, and the performance in Greater China would be even more dismal.
The above viewpoint is a prophecy. Recently, six major international hotel groups including Marriott International, Hilton Hotels, InterContinental Hotels, Hyatt Hotels&Resorts, AccorHotels, and Wyndham Hotels&Resorts have released their Q3 2024 financial reports. The key indicator RevPAR for the Greater China region of these hotel groups has all experienced varying degrees of decline. Marriott International also maintains its forecast of negative growth for the fourth quarter and full year in Greater China.
The relatively high base formed by the comprehensive recovery of the domestic tourism industry in 2023 is only part of the reason for the poor performance of various hotel indicators this year. The global economic downturn cycle has lowered expectations for high consumer goods categories. The international hotels that once represented taste and style seem to no longer be in high demand.
How can companies maintain performance growth amidst global economic fluctuations? How should companies adjust their strategies in the face of increasingly fierce competition? As an international hotel management group with a global perspective, what operational experience can it provide to the hotel industry?
In 2024, the Daily Economic News celebrates its prime at the age of 20 and launches the "Smart Vision for the Future - Global High end Personality Interview Series", inviting industry leaders to discuss the future together. The reporter had an in-depth conversation with He Guoxiang, President of Hyatt Hotels Group Greater China and President of Asia Pacific Expansion, and Xing Lin, Senior Vice President of Development and Owner Relations in Greater China, and they provided their own answers.
Light assets are one of the core strategies of management companies
Founded in Chicago, USA in 1957 and listed on the New York Stock Exchange in 1962, as of September 30, 2024, Hyatt Hotels Group, with nearly 70 years of history, has over 1350 hotels and approximately 135000 rooms in 79 countries and regions across six continents worldwide. Compared to Marriott International, the world's largest hotel group with over 9100 hotels and more than 1.6 million rooms (as of early November), it is far from satisfactory.
In the global ranking of hotel and room numbers by hotel groups, Hyatt Hotels Group is not at the top either. However, the positioning of high-end and luxury hotels has enabled the group to surpass in revenue and profit rankings, with outstanding performance among several major international hotel groups this year.
According to Hyatt Hotels Group's Q3 2024 financial report, the company achieved revenue of $1.629 billion, a year-on-year increase of 0.43%; Net profit was 471 million US dollars, a year-on-year increase of 592.65%. In fact, since the first quarter of this year, Hyatt Hotels Group's net profit has doubled. In the first quarter of 2024, the company's net profit increased by 800% year-on-year, and in the second quarter, the net profit increased by 427.94% year-on-year.
The financial report shows that the significant year-on-year increase in net profit in the first three quarters was due to the sale of assets. Hyatt Hotels Group recorded $350 million in real estate sales and other revenue in the first half of 2024, compared to $514 million in the third quarter.
Looking ahead, in 2017, Hyatt Hotels Group underwent a capital management strategy evolution, starting to sell its real estate assets and reinvest in new brands and businesses to achieve a light asset strategy and business growth. As of the third quarter of 2024, the company has achieved a total revenue of $2.6 billion (excluding acquisitions) within three years, and it is expected that the profit structure of young assets will exceed 80% by 2025.
In 2018, Hilton Hotels, InterContinental Hotels, and Wyndham reported double-digit declines in net profit. Thanks to the proceeds from asset sales, Hyatt Hotels Group saw a significant increase in net profit in 2018. Against the backdrop of current economic fluctuations, the group's strategy of continuing to realize funds through asset sales is in line with its long-term capital management strategy.
The traditional view holds that selling assets is a manifestation of the seller's lack of funds. But in Xing Lin's view, hotel management groups are essentially hotel asset investment and operation management. Starting from investment returns, assets are in and out, and the invested assets are sold at a reasonable price at the right time, which is a good transaction.
Xing Lin stated that for any mainstream management company, light assets are one of the core strategies, which can enhance financial flexibility and improve the ability to resist risks. Of course, he also mentioned that in addition to selling assets, the group will also buy assets to quickly enrich the hotel brand matrix and expand market coverage. But it cannot be denied that in recent years, hotel acquisitions have been "quite, extremely" cautious.
In China, the sale of hotel assets is becoming increasingly common. According to the ABNData index monitoring list, there have been over 200 hotel assets in the stages of sale, auction, and unsold since the beginning of this year, with a monthly growth trend.
Xing Lin believes that the trading of hotel assets is a common phenomenon globally, especially in mature markets. There are increasingly healthy and positive hotel transactions in the Chinese market, which is good for the entire industry. The focus of health and positivity lies in the parties involved in the transaction, the transaction mode, the transaction price, the pricing mode, and the handling of assets after the transaction.
The original owners of hotels can sell at a premium, and the buyers are not only local or domestic capital investors. We hope to see more institutional investors. Many hotel trading parties in the European and American markets are institutional investors such as funds. The richer the backgrounds of the buyers and sellers, the healthier the market will be. We hope to see the value of assets evaluated through hotel returns, "Xing Lin said.
Where does the increment come from? Expand market share through localization
However, the growth brought by selling assets is not a long-term solution. As a hotel group, Hyatt's biggest concern is still market share.
As one of the largest markets in the world, the Chinese market is crucial. In 1969, on its first stop outside of its headquarters in the United States, Hyatt chose to come to China and opened its first overseas hotel in Hong Kong. This year marks its 55th year in China.
In 2017, He Guoxiang, who was already preparing to retire from the hotel industry, became the President of Hyatt Hotels China in 2018 and later the President of Asia Pacific Expansion. He told the Daily Economic News reporter that "Hyatt's enormous potential in the Chinese and Asia Pacific markets, as well as the many possibilities that can be realized," was the reason why he resolutely joined.
The Greater China region accounts for 75% of He Guoxiang's work time, handling strategic planning, operational management, financial performance, talent development, owner relations, customer satisfaction, and business growth related matters. Every month, He Guoxiang travels to China to inspect hotels and meet with team members, homeowners, government officials, clients, and partners.
When he took office, He Guoxiang's primary task was clear - 'to enhance Hyatt's brand influence in the Chinese market and further expand market share'. As of September 30, 2024, Hyatt has over 174 hotels in Greater China, which is more than double the number when He Guoxiang first joined six years ago.
In an interview, He Guoxiang mentioned the most about market share and localization, relying on the latter to improve the former. Xing Lin also said, "We are very concerned about how to further expand the scale of our partners
For the domestic hotel industry, early international hotel brands once dominated the majority of the mid to high end market, while local hotel brands, represented by the three giants of Hanting, Home Inn, and Jinjiang, occupied the low-end market. After years of development, local hotel brands continue to rise and compete with international hotel brands for the mid to high end hotel market. At the project negotiation meeting, Xing Lin's competitors have grown from one or two a few years ago to five or six, with international and local hotel brands taking turns to compete, making the competition increasingly fierce.
Hyatt has turned its competitors into partners. In 2018, Hyatt and First Travel Hotels established a joint venture and launched the Yifeng Hotel brand, leveraging the latter's advantages in the upper mid scale hotel market and seizing the dividends of consumer upgrading, covering many new destinations. Over the course of 5 years, Yifeng Hotel has operated more than 50 hotels in 29 cities. He Guoxiang described this development speed as' just 5 years', and he felt it was very fast.
Collaborating with local brands is because they have more advantages in the development of the local market, and they are closer to the local market. For example, in some services and exchanges, they will understand the local market better, be closer to end users, and win customers with localized services. In terms of work efficiency and specific service methods, there are many things worth learning, "Xing Lin said.
After tasting the sweetness, Hyatt accelerated its cooperation with domestic enterprises and further expanded its scale. Since 2018, Hyatt has successively established deep cooperation with Mingyu Business Travel, Hangzhou Commercial Tourism Group Co., Ltd., Huanglong Hotel Management Group, China Resources Land, etc., continuously expanding its presence in China.
Finding increments in the stock is the next competitive consensus. In addition to collaborating with local brands, Hyatt also needs to seize some opportunities. Xing Lin said that Hyatt has been cautious in its layout in first and second tier cities, including first tier cities, and only in mature core locations in China for so many years. Nowadays, as more and more markets continue to mature, there are also more opportunities for Hyatt, which lies in increasing the stock.
But whether they can seize the opportunity of existing stock, such as the renewal or property renovation of old hotels in the city center, and whether Hyatt can catch up from behind, is their next challenge. He Guoxiang frankly stated that in the future, it will expand to more cities and popular vacation destinations in China.
Speed up: Digital oriented or market-oriented?
It's still too slow.
On October 16th, Hyatt and China Resources Land reached a deep cooperation agreement to establish a joint venture and signed a strategic partnership. Nearly 10 hotels were included under Hyatt's umbrella, but the total number of hotels still does not exceed 180, which may be less than one tenth compared to other hotel groups.
Since 2020, the clearance speed of the hotel industry has accelerated, and the chain rate has continued to increase. In 2019, the domestic hotel chain rate was 26%, and by the end of 2023, it had jumped to 41%.
In recent years, it has also been seen by major hotel brands as a good opportunity to seize the market. Since the opening of Hilton's 200th hotel in China in 2019, the speed of opening stores has increased from a few hundred in a few years to over a hundred in a year; In June this year, the first ten thousand hotels of Huazhu Group opened in Nyingchi, Xizang, and the annual opening target was raised from 1800 to 2200; InterContinental Hotels also stated that 2024 will be one of the years with the highest number of hotel openings and signings in Greater China.
In contrast, Hyatt should indeed speed up. Occasionally, as the head of development and owner relations in Greater China, Xing Lin is also called to the office by leaders to discuss the number of hotel signings.
One day, the boss said that the numbers I signed were not good enough, and I felt very embarrassed. But what really made me anxious was that the things I signed were not good enough. If this was a relay race, with the baton in my hand, it would be okay to run slowly, but if it fell, no matter how fast I ran, I wouldn't be able to pass the next baton. "The firm belief helped Xing Lin overcome the pressure. He constantly reminds himself that the number of hotels is indeed important, but the value and reputation of the brand are even more important.
Quality first is our development principle. We maintain our own strategic nature and development pace. We cannot succeed in other people's strategies, only in our own strategies can we achieve the results we should. "In Xing Lin's opinion, comparing ourselves with others is not meaningful.
Xing Lin pointed out that before accelerating the pace of development, it is necessary to clarify the starting point of acceleration: whether it is based on the growth orientation of company performance or the satisfaction orientation of market demand. Neglecting the capacity of the market itself for the sake of digital development is clearly not advisable. In Hyatt's strategy, speed and quantity have never been the top priority. For brand development, quality and quantity are distributed at both ends of the balance. "The balance can sway, but strategy cannot sway," Xing Lin emphasized.
He told reporters that Hyatt does not have a specific goal of how many stores to open in a year, but it will have a clear understanding of the capacity of a market and how many hotels it should be able to develop. We have a very clear development plan for hotels by brand, region, and city. The development manual is developed by a well-established company structure and team, including marketing, development, product design, operations, and other departments. It analyzes and formulates from multiple dimensions such as market, transportation, and traffic, and ultimately sets up suitable branded hotels in suitable cities and locations, "he said.
Owners are becoming increasingly professional and rational, and their expectations for investment returns and management companies are also increasing. How to enhance management capabilities, better fit with property owners, and gain a clearer understanding of customer needs? Compared to the growth figures, Xing Lin believes that these issues are more important.
We have no reason not to be optimistic about this market
What if the road and development strategy are clear, but the prospects are not visible?
Looking at the whole year, both in Greater China and globally, several major international hotel groups have shown a significant decline in performance growth. Excluding the proceeds from selling assets, Hyatt Hotels' performance has also faced significant challenges.
He Guoxiang stated that global economic fluctuations, inflation, and rising operating costs have brought many challenges to the industry, and these economic factors have also affected consumers' willingness to consume, leading to fluctuations in overall travel demand. Xing Lin admitted that this year's performance was within expectations.
Every industry is closely related to the economic cycle, especially the hotel and tourism industry. But Xing Lin believes that over the past century, the hotel industry has continuously improved in the ups and downs of the economy, resulting in an increase in brands, updated models, more creative products, and more diverse backgrounds of homeowners.
In his opinion, the Chinese hotel industry is full of vitality, constantly self innovating and innovating. From a global perspective, it is only in a stage of change, so there is no need to worry excessively. Just like taking a plane, one will experience turbulence and fluctuations. China has achieved many good results in the past three to four decades, but development will not always be smooth sailing. It will experience fluctuations. The current situation will not affect China's medium and long-term development. There will be fluctuations and pressures in the short term, but opportunities are seen in the medium term, and we are firmly optimistic in the long term, "said Xing Lin.
"Challenges are inevitable, but countries that have experienced similar economic cycles in the past have ushered in better development since then. China's population base, ecological environment, developed manufacturing industry, and the Chinese people's spirit of hard work and innovation. We know the fundamentals of China, and I have no reason not to be optimistic about this market for a long time," Xing Lin said.
The decrease in increment brought by the international conference market has led Hyatt to increase cooperation with domestic enterprises to attract more customers and business. In terms of market operation, we will expand new channels and models beyond traditional OTA (online travel agency) channels to do business better. In Xing Lin's opinion, it is most important to adjust strategies at any time to cope with fluctuations when the market changes.
He Guoxiang stated that China has a huge consumer group and enormous potential in the tourism and business travel markets. At the same time, with the continuous growth of China's economy and the improvement of consumption level, more and more Chinese people have the ability and willingness to travel at home and abroad and enjoy high-end hotel services. This brings market opportunities for Hyatt hotels.
He observed that with the advancement of urbanization in China, the demand for hotels in second - and third tier cities has significantly increased, and the market demand has shown multi-level and diversified characteristics. Chinese consumers have shown significant growth in demand for mid to high end business travel and luxury tourism.