H World, China’s No 2 hotel operator, to aim for wider network, margins as post-Covid recovery fuels turnaround, CFO says
- Firm is ‘pivoting from leased and owned hotels to manachised ones’ to increase profit margin, CFO says
- H World benefited from a recovery in China’s tourism market in the second quarter
H World Group, China’s second-largest hotel chain operator by rooms, is refining its strategy to capture post-pandemic spending boom in the industry, with plans to cover more mainland cities after turning around its business this year.
“We are pivoting from leased and owned hotels to ‘manachised’ ones, to increase our profit margin,” chief financial office He Jihong said in an interview in Hong Kong. H World’s strategy is expected to help the group cover more lower-tier cities, where there is a huge demand for budget-conscious, limited-services hotels, she added.
Manachised hotels are properties that are managed but not owned or leased by the operator.
H World, which manages hotel brands include HanTing, Ji, Grand Mercure and Ibis Styles, reported a profit of 2 billion yuan (US$272.4 million) for the first half of 2023, having lost a combined 4.5 billion yuan in the three preceding years during the coronavirus pandemic.
About 80 per cent of its hotel bookings come through its own platform, H Rewards, which has more than two million registered members. “We want to keep the traffic and customers in our own closed-loop system, so that we have full control over data analysis,” He said in the interview.
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In its current network, only 7 per cent of hotels are leased and owned by H World, which generate most of its revenue but a lesser portion of profits compared to manachised and franchised hotels. For the latter, H World provides the brand, reservation system and standard design, and sends out managers to help operate the hotels. The franchisers own the property and pay franchise fees.
“Through this system, we can scale very fast,” she said. The company will focus on “quality growth” and has closed many first-generation HanTing hotels with outdated designs and infrastructure, she added.
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H World’s shares have declined about 10 per cent this year to HK$30.50. Its American depositary shares, each representing 10 local shares, also retreated by a tenth to US$38.55 in the same period.
H World benefited from a recovery in China’s tourism market in the second quarter. The average daily room rate (ADR) grew 29 per cent to 305 yuan compared to the same quarter in 2019. The revenue per room increased 21 per cent to 250 yuan over the same corresponding period.
Industry-wide, hotel occupancy rate in mainland China rose to 72 per cent in July from 48 per cent in January, slightly above pre-pandemic levels, according to data provider CoStar. The average daily room rate (ADR) in mainland China rose by 10 per cent to 492 yuan in July from 447 in July 2019.
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China’s domestic demand has been driven more by leisure travellers seeking new experiences rather than business travellers, with weekend demand outpacing midweek demand, according to Colliers’ Valuation & Advisory Services.
Mainland travellers are staying closer to home due to economic uncertainties, geopolitical tensions and visa issues, said Prudence Lai, senior research analyst with Euromonitor International. “Provided that China has diverse domestic travel destinations, domestic travel is an attractive, value-for-money substitute for international travel,” Lai said.
There is a very clear trend of “revenge spending” right now, said H World’s He. “But after these needs are stabilised, we expect to continue to observe people’s willingness to spend on experience-based consumption.”
