SHANGHAI—The Chinese economy has softened somewhat, but executives at Huazhu Hotels Group said they believe this actually opens up growth opportunities for consolidation for their company.
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Speaking during the company’s second-quarter earnings call, CEO Jenny Zhang said the company is continuing the rapid expansion of its hotel network while it also focuses on its tech applications to enhance guest experience and operational efficiency. The company is also moving forward with its strategic deployment in the upscale segment.
Through the second quarter, the company opened the equivalent of net three hotels every day, amounting to 269 hotels, she said. That is triple the amount of hotel openings compared to Q2 2018, and the same is true overall for the first half of the year.
By the end of the second quarter, 43% of its rooms in operation were in the midscale and upscale segments, up from 34% in Q2 last year.
The company’s pipeline comprises 1,553 hotels, which is equivalent to 33% of its hotels currently in operation, up from 21% in the first quarter, Zhang said. The majority of the company’s pipeline is its franchised and manachised hotels, accounting for 96.5% of its projects.
“Our opened pipeline for mid- and upscale rooms accounted for approximately 80% of the total number of rooms in pipeline same as a year ago,” she said. “Our enriched mid- and upscale hotel brand portfolio with profitable hotel operating models continue to attract potential franchisees into Huazhu’s hotel network.”
HanTing update
Huazhu launched its flagship brand, HanTing, in 2005, and it serves a wide range of business and leisure customers in China, Zhang said. The company unveiled its first HanTing 3.0 hotel in Shanghai last month. The brand upgrade is “intelligent and affordable with premium quality,” she said.
HanTing 3.0 offers guests fast, automatic check-in using displays at the front desk, robot delivery staff and an AI system called Hello Huazhu that features a voice-activated, two-way communication system that also allows guests to control in-room lights, TV, air conditioning, window shades and other features.
“Our previous market research and our initial customer trials are confirming that this technology application will enhance our guest experience at HanTing hotels,” she said. “And the enthusiastic response from our franchisees also makes us believe this is going to attract many new franchisees and opening more hotels other than HanTing brands going forward.”
At this point, more than 65% of Huazhu’s HanTing hotels are 2.0 or above, Zhang said. She believes the launch of the 3.0 model has brought excitement to the market, and as a result, the company is accelerating the renovations and upgrades of its existing HanTing portfolio. Its goal of reaching 80% by the end of next year will be driven by accelerated growth of new openings and upgrading existing HanTing hotels.
“We believe we know those efforts are going to continuously strengthen our HanTing brand, and our goal is to make HanTing the largest single brand hotel in the world in the next 18 to 24 months,” Zhang said.
By the numbers
By the end of the second quarter, Huazhu had a total of 4,665 hotels representing 463,296 rooms in operation, a 20% year-over-year increase, according to the company’s earnings report. It opened 311 hotels, including eight leased hotels with the remainder being franchised and manachised. It closed 42 hotels because of brand upgrades and business model changes, rezoning issues, expiry of leases and operating losses.
Revenue per available room grew by 1.3% year over year to 206 Chinese yuan ($29.08). Occupancy dropped by 2.7% to 86.9% because of a deepening economic slowdown, but average daily rate grew by 4.4% to 236 yuan ($33.32).
For the quarter, Huazhu reported net revenue of 2.9 billion yuan ($409.4 million), a 13% year-over-year increase. Adjusted earnings before interest, taxes, depreciation and amortization amounted to slightly more than 1 billion yuan ($141.1 million), an increase from 965 million yuan ($136.2 million) last Q2.
As of press time, Huazhu’s stock was trading at $32.40, up 7.1% year to date. The Baird/STR Hotel Stock Index was up 10.7% for the same time period.