On a call to discuss the company’s latest earnings report, Huazhu Group Limited’s CEO discussed a new hotel turnover metric as well as plans to launch a new brand in the next few weeks.
SHANGHAI—After a strong 2018, Huazhu Group Limited plans to launch a new brand “in the next couple of weeks,” CEO Jenny Zhang told analysts on the company’s fourth-quarter and full-year 2018 earnings call.
The new brand, called Madison, is expected “to accelerate our growth in the upscale segment,” Zhang said. No other details about the brand were discussed on the call.
Zhang said she is pleased with the company’s soft-brand acceleration program, which launched recently and consists of brands such as Starway, Elan and Hi Inn that have been on the market for a few years.
The company also introduced hotel turnover as a new metric in 2018, which Zhang said reflects a different way of handling the scale of the business in “different off-lease and manachised models.” The metric measures “total revenue captured at the hotel level instead of fees charged by Huazhu” for franchised and managed hotels, she said.
Hotel turnover for the company rose by 23% in 2018, driven by hotel network expansion and revenue-per-available-room growth, according to Huazhu’s earnings release.
As of 31 December 2018, Huazhu had 4,230 hotels in operation.
Huazhu’s pipeline reached 1,105 hotels at the end of last year, representing 26% of hotels in operation. Year over year, the pipeline grew by 19%. Zhang added that 80% of the rooms in the pipeline are midscale and upscale brands.
More on franchised and manachised hotels
Huazhu has been focused on an “asset-light model of manachised and franchised” hotels, Zhang said.
“Our powerful brand and the loyalty program continue to add value to our franchisees,” she said. “We consistently grow our hotel portfolio with an increasing mix of manachised and franchised hotels.”
A presentation from the company shows that 79% of rooms in operation are franchised and manachised models, up 1% from 2017.
“About 72% of these rooms are in tier-one and tier-two cities, where we believe there is more sustainable demand for both business and leisure travel purpose, and thus (are) more resilient in performance,” Zhang said on the call. “The asset-light model has also reduced our business volatility and helped Huazhu sail through the changing economic environment.”
Zhang discussed how the company achieved strategic focuses in 2018, first highlighting its goal of fast expansion in the midscale space.
“For 2018, our mid and upscale hotel room count increased by 42%, which accounted for 38% of total rooms in operation at the end of 2018. In addition to 1,338 mid- and upscale hotels in operation, we have 831 mid and upscale hotels in pipeline,” she said.
Zhang added that Huazhu’s JI, Crystal Orange, Mercure and HanTing brands contributed to strong opening pipeline growth in the midscale segment.
Huazhu’s second strategic focus is on “continuous growth in same-hotel RevPAR through quality improvements,” she said.
Same-hotel RevPAR rose 5.5% in 2018, with “5.6% growth in the economy segment and 5.2% growth in mid and upscale segment,” Zhang said.
The company is also focused on innovations in the upscale segment, which was helped by the acquisition of the Blossom Hill brand late last year, Zhang said.
“In 2019, we are going to showcase (Blossom Hill’s) new urban hotel at downtown landmark in Shanghai,” she said. “We also decided to convert Vue Hotel in Beijing Hou Hai, center of the city, into a Blossom Hill Hotel. This includes a conversion from Vue Hotel that will be done near term.”
More results, 2019 guidance
RevPAR for all hotels in operations was 196 Chinese renminbi ($29.73) for the fourth quarter and 197 Chinese renminbi ($29.88) for the full year, according to the release. Average daily rate in the fourth quarter was 230 Chinese renminbi ($34.89) and 226 Chinese renminbi ($33.67) for the full year. Fourth-quarter occupancy was 85.2%. For the full year, occupancy was 87.3%.
Net revenue is expected to grow 13% to 15% year-over-year in the first quarter of 2019. It is expected to grow 15% to 17% for the full year.
Huazhu also expects “the gross opening of 800-900 hotels in 2019, about 75% of which are midscale and upscale hotels,” according to the release.
As of press time, Huazhu Group’s stock was trading at $39.02, up 36.3% year to date. The Baird/STR Hotel Stock Index was up 11.7% for the same period.