Hotel company executives on second-quarter earnings calls acknowledged that challenges in China have put pressure on RevPAR performance in the region, but they are looking forward to signs of recovery for the full year.
REPORT FROM THE U.S.—Tensions in China aren’t proving to be a positive for leisure travel into the market as of late.
Most major hotel companies reported softer revenue-per-available-room growth in China during the second quarter because of the ongoing U.S.-China trade war as well as protests in Hong Kong, but executives are hopeful that business will remain stable for the remainder of the year.
Executives on second-quarter earnings calls gave more color behind performance in China.
Mark Hoplamazian, president and CEO, Hyatt Hotels Corporation
“Apart from the U.S., I want to spend a little time on greater China, which came in below our expectations in the quarter. … Greater China is again showing some RevPAR contraction down close to 3% for our full-service hotels, driven entirely by declines in Macau and Hong Kong. Economic conditions in Greater China combined with ongoing trade tensions with the U.S. have weighed on demand affecting both Chinese travelers and inbound travel.
“In addition, consistent with the first quarter of this year, we've seen continued headwinds relating to the casino room block in Macau, which negatively impacted our Greater China RevPAR growth by approximately 170 basis points. Finally, the demonstrations in Hong Kong have negatively impacted our second-quarter results, and we expect the third quarter to reflect the impact of occupancies that have dropped by approximately 300 basis points along with rate declines of almost 8% in constant currency in the June and July period, as compared to last year.
“Based on recent indicators, we expect a difficult third quarter in Greater China with some RevPAR recovery in the fourth quarter. Our positive RevPAR forecast for the fourth quarter assumes that economic conditions improving in part as a result of economic stimulus that was initiated at the beginning of this year and that we see a reduction in the disruptions caused by the demonstrations in Hong Kong. Our outlook would be further enhanced if a new trade deal were put into place between the U.S. and China during the second half of the year. In the face of these challenging conditions, we gained market share during the second quarter in Greater China, excluding Macau.
“Another positive sign is that development activity remains very strong. Chinese owners and developers are currently still bullish long-term and want to put capital to work while leveraging the strength of our brands. Those are a couple of the most significant areas that are impacting our overall assessment of business conditions at this time.”
Arne Sorenson, president and CEO, Marriott International
“Obviously, our RevPAR numbers in China were meaningfully better than the industry as a whole. And I think that's a sign of our strength. But the RevPAR numbers in China were not as good as they were a quarter ago and they were not as good as they were last year. And so I think that's a sign that when you look at the averages rolling up across that very big country, you're seeing somewhat more modest economic growth.
“We’ve got very topical things right now, trade war with China being one and Hong Kong, I think, being another example. Hong Kong performed fairly well in the second quarter, but obviously what's happening on the streets in Hong Kong today is not a positive sign for travel into that market. And so I suspect we'll see that Hong Kong weakens. And I think when you get to the trade war, the biggest question there is what does it mean for Chinese GDP growth? Not what does it mean for exports and imports, but what does it mean for Chinese GDP growth?
“And that has to be evaluated in the context of a shift by China towards more of a consumer-driven economy than they have experienced in years past. And I think that makes our industry perform a bit better in China and for China outbound markets than other industries in China. But I think all of those things put together and you've got some obvious risks in China, but you've also got some good albeit more modest, but you've got still continuing GDP growth. And China has got levers to pull to make sure that they continue to try and stimulate their economy.”
Geoff Ballotti, CEO, Wyndham Hotels & Resorts
“We had no indication of any impact or slowdown on either our franchise or managed business in China in Q2. In fact, when we look at it on a constant currency basis, our same-store view saw our RevPAR actually improve a little bit by … 50 basis points of growth in the (quarter). And, again, no slowdown either on demand as in our comments we talked about very strong demand and growth for our direct franchise brands as we said with a 10% net room growth. Our masters saw good solid room growth at 8% and nearly all of our 20% pipeline growth in China is direct business now, which absolutely thrilled us. We can't say enough about the job that the team over there in China (is doing). We've grown from a dozen to over 100 franchise sales, (and) marketing operation professionals; and they are just knocking it out of the park with our historical brands. Our Wyndham brands are growing. Our Ramada brands are growing. Our Ramada Encore brands are growing.
“And we have the ability as we've talked about to introduce new brands into that market. And the job that that team is doing, introducing the Wingate by Wyndham brand into China, the Microtel by Wyndham brand into China. … All have new executions and new openings and they're some of the best representation of product that we have in those brands globally. And also finally, we've talked a lot about Days Inn. Our team is killing it right now in terms of getting those franchisees to sign direct franchise agreements with Wyndham, now that we've taken back control of the Days Inn master.”
Chris Nassetta, president and CEO, Hilton
“In the Asia/Pacific region, RevPAR increased 2% in the quarter, with a slight RevPAR decline in China, largely due to softening Chinese leisure travel demand, further pressured by the ongoing protests in Hong Kong. For full-year 2019, we expect RevPAR growth for the region to be in-line with system-wide guidance, with RevPAR in China relatively flat, reflecting softer performance in the quarter and a potential continuation of trends.”
Nassetta on Hilton’s path to reaching the top end of its full-year guidance outlook of 2%:
“The groups (are) going to perform, because it's mostly on the books. You'd have to sort of have the caution flags pulled back in the U.S. Is that possible? Sure. You could get a trade deal done with China. People could feel a little bit better. People could start spending a little bit more traveling, and so it's not impossible. It is possible to get to the 2%. In our view, it was not really possible to get to the 3%, which is why we took it off the table. I think it is possible.
“The other things that would contribute to it would be China. China, while it's not a huge part of our overall system, it was growing at a much, much higher level. So it going to flat or modestly down does have some impact. So if the U.S. stiffened up a little bit and people took a few caution flags in, China flipped around with a trade deal, could you be at 2%? Yes. Do I think we will? No. I think we'll be around 1.5%. That's why we gave a range and trying to tighten the range more than a point when we’re halfway through the year, just to be honest, just didn’t feel prudent.”
Kevin Jacobs, EVP and CFO, Hilton, talking on slower leisure demand
“It's been pretty consistent across the board in China. I mean, over half the business is leisure-driven in China, and 90% of it's driven in-country. So when you see their economy slowing the way it is and them sort of pulling back the reins a little bit on spending, you're going to see that flow through to our business. And so, but we really haven't seen—you're not seeing sort of the business dramatically constricting and the food and beverage being limited the way it had been a couple of years ago. I think it's really broadly driven by leisure.”
Jim Murren, president and CEO, MGM Resorts International
“Over to MGM China, revenues grew 26% to $706 million and adjusted property (earnings before interest, taxes, depreciation and amortization) was up 43% to $171 million that’s due to continued ramping of MGM Cotai. We did have a weaker than normal VIP hold in the quarter, which negatively impacted EBITDA by about $10 million.
“And as we all know, the VIP market had been a bit rugged, but the mass for us continues to show strength. By property, MGM Macau achieved EBITDA of $116 million, up 17% year-over-year. Mass business there was stable, and though as I said VIP volumes were impacted somewhat by transitioning some of the junket rooms over to MGM Cotai.
“MGM Cotai continued its ramp with $56 million of EBITDA, up $171 million—171% over the prior year.”