It’s not too often a hotel is in the position of saying occupancy DECLINED to 99% during a quarter, but that’s what China Lodging Group reported in its second quarter earnings earlier this month.
In its 15 August release, the company reported that like-for-like performance for hotels opened at least 18 months saw occupancy of 99%, down from 101% a year ago. That’s 99% occupancy for a total 28,659 rooms in operation. Still very strong, but then a look at the average daily rate for these hotels shows that a 2-point drop in occupancy led to a 3.5% drop in ADR to CNY192 (US$30.04). Revenue per available room also fell, dropping by 5.4% to CNY191 (US$29.88).
ADR for all hotels fell to CNY182 (US$28.48), down 7.1%. The company attributed the decline to discounts offered to guests by new hotels that opened. The company opened 43 hotels during the quarter and as of 30 June had 516 hotels in operation.
China has been on the development wish list for many hotel companies in recent quarters, and for good reason. It is, by many accounts, an under-hoteled region in a growing economy with a populace that is traveling more and more. That’s led to occupancy rates reaching well into the 90% (and beyond) territory.
But in perusing the latest batch of earnings releases from public hotel companies in China, you see that, while operating metrics are still strong, there are signs of some weakness in China, caused, as in the case of China Lodging, by the explosive hotel supply growth.
Home Inns & Hotel Management, for instance, revised downward its full-year 2011 revenue guidance to growth of 15% to 17% from 18% to 20% year-over-year. Still a healthy increase, but again, it’s a chink in the armor.
During the company’s second-quarter earnings call, Home Inns’ CFO Huiping Yan attributed the revised revenue estimate to the longer time it is taking to open new hotels, because of increased environmental regulations.
“Given the overall stable operating environment and the company’s ongoing efforts to realize efficiencies and leverage improvements in development, construction and operations, Home Inns is confident that the impact of the compliance environment change will be temporary and that the company’s business thesis and profitability profile (will remain) intact,” Yan said.
7 Days Group Holdings Limited, which operates 722 hotels comprising 72,150 rooms in China, also reported weakness in the three key operating metrics. Occupancy during the second quarter fell by 6.3% to 87.5%; ADR edged downward by 0.4% to CNY161.5 (US$25.28); and RevPAR decreased by 6.7% to CNY141.3 (US$22.12).
7 Days also saw strong development during the past year, as it operated 399 hotels representing 39,561 rooms as of the end of the second quarter of 2010.
When all is said and done, China remains a lucrative market and rightly deserves all the development attention it receives. It will, however, be interesting to see if the country can sustain its heady performance now that hotel companies have more rooms to fill.
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