Huazhu projects ‘swoosh’-shaped recovery
 
Huazhu projects ‘swoosh’-shaped recovery
02 JULY 2020 8:18 AM

RevPAR at Huazhu Group’s hotels has reached 65% of 2019’s levels year to date, and executives said they expect revenues to approach 84% by the fourth quarter.

SHANGHAI—Executives at China-based hotel management firm Huazhu Group expect revenue per available room to be somewhat close to normal by the end of 2020, despite a recent resurgence in COVID-19 cases in Beijing adding to the overall sense of uncertainty.

On a first-quarter earnings call with investors and analysts, Huazhu Co-President Jin Hui said year-to-date RevPAR levels are “back to 65%” of 2019’s levels, and that number could climb to roughly 84% by the fourth quarter.”

Founder, executive chairman and CEO Ji Qi said “instead of a v-shape,” he expects the recovery to be “more of a swoosh shape.”

As signs of improvement, he pointed to the easing of governmental restrictions on travel in China and Germany, where Huazhu-owned Deutsche Hospitality is based.

Jin said average occupancy at the company’s hotels, weighted heavily toward the economy and midscale segments, is already far exceeding industry averages in China. With 97% of its hotels in operation during the second quarter, the company recorded average occupancy of 74% for the week of 14 June, compared to an industry average of 47%.

“The resurgence of COVID-19 in Beijing did have a negative impact on our operations,” he said. “However, we’ve also seen the Chinese government take a very thoughtful, quick reaction to this situation, and therefore we are very cautiously optimistic.”

Jin said 157 of the company’s nearly 6,000 hotels remain closed due to government restrictions, mostly tied to the outbreak in Beijing.

Executives stressed they have made strategic changes, including cutting corporate level positions and pushing some decision-making to the property level.

Q1 performance
First-quarter results were dire for the company, with performance bottoming out in the middle of February, Jin said.

According to the company’s Q1 earnings release, occupancy for legacy Huazhu properties (excluding the Deutsche Hospitality portfolio) was 39.6%, compared to 80.6% in the first quarter of 2019. Average daily rate for the quarter was 189 Chinese yuan ($26.73), compared to 221 yuan ($31.25) in 2019. RevPAR was 75 yuan ($10.61), compared to 178 yuan ($25.17) in Q1 2019.

Year-over-year comparisons for the pipeline and signings were more favorable, hovering at roughly the same levels as 2019.

Co-President Liu Xinxin noted a “clear trend of further penetration in lower tier cities” in the company’s pipeline, adding “the majority of our hotels are still in the economy and midscale segments, which are more resilient and profitable, but the pipeline for our upscale and upper-midscale segments are strong as well.”

The pipeline has grown slightly from 2,262 properties in 2019 to 2,324 properties as of May, 50% of which are economy and 39% are midscale.

The company reported a marginal decrease in signings over that period, down to 873 from 877 in 2019.

At press time, Huazhu’s stock was trading at $32.82 a share, down 20.9% year to date.

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