China Lodging commits to goals to drive profitability
China Lodging commits to goals to drive profitability
16 NOVEMBER 2016 9:39 AM

China Lodging Group’s CEO explained how the company will continue to upgrade its flagship brand to HanTing 2.0 and differentiate its brands from competitors. 

SHANGHAI—Officials for China Lodging Group reported a successful third quarter during the company’s recent earnings call, noting both growth of revenue per available room as well as revenue growth from midscale hotels.

The company saw net revenue grow 10.9% year over year, meeting previous guidance, according to CFO Teo Nee Chuan. Midscale hotels recorded 35% year-over-year revenue growth, resulting in revenue contributions from midscale and “upper scale” properties reaching 28% of total net revenue in the quarter.

Blended RevPAR growth grew 3.2%, an increase from 1.1% growth in Q1, driven by average daily rate.

The company expects net revenue to grow between 9% and 11% year over year in the fourth quarter, he said, and full year projects show growth of 12.7% to 13.3%.

As of press time, China Lodging’s stock value was up 49.1% year to date. The Baird/STR Hotel Stock Index was up 3.63% for the same time period.

  • Click here for further coverage of fourth-quarter earnings calls. 

Ongoing goals
China Lodging executives have developed a number of goals to accomplish over the next three years, CEO Min Zhang said.

The first step is to upgrade the company’s economy hotels portfolio to dominate the upper economy hotel segment, she said. The continued push to update the HanTing brand to HanTing 2.0 has been a key driver behind RevPAR growth and profitability, she said.

“We will continue those efforts and expect the new version of products will account for a bigger portion in the next three years and that by the end of 2019, the old model will be less than 10% of the overall network,” she said.

To help differentiate HanTing and other company brands from its economy segment competitors, she said, China Lodging is launching its “Stay clean, stay in HanTing” campaign to appeal to guests’ desires for clean accommodations. The company also introduced a café bar to the HanTing brand, she said.

Executives expect to convert 35% of HanTing rooms to the 2.0 model by the end of this year, she said, with another 20% each year for the next two years.

China Lodging is redesigning the Ibis hotels in its portfolio based on the prototype provided by AccorHotels, Zhang said.

“Since the first flagship store opened in the middle of the year, we have already signed up a few dozens of new projects under this new model,” she said.

The company is accelerating its expansion of midscale hotels, she said, and executives expect to increase openings of midscale hotels in 2017 by 40% in terms of hotel comps.

Though executives expect to open fewer hotels next year, she said, the belief is the properties will generate a significant amount of profit through upgrading the portfolio. In addition to the JI Hotel, the company will further develop Starway, Manxin, Mercure and Ibis Styles hotels over the next three years, she said.

Another goal is to drive same-store RevPAR to grow continuously through quality improvement programs, Zhang said. The company’s efforts this year pushed RevPAR growth back into positive territory, she said, with a 0.5% year-over-year increase this quarter.

AccorHotels developments
Since the transaction forming a strategic alliance between China Lodging and AccorHotels closed in January 2016, the transition has been relatively smooth, Teo said, and both companies are making progress integrating their booking systems. China Lodging hotels have been posted on AccorHotels’ web portals, and AccorHotel properties have appeared on China Lodging’s.

AccorHotels has been helping China Lodging develop the branding for Ibis, Mercure and other brands, he said. The process has been on schedule, he added.

Some AccorHotels properties closed, he said, but that was mainly because of problematic franchisees who were inherited in Q2 as part of the transaction. China Lodging needed to take over the midscale and economy hotels from AccorHotels, he said, and remove the troublesome ones.

“Our cooperation with Accor has been on schedule,” he said. “In fact, we have been looking forward to working together with Accor in other areas as well, including, but not limited to, co-development of the Novotel and Grand Mercure brands.”

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