Huazhu reports start of recovery for hotels in China
 
Huazhu reports start of recovery for hotels in China
27 MARCH 2020 2:31 PM

Though the coronavirus outbreak shut down travel within China during the first months of the year, executives at Huazhu Group explained how they were able to keep most of their hotels open and operating.

SHANGHAI—China-based hotel management firm Huazhu Group was among the first in the global hotel industry to feel the effects of the coronavirus pandemic, but still managed to keep most of its hotels open, executives said during a call to report fourth-quarter and full-year 2019 earnings.

Huazhu founder, Executive Chairman and CEO Ji Qi said the COVID-19 outbreak affected hotel business significantly early in the year as cities in China were locked down and the Chinese government placed travel restrictions to prevent further spread of the virus.

Hotel owners contended with no new reservations and no-fee cancellations, resulting in a loss of revenue, and faced a difficult decision over whether to keep hotels open or close them and lay off staff, he said.

“To keep hotels open means you have to devote additional resources to suffer more loss and even run higher risk of infection during pandemic,” he said. “However, at Huazhu, we keep our promise to provide a safe and clean space to our customer during their trips.”

“Backed by a well-established platform,” Ji said, the company’s hotels have reported “zero cross-infections” among its guests.

Following the outbreak in China, Huazhu created a risk crisis task force that comprised a centralized money center supported by 18 regional command centers, Ji said. The task force communicated with the rest of the company daily to mobilize all available resources and to coordinate efforts by parties both within and outside of Huazhu’s network, he said. Huazhu is leveraging its internal information platform to communicate its collaborative efforts so employees and franchisees have timely access to critical information, he said.

As chairman and CEO, Ji said he has foregone his salary. The company’s top executives and senior management are taking a 30% to 50% pay cut, he said.

The company estimates it will close 350 to 450 of its hotels in 2020, but 300 to 350 of those were previously planned closures and 50 to 100 of the total are related to COVID-19, according to its earnings release.

As of press time, Huazhu’s stock was trading at $28.12, down 28.9% year to date.

At the property level
Huazhu’s swift response to the outbreak including leveraging its supply chain to provide each hotel and its staff with sufficient supplies, President Jin Hui said through translation.

During the Chinese New Year, most of Huazhu’s hotel managers were back in their hotels, working and organizing their teams, he said. They developed a standard operating procedure for virus prevention and trained all staff to help prevent the spread of it, he said. Staff members have a 26-step cleaning process to keep themselves and guests healthy, he said.

When China reached the peak of its outbreak, hotel operations did not stop, Jin said.

“As a leading hotel company in China, we fulfill our social responsibilities,” he said. “Cumulatively, there are more than 500 hotels which have been taken over by the government for medical uses and quarantine purposes. Just adding to that, the government paid us for that.”

By the second half of February, companies in China had started up again and people began returning to work, he said. By that point, Huazhu had started using multiple channels for sales and providing quarantine rooms for returning workers, he said.

During this, Huazhu helped its franchisees navigate the challenging environment, Jin said. It assisted with obtaining bank loans, provided legal counseling service, reduced its management fees temporarily and provided services to returning staff, he said.

Through all of its efforts, Huazhu now has 93.5% of its hotels in operation, up from 50%, he said. Occupancy has reached 62% at its operational hotels, up from single digits just days ago and ahead of industry peers, he said.

Strategic accomplishments
During 2019, Huazhu continued its fast expansion growth plan, achieving gross openings of 1,715 hotels, exceeding the midpoint of its original plan by 50%, Ji said. The company’s pipeline grew to 2,262 hotels, doubling its size compared to the end of 2018, he said.

The company also focused on its innovative technology applications on improving operational efficiency as well as guests’ experiences, he said. Online booking grew to 40%, up from 35% in 2018, and online payments increased to 53% from 47%, he said. Its gross merchandising volume reached 38.9 billion Chinese yuan ($5.5 billion), a 72% year-over-year increase, through online bookings, he said.

Huazhu’s third focus was its strategic deployment in the upscale hotel segment, he said. Along with opening four new Blossom Hill and two new Joya hotels, the company completed its acquisition of Deutsche Hospitality, “further expanding Huazhu’s upscale brand portfolio and overseas presence,” he said.

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