China's Bankers Ditch Global Hotel Chains as Travel Budgets Bite

Mint

3 days ago

(Bloomberg) -- These days, Shanghai-based banker Jason Zhang can no longer stay at the Westin hotel in downtown Beijing's financial district after his company cut its travel budget. Instead, he had to settle for a cheaper domestic hotel chain.
To his surprise, the discount in room rate didn't lead to a discount in experience. Yes, the expansive breakfast buffet is gone, but Zhang relishes the local dishes served at the domestic chain Atour. Its pillows and comforters are so popular that many guests buy them after checking out. There's no scramble to pack and leave in the morning as checkout can wait until 6 p.m.
Zhang is not alone in switching hotels. Chinese banks have scaled back travel perks since last year, barring staff from flying business class and booking pricey hotels, as China's economy slows and companies tighten their purse strings. And while it's making things tough for the top-end international brands, the greater financial prudence has opened up opportunities for smaller local chains that focus on the needs of business travelers.
While spending on work-related travel in China slowed in 2024, it still grew to a record $372.5 billion, according to market researcher China Trading Desk. But much of the growth is being captured by hotels offering modest accommodation rather than the luxury end of the spectrum. Mid-range local brands could expand their market share from 45% in 2023 to up to 75% by 2028, the consultancy says.
That's giving domestic chains a boost. Atour Lifestyle Holdings Ltd posted record revenue growth of 55.3% to 7.25 billion yuan ($1 billion), thanks in part to sales of its pillows and comforters. Another hotel chain H World Group Ltd saw revenue jump almost 10% year on year.
This is in contrast to the major international brands, which are struggling in the Greater China region compared to the rest of the world. InterContinental Hotels Group Plc saw room revenue for business trips in the region decrease 5%, compared with a 2% increase globally. Hilton Worldwide Holdings Inc. says its revenue per room in Asia Pacific was flat, dragged down by China. Marriott International Inc. also saw its Greater China revenue decline, citing weaker domestic demand.
'The primary driver behind this transformation is corporate cost-cutting measures,' said Subramania Bhatt, chief executive officer of China Trading Desk. 'Beyond price, local brands have developed several competitive edges that appeal to business travelers.'
While tighter travel budgets are a key reason some are switching hotel brands, it's only part of the story. Local chains unable to match international five-star chains in prestige and glamor are trying to make up in other ways.
Yongbin Xu, a director at a private fund management company in Shanghai, used to stay at Marriott or Shangri-La hotels on work trips but has now switched to Intercity, an upper mid-scale brand operated by H World Group. He made the change not because of corporate cutbacks, but because he likes the location and service of Intercity hotels.
A room at a Shangri-La or Marriott hotel in Shenzhen costs between 1000 yuan and 1200 yuan per night, while Intercity charges around 700 yuan for a room in the central business district.
'Of course, those hotels sacrifice some services, but for business trips, I don't have time to use the swimming pool or other high-end services,' said Xu.
Xu's favorite service at H World: Robots that help ferry food deliveries from the hotel entrance to his room upstairs, whereas international brands ask guests to go all the way down to the entrance to pick them up themselves.
Another perk that has won over many local travelers is free laundry, either through self-service washing machines or through a pick-up service. By contrast, it normally costs from 30 to 100 yuan per item for laundry services in the five-star hotels in Beijing and Shanghai.
Local chains have also sought to gain an advantage over their larger rivals by the strength of their mobile apps, through which guests can access a broad array of services, such as selecting your own room or requesting more water, without having to speak to reception.
While Chinese domestic hotel brands have become more competitive, they also face a number of challenges, including rising operational expenses and cut-throat price competition due to the surge in the supply of rooms in smaller hotels, guesthouses and home-rental apps in the country.
By the end of 2024, the number of hotels in China had risen to 348,700, with 17.6 million rooms, both record highs, according to a report by the China Hotel Association.
This weighed on the average room rate for both domestic and international brands, which declined between 2% and 7% last year. And prices may face even greater pressure in the coming years as the major chains keep expanding to meet rising demand from Chinese travelers.
'The downward trend in hotel prices and profits will continue this year due to oversupply, increasing the risk of investing in new hotels,' said Zhao Huanyan, a Shanghai-based independent hospitality industry consultant.
Despite stronger sales, H World Group saw its profit decline last year due to expenditure on renovation and service upgrades.
For Atour, its breakneck expansion appears to have led to a lapse in quality control. The pillow cases at one of its hotels in Hangzhou were found out to be ones meant for a hospital, sparking widespread media and online scrutiny. Atour later explained in a statement that it was a sorting mistake by its laundry supplier and temporarily closed down the location to replace all bed linen.
In response to rising local competition, international hotel chains have been expanding their mid-range options in China. Almost 80% of the new hotels IHG has in the pipeline in the Greater China region belong to their more affordable brands, compared with around 20% in their luxury segment. Marriott's chief financial officer Leeny Oberg highlighted in the company's earning call in May the 'terrific interest' in their mid-tier brands.
But for Zhang, it's unlikely to be enough to persuade him to switch his allegiance back from China's domestic chains.
'I expect I'll continue to stay at Atour hotels in the future, even for personal trips, as I've come to like them.'
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