With Peak Season of the Hotel Industry Approaching, Hotel Performance is Expected to Boost

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Summary

1. As the COVID-19 pandemic subsides, China's tourism industry is expected to recover in July and August, and tourism-related industries such as hotel and food service industries are expected to continue to improve.

2. Chain hotel brands offering higher quality and unified service standards are the best accommodation choice for tourists.

3. GreenTree Hospitality Group GHG, as the leading asset-light hotel group, is expected to usher in a sales boost in the summer vacation.

Tourism is expected to recover to 100% over the same period

Since the outbreak of COVID-19 in early 2020, various industries have been dealt a blow to varying degrees. As China is the first country to recover from the COVID-19 pandemic, both the macroeconomic and national consumption conditions have embraced a turnaround. According to the National Bureau of Statistics, the value-added of the tertiary industry (service sector) reached RMB 14.5 trillion in the first quarter of 2021, growing by 15.6% year-on-year and marking an average growth of 4.7% in two years.

 

Amidst the overall recovery of the national economy, various industries have also shown a sustained upward trend and the tourism industry has first manifested such a trend. As indicated by data from the China Tourism Academy, the comprehensive index of tourism economic operation reached 105.72 in the first quarter of 2021, up 36.8% year-on-year and 20.4% month-on-month respectively. The tourism industry is entering from a "relative boom" to a "boom".

 

As far as the pandemic prevention and control is concerned, the relatively severe Guangzhou-Shenzhen region is basically under effective control, and the high-risk areas of China have been cleared to zero. After the college entrance examination and high school entrance examination, the summer vacation peak season tourism is expected to promote the sustained recovery of the domestic medium- and long-distance travel market. In the summer vacation of 2021, the passenger throughput of civil aviation in China is expected to return to the pre-pandemic level. That is, the total number of passengers in July and August is expected to reach or exceed 120 million.

Chain hotels become the best choice for accommodation

As the pandemic is exerting a gradually smaller impact on the national economy, the travel demand of users suppressed by the pandemic is gradually released. The tourism industry shows an evident recovery trend after the pandemic. From the perspective of accommodation choice, after the pandemic, tourists have higher requirements on the quality of accommodation and user evaluation. They pursue higher cost performance while emphasizing quality, revealing the fact that they require excellent quality and reasonably priced products and are willing to pay for quality.

According to data from iResearch Consulting, star-rated chain hotels are trusted by nearly 40% of consumers for their good hardware facilities, high standard service quality and more secure pandemic prevention measures, becoming the most popular type of accommodation products. In the choice of hotels, hotel rating and evaluation from former guests is still the most trusted source of hotel reputation for consumers.

 

According to the CIHB Top 20 Comprehensive Brands of Chinese Hotel Groups provided by Analysys, the most popular chain hotel industry leaders in China are WeHotel, Huazhu Hotels, BTG Hotel, GreenTree Inn and SUNMEI Hotel. They all have a score of more than 4.5 points on major rating apps and account for more than 60% of hotel rooms in the Chinese hotel market.

The asset-light GreenTree Hospitality Group could make more profit

Hit by the pandemic, China's hotel industry suffered a severe setback in the first quarter of 2020. After strict pandemic measures were taken by China, the business travel demand picked up in the second and third quarters of 2020, and RevPAR's year-on-year decline reduced. Due to lower prices and greater consumer demand, budget hotels are recovering faster than medium- and high-end hotels.

Take the GreenTree Hospitality Group, a leader in asset-light budget hotels in China, for example. By the end of the fourth quarter of 2020, RevPAR had recovered to a 95% level in the same period of last year, and occupancy rates had almost reached the same level as last year. During the outbreak of the pandemic, only 45 hotels of GreenTree Hospitality Group were closed due to property problems, and the number and percentage of closures were among the lowest hotel groups in the industry. The RevPAR of GreenTree Hospitality Group is expected to return to its original growth path in 2021.

GreenTree Hospitality Group is mainly operated on the asset-light franchise model, making it more advantageous than other hotel groups. The main revenue source of the franchise mode is the initial franchise fee and continuous franchise fee. The revenue of the initial franchise fee depends on the number of hotels, the city and the number of rooms, without bearing the negative impact of the loss of individual operation of the hotel.

Since the profit margin of the franchise model is higher than that of the direct operation model, the increase in the proportion of hotels under the franchise model can well improve the overall profitability of the company. Take the four major hotel groups in China for example. In 2019, GreenTree Hospitality Group, the fourth-largest hotel group in China, consisted of 99% of franchised hotels, almost all of which are under the asset-light model. In terms of return on equity and net return to the parent company, GreenTree Hospitality Group also showed a remarkable advantage in the business during the same period.

Under the franchise model, the main profit of the hotel groups depends on the number of hotels and the expansion speed, which also determines that the major chain hotels will take franchise expansion as the preferred mode of rapid expansion. It is expected that as the hotel groups continue to promote the asset-light strategic transformation, the leading companies’ profit level will continue to optimize, and the profit space will be further broadened. In this summer vacation, therefore, GreenTree Hospitality Group is expected to make more profit than other companies.

Text By: Mentor Finance

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.