How hotel chains are rethinking China

Golden opportunity for growth lies in mid-priced segment

The recent WTTC Global Summit 2014 in Hainan brought together governments, destinations, airlines, hotels, online travel agencies and more to debate travel and tourism issues.

Travel and tourism is now a key pillar of the Chinese economy, supporting 65 million new jobs and accounting for 9% of the country’s GDP. China had three billion domestic tourists and over 100 million outbound tourists in 2013, with over 150 countries having approved destination status.

One of the key challenges mentioned at the summit was to ensure that product quality matches rising demand. With 200,000 households already authorised for rural tourism, the industry will also be used to redress the rural/urban imbalance and help eliminate poverty, officials said.

The summit’s host city, Hainan, aims to become a world-class destination by 2020, offering corresponding international standards. The island already welcomes 36 million visitors annually, predominantly domestic, and offers a wide selection of luxury hotels.

According to Deloitte, the golden opportunity for hotel growth in China lies in the mid-priced segment as the market is currently polarised due to the strong presence of budget and luxury brands.

IHG has 208 hotels open in China, with another 211 in the pipeline as it expands into to second and third-tier cities. Richard Solomons, the company’s CEO, mentioned that it has reinvested all profits in infrastructure, with a focus on the long term.

However, there was a fall in profitability in 2013 for mid- and high-end hotels, declining by 17% and 28%, respectively, according to the Beijing Tourism Group. This is attributed to the drag from the slowing global economy, combined with curbs on government spending on expenses.

The group called on operators to think international, establish new business models and offer new experiences. New business models under development include aparthotels from companies such as Starwood and the guesthouse format.

Euromonitor

[pictured: Sheraton Huzhou Hot Spring Resort, courtesy Starwood]

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