In recent times, the landscape of the hotel industry has undergone a significant transformation, particularly regarding pricing and services offeredGone are the days when high-priced hotels were a norm, as recent trends indicate a stark reduction in room ratesMajor chain hotels that once demanded prices upwards of six or seven hundred yuan per night are now advertising promotions showcasing rates as low as 278 yuan for an extended stay of three days and two nights, even during peak seasons such as the Spring Festival and New Year’s Day.
Not only has the pricing become competitive, but the value of services is also on the rise without an accompanying hike in pricesFor instance, extended checkout options have become standard, and membership deals often entice guests with offers like “pay for one day, stay for two.” Amenities such as gyms and coffee shops have become ubiquitous, allowing guests to enjoy five-star services at three-star prices.
This shift can be attributed to the dwindling occupancy rates that plague the hotel industry
Recent data shows a year-over-year decrease in occupancy rates for leading hotel chains such as Jin Jiang and HuazhuFurthermore, ShouLv has reported a continuous decline over three consecutive quarters, leading to a problematic situation where not only revenues but profits have stagnated through these changes.
The downturn in hotel performance has led some industry leaders to point fingers at Online Travel Agencies (OTAs) as the root cause of their spiraling fortuneHuazhu's CEO has publicly criticized the excessive discounts being offered at various stores, warning that overreliance on OTAs could erode core competitive advantagesSimilarly, management at ShouLv has attributed rising sales costs to increasing commission pressures from OTA orders.
While OTAs indeed profit from the price differentials, the hotel chains are not blamelessIn recent months, travelers' attitudes have changed, and while hotels have correctly identified market trends, they have failed to attract the desired clientele amid fierce market homogenization.
This situation feels like a self-inflicted wound, with hotels handing over their weaknesses to competitors.
This past National Day holiday in 2024 saw international hotel chains like Hilton and Marriot rebound to about 120% of their booking sizes from 2019. In stark contrast, domestic chain hotels experienced stagnant performance, particularly within the mid- to high-end markets, contributing to a situation where budget hotels became the highlight of the season
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Reports show that mid- to high-end hotel occupancy rates and room rates have declined, cementing economic hotels as the favored choice among many travelers.
The apparent mismatch in the performance of international versus domestic chains does not stem from a lack of travel from Chinese consumers; rather, it reflects changing travel habitsInternational brands are still thanking China for its robust tourist outputFor instance, Intercontinental Hotels mentioned that Chinese tourists have been favoring overseas destinations throughout the summer, acting as propellers for business in other regions, while Accor acknowledged that the influx of Chinese travelers has significantly bolstered their operations in Southeast Asia.
This shift illustrates that while outbound tourism is on the rise, the boost in international hotel business remains lucrativeHowever, local chains like Huazhu, known for weak international footprints, face a diminishing core clientele as upper-income users redirect their spending away from domestic hotels to international options.
Nevertheless, domestic travel has not diminished; young students adventure on late-night hikes and culinary escapades, while working individuals seize holidays to escape the confines of office cubicles, embarking on what has been termed “reverse tourism” to smaller towns and cities
This rising trend towards “downward travel” has seen hotel bookings in third- and fourth-tier cities swell by 30% to 40% compared to first- or second-tier cities, with occupancy rates remaining strong during the recent holidays, contrasting sharply with a notable decline in first-tier urban areas.
This rapid growth in lesser-known cities has been anticipated by many hotel chains, as five years ago, they began expanding into these underserved marketsBack then, they were optimistic about a supposed “upgrade in consumption,” taking bold steps to establish destinations through hotels like Hanting and OrangeHowever, the realization is dawning; the affluent clientele had shifted their focus overseas, leaving budget travelers in smaller cities to sift through a plethora of affordable options.
In a bid to recover, hotel chains have ramped up expansion in economic accommodations within smaller cities, yet the challenge remains steep as they face stiff competition from single hotels and homestays
Reports of owners selling out under duress signal a troubling environment for newly entering playersMoreover, the investment and time needed to establish a strong presence in these markets can quickly become unbearable burdens, especially given the pronounced seasonal fluctuations in demand.
In this convoluted scenario, the differentiation between outbound travel and downward travel has left little room for chain hotels to benefit significantlyAdding to the complexities, an industry report from August 2024 highlighted that the current demand for business travel has lagged behind leisure travel, with Intercontinental in Greater China reflecting better performance in leisure recovery compared to business segments.
This implies an impending shift in the core customer base of local chains, risking their bargaining power in an industry heavily influenced by business tripsGenerally, corporate travel tends to dominate the marketplace with hotels possessing the upper hand, while the leisure-oriented market heavily relies on OTAs.
Statistics from 2019 illustrate a significant contrast in business travel markets across the globe: in the U.S., business travel accounted for 40% of hotel market size, while OTAs controlled only 40% of online bookings; meanwhile, in Europe, the number of business travelers was significantly smaller, yet OTAs commanded a more substantial 60% of bookings.
A similar scenario exists within the domestic market where Huazhu hotels boast a high concentration of business travelers
The loyalty of their early membership often came from leisure travelers, leading to return visits of just about 1%. Notably, business travelers tend to have consistent travel frequency, with companies typically entering into agreements with hotels for favorable rates, resulting in stable customers.
Conversely, leisure travelers exhibit a trend of booking hotels only after finalizing their itineraries, creating a more volatile market where demand peaks and troughs unpredictably challenge hotels to fill their roomsIn this context, OTA-driven packages and themed travel can ease the pressures of demand shifts; for example, bundling concerts with hotel stays in off-peak seasons can attract patrons.
As the leisure market continues to expand rapidly, hotel chains are increasingly leaning on OTAs for survivalDespite internal restrictions dictating that OTA bookings shouldn’t exceed 30%, some franchise locations have seen those figures balloon to as high as 50% to combat declining occupancy rates.
The crux of this situation lies in the transformation of travel consumption and traveler preferences, contrasting sharply with hotel groups that have failed to adapt their services accordingly
The ongoing crisis in the hotel industry is thus marked by both external factors and internal missteps.
The issue of homogenization has led to a superficial feel amongst hotel accommodations, making it increasingly difficult for brands to stand outObserving the market landscape, customers are often encountered with an overwhelming wave of indistinguishable options that lack unique features or servicesAs more hotel chains emphasize building mid-tier facilities, the market is inundated with lookalike offerings manifesting little personality.
On the surface, this extensive expansion seems to indicate a rising tide for hotel chains; however, the reality reflects a tendency for all hotels to blend into one indistinct entity, reducing brand differentiationThis approach mirrors the struggles seen in retail, where the influx of similar products often leads to a decline in profit margins due to price wars.
At this juncture, it becomes evidently clear why many hotel brands are faltering amidst such fierce competition
The trend towards similarity has dulled the distinctiveness that guests yearn for, particularly from the leisure market that increasingly seeks personalized experiences.
While this landscape is daunting, not all is lostFor instance, brands like Atour Hotels have managed to sustain growth by targeting specific audiences with tailored offerings, such as providing high-end suits for loan or customized services for middle-aged travelers focused on wellness and comfort.
In light of this, numerous hotel chains are embracing new strategies to cater to this emerging market of leisure travelersHowever, such an approach does invite its own set of challengesReports indicate that the per-room cost of Atour hotels exceeds that of their counterparts like Qianjana by as much as 15,000 yuan, with operational costs also risingMaintaining quality incurs greater managerial and financial burdens, particularly as the added expenses are often passed down to franchise owners.
The increasing density of hotels in localized regions can exacerbate internal competition; complaints from franchisees about direct competitors opening mere meters apart embody the struggle for geographic customers
In these cases, owners are often compelled to resort to OTA platforms for customer acquisition, acknowledging their intense draw in the market.
However, engaging with OTAs brings forth additional costs that must be navigatedUsing platforms requires more comprehensive offerings such as complimentary room upgrades, competing with others for visibility, and incurring higher commission rates—averaging around 12%, as opposed to the 8% experienced through hotel group central channels.
Despite higher commissions squeezing profit margins, many franchisees find it worthwhile for the foot traffic generated through OTAs, even if it leads to slightly lower room rates or increased commission paymentsEven as this reliance on OTAs escalates, hotel groups find themselves at odds, witnessing their exclusive rights and privileges being undermined by franchise ambitions.
In a bid to recover power, several hotel brands have resorted to enforcing strict measures, such as Huazhu’s CEO Ji Qi announcing firm stances on maintaining member privileges and pricing, threatening to take action if partner agreements are violated.
The pressing necessity to pivot and adapt becomes evident as the landscape of travel consumption shifts, necessitating hotel chains to offer innovative, attractive benefits to their partners while ensuring equilibrium with emerging market conditions.
As travel patterns evolve and diverse preferences emerge, the intricate dance between international and domestic travel presents a formidable challenge for hotel chains