21st Century Business Herald reporter Zhang Sai, male intern Yin Xinyu, Shanghai reporting
On August 20th, Huazhu Group (NASDAQ: HTHT; Hong Kong Stock Exchange: 1179) released its unaudited financial performance announcement for the second quarter and midterm of 2024.
Data shows that in the first half of the year, Huazhu Group's revenue was 11.426 billion yuan, a year-on-year increase of 14.1%, and its attributable net profit was 1.726 billion yuan, a year-on-year decrease of 13.92%. Although net profit has declined, it still exceeds pre pandemic levels and is almost the full year profit of 2019 (1.769 billion yuan).
On a quarterly basis, in the second quarter, Huazhu Group's hotel revenue was 23.4 billion yuan (RMB, the same below), a year-on-year increase of 15.5%, and achieved revenue of 6.1 billion yuan, a year-on-year increase of 11.2%, slightly higher than the previously announced revenue growth guideline of 7% -11%. At the same time, Huazhu China's three key operating indicators of average rentable room revenue (RevPAR), average daily room rate (ADR), and occupancy rate (OCC) all achieved a month on month increase.
With the continuous promotion of the sinking strategy, we see that there are still huge opportunities and growth potential in the Chinese market, while also accumulating a lot of practical experience and organizational capabilities, "said Jin Hui, CEO of Huazhu Group, at the Huazhu 2024 Q2 performance conference on August 21.
It is worth noting that in the second quarter, Huazhu Group continued to expand its hotel network and reached an important milestone: achieving the goal of "10000 hotels". As of the end of the second quarter, Huazhu Group had 10286 operating hotels worldwide.
However, it cannot be ignored that despite last year's high base, key operating data of several hotel groups have declined this year. As a leading hotel group, how does Huazhu view the market trend and future opportunities in the second half of the year? At this performance meeting, Jinhui also made an interpretation.
Achieve the goal of "10000 stores"
Motuo County, Nyingchi City, Xizang Autonomous Region is the last county in China that has access to roads. In May this year, the first ten thousand stores of Huazhu Group opened there.
This Han court holds special significance for Huazhu. Huazhu Group proposed the goal of "Thousand Cities, Ten Thousand Stores" at the end of 2019, and after more than 4 years of effort, finally achieved the goal of "Thousand Cities, Ten Thousand Stores 1.0".
As of the end of the second quarter, Huazhu Group had 10286 operating hotels worldwide, with 1001865 hotel rooms and 3294 hotels awaiting opening. Among them, Huazhu China has 10150 operating hotels and 567 newly opened hotels in the second quarter.
In the first half of the year, Huazhu Group maintained double-digit revenue growth, which was inseparable from the continuous expansion of the number of stores.
In terms of strategic layout, it is not difficult to see from the "Hanting Settling in Motuo" that accelerating the penetration of the sinking market is its main strategy.
Not only along the Sichuan Tibet Highway 318, Huazhu has also opened brand "first stores" in many cities, such as the first all season hotel in Dazhu County, Sichuan Province and the first intercity hotel in Renhuai City, Guizhou Province.
Jinhui revealed that as of the end of the second quarter of 2024, the company's operating hotels accounted for 41% in third tier and below cities, an increase of 2 percentage points year-on-year. The number of hotels waiting to open in third tier and below cities also saw double-digit growth compared to the same period last year.
From the perspective of customer positioning, serving the mass market remains one of the key factors supporting hotel performance, and Huazhu has always focused on economy and mid-range hotels as its core. According to financial report data, as of the second quarter, the proportion of operating and waiting to open hotels for Huazhu economy and mid-range brands has reached over 90% and 80% respectively.
Although economy and mid-range hotels are important supports for the development of Huazhu Group, the pace of Huazhu Group's mid to high end layout is also accelerating against the backdrop of rapid expansion of mid to high end hotels.
According to the performance report, as of the end of the second quarter of this year, Huazhu's mid to high end hotels in operation increased by 31% year-on-year and 8% month on month, from 562 in the same period last year to 738 this year. Mid to high end hotels awaiting opening have seen a year-on-year increase of over 60% and a month on month increase of nearly 20%.
Among them, intercity hotels, as one of the main brands of Huazhu's mid to high end strategy, have landed in multiple cities such as Shanghai, Shenzhen, Beijing, Wuhan, and Zhengzhou, with over 100 projects under development so far. Intercity hotels are a brand under the German Hotel Group (DH). After Huazhu Group completed its wholly-owned acquisition of DH in January 2020, intercity hotels also joined Huazhu's brand matrix, targeting elite business travelers.
Under the scale of "Wandian", the next concern for consumers and investors is: how can Huazhu operate and manage such a large number of hotels?
Jinhui emphasized at the performance meeting that it is very important for the supply chain to achieve high-quality development and "thousands of stores in thousands of cities" for Huazhu in China. Huazhu's supply chain revolves around cost, quality, and efficiency, and has undergone a large number of supplier replacements and upgrades. In the second half of this year, we believe there will be a huge improvement in cost leadership and supply efficiency
Behind the decline of RevPAR
Due to the concentrated release of compensatory travel demand in 2023, coupled with delayed supply recovery, accommodation and transportation prices in most destinations are generally high. Since the beginning of this year, the tourism industry has basically returned to a normal pace, the supply side has been comprehensively improved, and the consumer market has gradually returned to normalcy. From a year-on-year perspective, the average daily room rate (ADR) and occupancy rate (OCC) of the Chinese hotel industry in the second quarter are both under pressure.
International hotels that previously disclosed their semi annual performance, such as InterContinental Hotels, Marriott, Wyndham, etc., saw a decline in RevPAR (average rentable room revenue) in the Greater China market in the second quarter of this year, with declines of 2.6%, 4.2%, and 17%, respectively.
Huazhu Group is no exception. In the second quarter, Huazhu China's comprehensive ADR (average daily room rate) was 296 yuan, a year-on-year decrease of 2.9%; OCC (occupancy rate) was 82.6%, a year-on-year increase of 0.7 percentage points; RevPAR was 244 yuan, a decrease of 2% year-on-year. However, in terms of overseas business, Huazhu International's ADR, OCC, and RevPAR all increased year-on-year in the second quarter.
Furthermore, the market is also concerned about the trend of RevPAR in the hotel industry in the third quarter and throughout the year.
Jinhui responded that the decline in RevPAR was mainly affected by the dual effects of sluggish macro consumption and a high base in the same period last year. But in his view, 'this is a long-term return to health'. The high base of last year is obviously unsustainable, coupled with the increase in supply in some regions this year. We have seen the differentiation of operating data this year, and some regions still perform very strongly, such as the central and western regions of China; East China may be affected by the increase in supply and show some differentiation. Whether this year or in the long run, we still maintain confidence in the sustainable growth of the Chinese market
From the overall industry development this year, we believe that both OCC and RevPAR should return to a relatively healthy and sustainable development trend. Huazhu plans to promote RevPAR's growth trend through product upgrades, services, and upgraded membership programs, "he said.
Regarding the impact of hotel industry supply on RevPAR growth, Jin Hui stated, "The hotel industry in China is a highly market-oriented industry that is regulated by market factors. In the long run, its supply will be adjusted according to changes in demand. In the past, due to the dividends of chain operation and customer growth, the hotel industry increased its supply. However, I believe that high-quality supply is still scarce in the market, so what Huazhu does is to maintain its unique competitiveness in a fully competitive market environment