On November 27th, Huazhu Group (NASDAQ stock code: HTHT, Stock Exchange stock code: 1179. HK) held a conference call to announce its third quarter 2024 performance. In the third quarter, Huazhu Group's revenue increased to 6.4 billion yuan (RMB), a year-on-year increase of 2.4%; The hotel's revenue increased to 26 billion yuan, a year-on-year growth of 10.7%.
Meanwhile, Huazhu Group's hotel network continues to develop, with 10845 hotels in operation in the third quarter. Among them, the number of newly opened hotels by Huazhu in China reached 774 in the third quarter, and the cumulative number of newly opened hotels in the first three quarters of this year was 1910. As of the end of the reporting period, Huazhu China had 10707 operating hotels and 2899 hotels awaiting opening.
During the performance conference, Jin Hui, CEO of Huazhu Group, stated, "While expanding our scale, we adhere to the growth philosophy of quality over scale and constantly demand higher standards for hotel quality. In the future, we will continue to sort out our existing inventory, eliminate low-quality stores, and ensure further improvement in overall hotel product and service quality." Huazhu China's OCC (occupancy rate) for the first three quarters of this year reached 77.2%, 82.6%, and 84.9%, respectively, which are overall better than the industry average.
The comprehensive performance of the industry during the "correction period" continues to lead
After experiencing a bottoming out rebound in OCC and a general increase in ADR (Average Daily Rate) in 2023, the Chinese hotel industry has entered an expected "pullback period" this year. Especially in the recently passed third quarter, the core indicators of the hotel industry have all declined due to the impact of high base numbers.
According to hotel data service provider STR, the ADR indicators of hotels in mainland China have shown a year-on-year decline for three consecutive quarters since 2024, while OCC and RevPAR (average rentable room revenue) have also entered a downward trend.
The decline of ADR from a high level has triggered an industry wide adjustment, and amidst this, Huazhu Group has still maintained its original development pace to the greatest extent possible. The third quarter report shows that although Huazhu China's ADR was under pressure due to industry trends during the period, which to some extent affected the performance of RevPAR, Huazhu China's OCC remained at 84.9% during the same period.
Moreover, relying on timely and targeted strategies, Huazhu China has achieved many structural highlights in its operations. For example, by continuously focusing on Huazhu Business Travel, we can make up for the lack of some individual business travelers and achieve stable occupancy rates during the off-season of leisure tourism. During the reporting period, the number of room nights booked through enterprise direct connections exceeded 7.5 million, a year-on-year increase of 41% and a month on month increase of 19%; The number of active enterprise customers exceeded 4500, a year-on-year increase of 45% and a month on month increase of 23%.
Thanks to targeted sales channel optimization work, Huazhu China has effectively strengthened the customer acquisition and sales capabilities of its stores, further emphasizing the importance of direct sales and membership for the long-term sustainable development of the company's business. Data shows that in the third quarter, Huazhu China's central reservation contributed 64.2% to the number of room nights, an increase of 2.2 percentage points year-on-year and 4.3 percentage points month on month, with a membership count of nearly 260 million.
Against the backdrop of industry adjustment, Huazhu Group's financial performance in the third quarter can also be considered stable. Data shows that in the third quarter, Huazhu Group's revenue rose by 10.7% against the trend to 26 billion yuan. Although the company's costs increased due to continuous expansion of its hotel network and one-time overseas restructuring, its net profit remained at 1.3 billion yuan, the same as the same period last year. In the long run, the investment of some costs will be beneficial for supporting the better development of the group in the future, and the benefits released will also be reflected in the financial reports for a certain period in the future.
The confidence to achieve resilience growth under high cardinality decoding
Huazhu achieved resilient growth in the third quarter, which is closely related to Huazhu's steadfast implementation of the "lean growth" strategy.
In terms of product structure, Huazhu continues to focus on economy and mid-range hotels, and deeply cultivates the mass market. At the end of the third quarter, Huazhu China's economy and mid-range brands accounted for 91%, 80%, and 90% of operating hotels, upcoming hotels, and newly opened stores, respectively.
Image: Newly opened Orange Hotel
During the performance conference call, Jinhui stated, "The Chinese national hotel market remains the largest and most promising market, and is the foundation and cornerstone of Huazhu's business. In the future, we will continue to launch high-quality and cost-effective limited service products, expand our coverage of the Chinese market, and further solidify our leading position in the limited service field
At the same time, Huazhu continues to make efforts in the mid to high end hotel industry. At the end of the third quarter, Huazhu China had over 800 mid to high end hotels in operation, a year-on-year increase of 33%; The number of hotels waiting to open was 487, a year-on-year increase of 36%; Among them, the total number of intercity hotels in China, including those in operation and those yet to open, has reached 125.
Image: The newly opened Yantai Binhai Square Seaview Intercity Hotel
In the third quarter, Orange Crystal, a mid to high end flagship brand designed specifically for business travel elites, officially launched version 2.5. The overall product combines the perfect design of light, shadow, and color, with high-quality guest room bedding and crystal brand exclusive fragrances, providing busy urban travelers with a comfortable, relaxing, and sound sleeping space in all aspects from visual, olfactory, and tactile senses. At the same time, the hotel is equipped with an executive lounge, paired with brand exclusive cocktails, creating a public space where you can sit quietly and drink alone, as well as socialize with your companions.
Image: The newly opened Orange Crystal Shanghai Zhongshan Park Hotel
In terms of network layout, Huazhu continues to penetrate further into lower tier cities. The proportion of hotels operated by the company in third tier and below cities is 42%, an increase of 2 percentage points year-on-year. The proportion of hotels to be opened in third tier and below cities reaches 53%, which is 11 percentage points higher than the proportion of hotels in operation. At the end of the third quarter, Huazhu China's urban coverage reached 1324, an increase of 117 cities compared to the same period last year.
The hotel industry has a long slope and thick snow, and the prospects for leading enterprises are promising
From the perspective of hotel business logic, hotels have always been the core scenario for meeting the rigid demand of "travel and accommodation", with few substitutes; In terms of historical experience, referring to mature overseas markets, hotel room prices can keep up with or even outperform inflation in the long run, which also adds a lot of color to their long-term investment value.
Overseas, at the end of the third quarter, Huazhu International's ADR was 117 euros, a year-on-year increase of 2.5%; OCC was 69.8%, an increase of 0.8 percentage points year-on-year; RevPAR was 82 euros, a year-on-year increase of 3.7%, achieving comprehensive growth. As an important part of Huazhu Group's efforts to enhance its long-term competitiveness, Huazhu is actively exploring international development and seeking growth opportunities in the Asia Pacific region and the Middle East.
At the current time point, the Chinese hotel industry still has some room for growth. According to Yingdie Consulting data, by the end of 2023, the hotel chain rate in Chinese Mainland was 41%, up 15 percentage points from 26% in 2019. However, compared with overseas developed economies, the hotel chain rate in China still has much room for improvement, which also means that the local market still has great room for development and imagination.
In addition to the chain rate indicator, the long-term upward trend of average hotel room prices in developed countries can also be seen as a reference for the future trend of China's hotel industry. Taking the United States as an example, except during periods of economic crisis, the average hotel room rate in the United States has outperformed inflation for nearly three decades from 1991 to 2019, with a compound annual growth rate of 2.8% between 2004 and 2019.
In the context of high-quality development, with the establishment of a new balance between supply and demand structure in China's hotel industry, the trend of average hotel room prices is expected to become more stable, which is obviously beneficial for Huazhu China to further improve its performance in the future. And Huazhu's exploration and opening up of broader markets overseas is also expected to inject new momentum into the company's subsequent growth.
Starting from the third quarter report, it is not difficult to see from a multidimensional perspective that as the "top tier" in China's hotel industry, Huazhu Group not only has stable performance, but also has many highlights in the short, medium, and long term, with strong growth certainty. Next, following the established development strategy and flexible business strategies that are suitable for market changes, there is reason to believe that Huazhu Group can continue to work hard, seize the opportunities of the times, and promote the hotel industry to new heights.
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