Although the hotel industry is on the rebound, independent hotels that are primarily reliant on OTAs and walk-in guests still find it hard to boost revenues.
With virus control and prevention measures becoming the new normal, consumers tend to choose branded hotels over independent properties, for more assured hygiene standards and quality.
In an interview with 21st Century News, Jolyon Bulley, the CEO of IHG's Greater China region, observed that the integration of quality local independent hotels into chain brands has accelerated during Covid-19. While hotel revenues are recovering gradually, the midscale hotels market is saturated in first-tier cities, prompting a move into the markets in lower-tier cities.
Gradual increase in occupancy
According to Mr. Bulley, nearly all IHG hotels in China have reopened, and business is recovering gradually. As short-distance trips return first, bookings for hotel rooms in popular urban areas have also increased significantly. Hotels at popular business travel destinations are also doing better as business travel resumes. Mid-range hotels are recovering faster than luxury and upscale hotels.
Although consumers are eager to travel, they are still “cautiously optimistic” in booking hotels, Mr Bulley said. For example, leisure travelers are now typically booking rooms a week ahead of the check-in date, and some even book on the same day or only one night in advance. This indicates that travelers are still taking a wait-and-see approach.
Accelerated reorganization of independent hotels
IHG has recently introduced its high-end brand “voco” into China, as the group perceives the potential growth of upscale hotels in the country and owners’ need to meet consumers' growing demand, according to Mr Bulley. It is the 11th brand that IHG has introduced to Greater China.
STR data show that since 2018, traditional hotel management groups, OTAs and investors have been riding on the momentum of China’s independent hotels joining chain brands, but so far only 24% of the hotels in China are integrated into chains, compared with 71% in the US, he cited.
He believed the pandemic would change the hotel inventory alignment and provide opportunities for hotels to upgrade their products and services, which would drive more independent hotels in China to join a brand.
IHG has recently established a strategic partnership with Ctrip, a domestic platform of the Trip.com Group, to launched the IHG Flagship Store. Mr. Bulley said it was a good example of cooperation between hotel groups and OTAs and was significant as China’s hotel industry was recovering from the pandemic.
Midscale hotels will continue to penetrate lower-tier cities
With the rapid growth of China's hotel industry in recent years, first-tier cities are saturated with mid-range hotels and they are becoming homogenized. IHG is targeting emerging tourist markets and expanding to popular destinations in lower-tier cities, while maintaining the leading role in first- and second-tier cities.
He anticipated increases in the supply and demand of midscale hotels, as Covid-19 has depressed consumers’ budgets for both business and leisure travel and the occupancy rate of upscale and luxury hotels in the short term, yet economy hotels do not meet mainstream consumers’ demand for product and service quality.
Mr Bulley said that IHG would continue to penetrate lower-tier cities and emerging markets, so as to meet consumers’ demand for upgraded tourism accommodation. As of March 31, IHG has opened 475 hotels in Greater China, three quarters of which are located in second- and lower-tier cities, and 90% of the 411 IHG hotels in the pipeline are also in those cities.