Why Marriott Sees a Full Hotels Recovery in China in 2021

Why Marriott Sees a Full Hotels Recovery in China in 2021

While most of the global travel industry has a giant question mark over future demand levels, hotels in China could be back to pre-pandemic revenue performance as early as next year.

Marriott CEO Arne Sorenson has repeatedly described the coronavirus pandemic’s fiscal impact on the hotel industry as worse than the September 11 terrorist attacks and 2008 financial crisis combined. But China is a bright spot in Marriott’s portfolio.

Marriott is still likely three years out from a complete global recovery, Sorenson said Thursday during an NPR interview about the company’s recent layoffs at its Maryland headquarters. But the hotel executive maintained Marriott is “closest to being back to normal in China.”

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While average occupancy sank below 10 percent across Marriott’s 350 Chinese hotels during the worst of the pandemic, the company has since hit 60 percent occupancy in the ongoing recovery.

That has Sorenson optimistic over a swift revenue rebound in China.

“We think there’s a real possibility we get back to 2019 levels of revenue as early as next year,” he said last month during a Cvent webinar. “That bodes well and does tell you something about the perseverance of people [and] the resiliency of people to say, ‘We’re going to get back out, and we’re going to take our vacations and go out and meet.’”

Sorenson isn’t the only business leader or analyst projecting a rapid hotel industry recovery in China while places like Europe and the U.S. take years to get back to pre-pandemic levels of business.

Late August occupancy in Mainland China was nearly 60 percent and only slightly behind where it was in 2019, according to STR. Revenue per available room — the hotel industry’s key performance metric — is pacing about 10 percent behind prior year levels, according to an STR report.

Occupancy at upper upscale and luxury hotels in China even surpassed 86 percent in mid-August.

“They still have the virus, there are still controls there over movement in certain places, and there is still no international demand whatsoever, and they’ve been able to get occupancy back up to prior year levels,” said Robin Rossman, managing director of STR’s international business, on a webinar Thursday. “That’s a huge takeaway in terms of will we ever recover because China has recovered within the year.”

Major hotel companies like Hilton, Hyatt, and Accor declined to comment or did not respond to Skift’s request to an interview for this article. Marriott declined to elaborate beyond Sorenson’s comments from last month.

But there are clear indicators all these companies are banking on China to lead their respective businesses out of the worst year for global travel. The leaders of each noted the country’s strength relative to the rest of the world during August investor calls.

Accor’s China occupancy rate was 60 percent in early August, according to the company’s second quarter earnings call. France, the Paris-based company’s home country, had Accor’s second-highest average occupancy at 56 percent. The company’s regional occupancy figures then tumbled, with Germany at third with 39 percent and the UK in fourth at 35 percent.

Hilton occupancy in China surpassed 60 percent while it was over 45 percent in the Americas, according to the company’s second quarter earnings call last month.

“We have seen positive signs in the China market with business on a steady upward trend since March. The summer vacation period (July and August) was a highlight with the highest occupancy level since the pandemic,” said IHG Greater China CEO Jolyon Bulley via email. “Business segment is also picking up in major cities. In the post-Covid-19 era, we remain confident in the long-term outlook of the China market and look forward to further recovery in the next phase.”

Finding Pockets of Demand

Hotel recovery in China — like in the rest of the world’s hotel markets — began with domestic leisure travel.

While China’s borders were closed to the rest of the world for much of the year, the country’s massive population compensated as a strong domestic traveler base for some of the lack of inbound foreign tourism.

IHG’s strong summer performance in China was led by scenic and resort destinations in Sichuan, Yunnan, and Hainan provinces, Bulley wrote.

Sanya, the southernmost city on Hainan Island, posted stronger overall hotel occupancy figures this year than in 2019, according to STR. July 2020 occupancy in the resort city was 79 percent while it was just shy of 64 percent in July 2019.

But if Chinese hotels are going to fully recover from the pandemic as early as next year, business transient and convention eventually have to kick back in. These business lines are already off to a strong reopening.

More than 60,000 attendees went to the 2020 Hunan Auto Show in early May.

Hyatt even hosted product launches for BMW, Volvo, and Gucci at its Chinese hotels.

“China serves as a great example that travel recovery is possible even without pharmaceutical treatments or a vaccine as long as proper, well-coordinated actions are taken to significantly reduce the spread of the virus,” Hyatt CEO Mark Hoplamazian said on an early August investor call.

Stop-and-Start Recovery

China’s hotel rebound hasn’t been without a few hiccups.

Larger cities like Beijing are still lagging resort and leisure destinations in hotel occupancy. A second wave of coronavirus cases in Beijing in June sent hotel occupancy rates there into a nosedive from 50 percent to 20 percent in a week, according to STR.

But China, with a centralized government response to containing the spread of the virus, has put its hotel industry back on solid footing.

“There is this high hope because the recovery seems to be well underway in China,” said Jing Yang, a clinical assistant professor at New York University’s Jonathan M. Tisch Center of Hospitality. “If we’re going to see a rapid improvement, it’s going to be in China.”

Following the Beijing case flare-up and ensuing containment efforts, Mainland China hotel occupancy went from just over 45 percent in early July to nearly 62 percent in early August. An STR analysis of China’s hotel industry this week attributes this limited interruption in business on the country’s quick virus containment response.

But there is the caveat that China’s rapid rate of hotel recovery stems from a central, fast response to the virus with tight lockdowns. That may not be able to be replicated elsewhere, especially the U.S.

While China is a best-case benchmark, other countries will likely stall in their hotel industry recoveries until a vaccine or treatment is in widespread distribution.

“[The global hotel industry] will come back, and if we ever needed a concrete example, it’s looking where China is now, really only seven or eight months after the virus was at its worst there, and occupancies are close to what they were year-over-year,” Rossman said.

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