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Top-end hotels hit hardest by downturn

By Ding Qingfen (China Daily)
Updated: 2009-02-23 08:02

Mid-scale and budget hotel sectors are weathering the drop in business better than luxury hotels since many top-end hotel corporate clients are scaling back traveling budgets and turning to cheaper alternatives.

Shanghai Jinjiang Inn, China's second largest budget hotel chain, with 350 hotels nationwide, saw an increase in corporate contracts from major domestic and foreign companies since December.

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"The majority of our guests used to be individuals. But now we have several hundred new corporate clients who previously stayed in high-end hotels," said Yu Meng, Jijiang Inn Co Ltd's executive vice-president, declining to name the companies.

Mid-scale hotels are also gaining businesses from large companies tightening budgets.

The Holiday Inn, a mid-range brand under the InterContinental Hotel Group (IHG), gained a slew of Top 500 companies, including Cisco Systems, shifting from IHG's high-end brands such as InterContinental and Crown Plaza since the end of 2008, said Sharona Tao, IHG China's brand public relations and communications manager.

The IHG is revising its business strategy and relaunching the Holiday Inn brand to consumers with lower traveling expenditures.

The drop in business for luxury hotels comes on top of an already slackening tourism industry. High-end hotels boomed during the Olympics but vacancy rates are soaring now.

"In Beijing the occupancy rate on average was 95 to 100 percent in August, but now it is 30 to 40 percent," said a sales executive surnamed Zhang from the four-star Beijing Landmark Hotel.

The Beijing Marriott, a newly built five-star hotel, opened just five days before the Olympics' opening ceremony and is Marriott's largest hotel by room number outside the US.

"The daily occupancy rate in August was 100 percent, and for the following two months stayed sound, at about 80 percent," said an executive from the hotel on condition of anonymity.

But since November the hotel's occupancy rate has dropped 20 percent, he said.

Other hotels are even worse off than the Marriott, said the official.

A public relations executive from Shangri-La Hotel Group, which owns the most hotel properties in China, refused to comment on the business of its China hotels, saying only that the "situation is bad, but we have to face the music".

The global economic downturn stemming from the financial crisis is forcing companies to trim travel expenses. Many international businesses are reportedly using telephone conferences to discuss and arrange business instead of face-to-face meetings.

Travel to the Chinese mainland is expected to grow by only 1.5 percent in 2009, according to a forecast from the China National Tourism Administration.

Luxury hotels are lowering room rates and offering package deals to cut losses and win back customers.

Room rates at the Marriott are 800 yuan a night, down from 5,000 to 6,000 yuan a night during the Olympics, said a Beijing Marriott executive.

The hotel is also launching a 99-yuan-lunch-buffet, a record low price for a Marriott buffet.

But the mid-range and budget hotels will not give up their new customers easily and are improving services to help keep the customers they've gained.

Budget and mid-range hotels need the new customers, they are also seeing business decline (albeit much less drastically than top-end hotels).

Jinjiang Inn Co Ltd's business last December went down 30 percent year-on-year, the first such drop since 2003, said Yu, Jinjiang vice-president.

"The situation won't get better until at least September," predicted David Sun, CEO of Home Inn Group, China's largest budget hotel group, with 471 hotel properties.

China's budget hotel industry went through an expansion spree during the past two years, now it is "high time to slow the expansion rate and to consider improving corporate management and strengthening service quality", said Sun.

"Home Inn plans to spend a lot adding unified and standardized services," he added.

Jinjiang Inn Co Ltd launched a renewal program in December, injecting 2,000 yuan into each room, said Jinjiang vice-president Yu.

"We charge low rates (200 yuan per night), but we offer a package of fairly good services," he said.

Jinjiang Inn is also launching a new budget hotel brand, Bestay, with a room rate 30 percent lower than Jinjiang.

The first Bestay may open in 2009.

"We are not worried about market potential," said Yu.