Hotel Chains Betting Big On China
The US hotel industry has recovered nicely since it was dealt a severe blow by the financial crisis of 2008. After experiencing sharp drops in occupancy, average daily room rates, and revenue per available room in 2008 and 2009, the industry saw steady improvement in these three key metrics in 2010 and 2011.
And according to PwC (PricewaterhouseCoopers), the industry will see continued gains this year and next.
This is great news for leading hotel chains like Marriott (MAR) and Starwood Hotels & Resorts (HOT).
But here’s the interesting thing…
While the US is far and away the top lodging market (for now), many of the industry’s top players are betting their futures on China.
In April, Marriott announced plans to nearly double the number of hotels it has in China by 2014. The lodging giant says it will open 50 new hotels in the next 18 months bringing their total number of hotels in the Middle Kingdom to 108.
And it’s not hard to understand why…
The World Tourism Organization recently reported that China is currently the third largest tourist destination in the world. And The Global Business Travel Association said in May 2012 that China will surpass the US as the world’s top tourist destination by 2015.
Foreigners are flocking to China in droves to see major tourist attractions like the Great Wall and Tiananmen Square. A good number of these travelers come from Western countries, but the fastest growing segment is travelers from other Asian countries.
More importantly, domestic travel in China is off the charts. Chinese officials recently said domestic tourists made 875 million trips in the first quarter of 2012 alone.
That’s an impressive year over year increase of 15.1%.
And it follows a blowout year for travel in 2011. Last year, Chinese citizens made a whopping 2.6 billion trips within China.
What’s driving the surge in domestic travel?
After years of red-hot economic growth, Chinese citizens finally have enough disposable income to travel. More than ever, the average Chinese citizen has the means to afford airfare, hotels, and other travel-related expenses.
And this trend is driving huge growth for China’s tourism industry. In 2011, the industry saw revenues jump 18% to a jaw-dropping $364 billion.
But this is only the beginning…
The Wall Street Journal reports China’s tourism industry is “expected to grow 14% annually over the next eight years, creating a… roughly $860 billion tourism market.”
It’s no wonder Marriott’s looking to establish a bigger footprint in China.
And they’re not the only ones…
Last week, Starwood Hotels announced they too plan to double their presence in China over the next 5 years. The hotel chain – which owns well known properties such as Westin, W Hotels, Sheraton, and St. Regis – expects to open 103 hotels in China by the end of 2016.
No question about it, the big boys of the global lodging industry are betting big on China.
If you’re thinking about investing in a lodging stock, you would do well to keep this in mind. Make sure the company you’re considering has a strategy and the means to compete in China. With China’s tourism boom expected to continue for decades, the best lodging stocks will be those cashing in on the scorching growth in China.
Profitably Yours,
Robert Morris
Category: Foreign Markets
