Landmark JV with Sunac changes “love-hate” relationship between owners and brands, says Nong Xia
CHINESE hospitality giant, HUAZHU Hotels Group (NASDAD:HTHT), will be stepping up its expansion into the high end hotel segment through its joint venture signed in March this year with Sunac China Holdings.
Speaking at the WiT Travel Roadshow on April 19, Nong Xia, executive vice president & CEO, Global High-end Hotels Business Unit at HUAZHU, said the joint venture would provide hotel management services to Sunac’s hotel properties and potential leased and owned hotel properties of third parties.
Calling the joint venture a landmark deal, Xia, who previously worked with Starwood and Hyatt, told moderator Joseph Wang, chief commercial officer of TravelDaily, “This is the first time ever one of the largest real estate developers has joined hands with a leading hotel company to conduct hotel management business. We are very excited about this partnership, this wedding, because this really shows the change of the dynamics of the Chinese hotel market.”
Under the JV’s five-year target, it will leverage the core competencies of HUAZHU and Sunac “to enter into management contracts with more than 200 hotel properties from both Sunac and third-parties in five years after its formation. The majority of the hotels managed by the JV is intended to be upscale or above, full service hotels and under long-term management contracts.”
Xia explained that previously hotel owners and hotel management companies sat at opposite sides of the table and had a “love-hate” relationship, and if they had to work together, they often complained about each other.
“But this time the two parties from both sides of the table are sitting on one side, and working together to provide the best possible properties and brands and to develop the high end brands in China. I think it’s something very dramatic and to be remembered.”
Xia added HUAZHU’s deal with Sunac would change the landscape of Chinese hotel market as both companies can bring a lot of resources to the table.
“Sunac is not only a large real estate developer, it is also one of the largest hotel owners and theme park developers. It will be able to provide a lot of new build opportunities for the joint venture to manage. At the same time HUAZHU is known for its technology, and also for the distribution system.”
Xia cited as example H Rewards, HUAZHU’s loyalty programme, a user-friendly platform that provides accommodation, transportation, shopping and other services for its 160 million members worldwide. “Both its technology and the distribution system can bring a lot of traffic and also efficiency to the hotels, which will be built by Sunac and managed by the JV.”
He made an interesting analogy about global brands and local brands when responding to TravelDaily’s Wang’s query on HUAZHU’S strategy of targeting the rising middle class in China instead of the traditional high-end consumers.
According to him, the Chinese hospitality market has two parallel universes. One is the ‘Sky’, dominated by international brands catering to high-end customers like corporate FITs and MICE. The other is ‘Earth’ comprising domestic players like HUAZHU and Jin Jiang catering to the grassroots, middle-sized businesses and middle class business travellers with limited travel budgets.
“These two universe didn’t cross over to each other in the past, but in the last few years they actually tried to enter each other’s side. So, for HUAZHU we think we can enter into or do better in the high-end business because we have the capability to service 160 million H Rewards members and we believe in the upscale market segment. Obviously, we will face challenges such as brand recognition, talent and the discipline, but I think we can learn as we go along.”
On whether Covid has slowed down HUAZHU’s expansion plans that it was pursuing before the pandemic, Xia replied that its focus is on the Asian market specifically Thailand and Japan.
“We believe these two markets have a lot of potential for us to grow. We’re going to bring our Chinese and Deutsche Hospitality brands to these markets, but mainly through merger and acquisitions. We don’t think we can have organic growth in these markets.”
Previously known as China Lodging Group Limited, HUAZHU built its fortunes on economy hotels – it is the second largest hotel company in China in terms of rooms.
As of December 31, 2020, it operated 6,789 hotels with 652,162 rooms in operation in 16 countries. Its brands in China include Hi Inn, Elan Hotel, HanTing Hotel, JI Hotel, Starway Hotel, Orange Hotel, Crystal Orange Hotel, Manxin Hotel, Madison Hotel, Joya Hotel, Blossom House and Ni Hao Hotel.
Its reach overseas widened with the acquisition of Frankfurt-based Deutsche Hospitality in November 2019 through its wholly-owned subsidiary China Lodging Holding Singapore. Upon the completion of this acquisition on January 2, 2020, HUAZHU added five brands to its portfolio – Steigenberger Hotels & Resorts, Maxx by Steigenberger, Jaz in the City, IntercityHotel and Zleep Hotel. They accounted for the group’s 120+ hotels outside of China.
Additionally, HUAZHU has the rights as master franchisee for Mercure, Ibis and Ibis Styles through its partnership with Accor.
• Featured image credit: (Joya Hotel Dalian Youhao in China): HUAZHU Hotels Group