Episode 1- Series - Market Insights from Asia
The impacts of COVID-19 have been felt far and wide around the world and across industries. As one of the first hit but also one of the first economies to successfully slow the spread of the virus, China has already been seeing a gradual recovery from the impact of COVID-19.<.p>
The supply-demand dynamics of the hospitality industry in China thus present an interesting case study for what the road to recovery may look like for other economies around the world, as soon as the pandemic is contained. In a webinar with EHL, Christine Liu, Regional Manager for North Asia at STR and Yong Chen, Associate Professor of Tourism Economics at EHL, shared some data and insights on how the hospitality industry in China has reacted to the COVID-19 pandemic.
Note: This webinar was recorded on August 26, 2020. All data presented and opinions expressed were current as of this date.
Christine: Looking at the recovery globally, we can see that the US had finally reached 50% occupancy in the week ending August 16, which is the latest data we have now [at the time of the webinar]. Europe had been picking up quickly since June and closed the gap with the US; while the Chinese hotels have recovered the most aggressively so far, reaching as high as 67% occupancy in the week ending August 16. Focusing on the occupancy of Mainland China, we defined the recovery in three phases:
Phase 1: From March 16; this is the very early stage where we saw some recovery, starting with a slight difference in weekday and weekend patterns.
Phase 2: From May 1, the Labour Day holiday in China, demand had grown more strongly than March and April. We began to see some small conferences, government meetings, as well as the National Congress which was successfully completed before the end of May.
Phase 3: As Corporate businesses started picking up more in June, the second wave of cases appeared in Beijing. But fortunately, by July 4, people could start travelling more freely again, and the university entrance exams were also completed [around that time] – and from there, every Saturday reached a new high in terms of occupancy – so we marked this as the third phase.
1. If we compare the general pattern of recovery across different regions: China, the US, and Europe, China has of course gradually recovered from the COVID-19 outbreak – and the reason is very straightforward – demand has increased and people have started to travel domestically since April.
2. The second is about the different Hotel classes: We see a better recovery in occupancy and Average Daily Rate (ADR) in the luxury sector versus the midscale and economy sector, and I think there may be some substitution effects between the two. People who used to stay in lower end hotels may be replacing them with higher end hotels, so demand has been pushed up in the short run. This is one thing which is specific to this period – in luxury hotels, you have better service quality and likely more resources to maintain hygiene standards, which is a concern for consumers these days.
3. Third is the different pace of recovery between the different tiers of cities: From the data, we see that the first-tier cities had been lagging behind other cities, and I think it’s because demand now is being driven by leisure rather than business travelers, especially as many companies are cutting non-essential business trips to save costs. As a result, we are seeing a greater demand for the second and even third tier cities in China [which are typically more driven by leisure demand].
Going back to recoveries during the summer holiday period, South China actually performed best – they were almost back to last year’s level between 6 July and 16 August. This was mainly driven by Shenzhen and Sanya, so the Greater Bay Area. Guangzhou’s performance was better than Beijing and Shanghai – but the other regions can be quite different. In the northeast, we know that Liaoning has had new cases, and in the north – Mongolia, Shanxi, Hubei, Beijing – they have been dragged down by the Greater Beijing area. Since July, Hubei has only been at 30% occupancy – that is the worst in the whole of China among the big cities. The east of China had also performed well, thanks to Shanghai, Hangzhou, Nanjing, and Suzhou – these places with a lot of leisure destinations and strong weekend business.
But to highlight the before and after, one shining star is Sanya – it is the number one destination in the world in terms of performance over this period – it’s the only market that has performed better than last year in June and July. In fact, July RevPAR had increased by 44% compared to last year. Since people can’t travel internationally, Sanya’s island ocean views have been very attractive for Chinese tourists – and the duty-free shops at Haitang Bay, along with the new local policies implemented to encourage duty-free shopping there have bolstered performance. Between July 1 to 27, in just four weeks’ time, the off-shore duty-free shop received 281,000 tourists – that’s a nearly 43% increase from last year, which led to a 234% increase in revenue to RMB 2.2 million. This shows that Chinese people are still willing to travel and spend, and that the buying power is still there.
There is no solution that fits every specific situation, but I am going to focus on service, because I still believe that whether we have this pandemic or not, the service, as far as tourism is concerned, is really the heart of our industry. And service is not something that we can build up in a few days or weeks – it’s impossible. Service is a culture. It is the linkage between all service providers, including hotels, restaurants, and the guests. In the long term [beyond this pandemic], the best solution is to build a connection between the service providers and the guests – it takes years or even decades to build up, but that is really strategically important for any business that is serving consumers and tourists. I think this is a principle that will not change even in the future.
With so many hotels and brands, it’s easy to replicate the hardware and the design – but very difficult to replicate the service and power of a brand. One of our biggest challenges in this industry is talent, so I really hope to see EHL and other educational institutions and organizations bring more talent to the industry. Owners and management companies have already started to focus on people development, so this is a challenge not only now, but from the past and even for the future – and so that’s one of my big interests – to keep the young people loving the industry, to stay in the industry, and to be committed and to contribute.