Consumers in China plan to pay up on the subject of hotels, a Morgan Stanley survey present in late January.
The research points to growing demand for high-end and luxury hotels in China now that the country has ended domestic travel restrictions — and a Covid wave has passed.
“Consumers appear more willing to extend spending on hotel accommodation for his or her trips vs. pre-Covid, with 20% citing it as their top travel expense in comparison with 17% each in 2017 and 2020,” Morgan Stanley analysts said.
The report released Tuesday cited a proprietary survey from Jan. 29 to 31 of about 2,000 consumers across China’s larger cities in 19 provinces.
The report said that “37% of the consumers prefer higher star-rated hotels, up from 18% in 2020, with higher-income consumers showing even stronger appetites for luxury hotel stays (47% vs. 31% in 2020).”
“Mentions of budget hotels and mid-range hotels fell universally.”
Savings soared
Consumers’ penchant to avoid wasting soared to record highs through the pandemic. Retail sales lagged overall economic growth in China within the face of uncertainty about future income.
Morgan Stanley said the survey found a similarly muted appetite for shopping, despite it rating as the highest expense for travelers. The shopping budget for travelers was 9,405 yuan ($1,387), barely higher than in 2020 but still well below the 2017 level of 13,782 yuan, in keeping with surveys over the past few years.
“The vast majority of the consumers expect to maintain their overall spending unchanged in the following six months (70% vs. 73% last month),” the report said.
But 24% of respondents said they planned to spend more to “upgrade their lifestyles” — an attitude that typically leads to buying higher quality products. That is up from 20% a month ago, the report said.
“The rise within the variety of consumers seeking to upgrade their lifestyle with higher spend is universal.”
On leisure spending in China: “We do not see them slowing down.”
Christopher J. Nassetta
CEO, Hilton Worldwide
Per capita disposable income in China grew by 2.9% in 2022 to 36,883 ($5,439) when excluding price aspects, in keeping with the National Bureau of Statistics. For urban households, disposable incomes rose greater than $1,000 above the national level, the info showed.
A possibility for international brands
Back in September, UBS analyst Xin Chen and a team said they expected that after Covid passed, people in China would pay up for hotels.
“The growing mid-/high-income population in China will fuel continued growth in demand for upscale hotels,” the UBS report said. “At present, the variety of upscale and luxury hotel guest room contribution and brand penetration rate in China are each lower than in North America.”
It could be a chance for international brands.
“We imagine it would be difficult for China hotel groups to enter the upscale market,” UBS said.
“China’s hotel groups are still exploring the upscale hotel market, and we expect acquisition of established overseas upscale brands could also be their best choice, and that founding joint ventures with real estate developers could provide property management resources for expansion into the upscale hotel market.”
InterContinental Hotels Group announced this week it signed two hotel deals in Shanghai, including the primary hotel in Greater China under its luxury Vignette Collection brand. The hotels are set to open in the primary half of 2024, in keeping with a release.
InterContinental, Marriott International and Wyndham Hotels & Resorts are as a result of release earnings later this month.
Hilton Worldwide Holdings said in its fourth-quarter earnings report overnight that an industry measure of revenue for China showed business was still down by 37% in comparison with 2019 levels. China’s Covid controls also prevented the corporate from expanding as much because it had planned within the fourth quarter.
“You are already beginning to see significant travel inside China by way of uptick,” Hilton Worldwide CEO Christopher J. Nassetta said in an earnings call.
“And we expect, particularly within the second half of the yr, you are going to have a giant tailwind from that,” he said, in keeping with a StreetAccount transcript.
“There continues to be broader pent-up demand across all segments. I mean, you can argue within the leisure side … people have been doing lots of it, but we do not see them slowing down.”
— CNBC’s Michael Bloom contributed to this report.
