Sunday , June 23 2024

US hotels reel from China Covid curbs amid travel boom

U.S. hotel operators expect more pain from China’s strict Covid lockdowns which have halted construction of some luxury properties and impeded travel to one of the world’s key tourism markets.

Growth in China has been stuttering at a time when companies are rushing to open hotels and capitalize on pent up travel demand, with construction of new properties picking up pace in the United States after the pandemic halted expansion plans.

Travel recovery in other parts of the world boosted results of major hotel chains this year, but President Xi Jinping’s measures to contain Covid in China have pressured room growth and hospitality revenue in the country.

“These serial lockdowns have really cost us significantly,” Hyatt Chief Executive Mark Samuel Hoplamazian said earlier this month.

A large chunk of hotel operators’ RevPAR, or revenue per available room, comes from China and companies have been working to expand their presence in the country, but abrupt Covid restrictions have impeded movement of labor and material.

“I think it’s easier in more rural areas, they can get the hotels open, but in big cities, if there’s sort of rolling lockdowns, it’s being very difficult,” Bernstein analyst Richard Clarke said.

Marriott International Inc’s RevPAR from Greater China during the first nine months this year, when lockdowns in the country hit several U.S. companies, was $52.09, the least among all key regions, and down from a year earlier. By contrast, RevPAR jumped in Marriott’s all other regions.

The hotel chain’s Greater China RevPAR in the comparable period last year, when curbs were less stringent, was $64.10.

“The market in China is most certainly where we’re seeing the most challenges,” Marriott Chief Executive Anthony Capuano said during the third quarter post-earnings call.

Marriott, about 60% of whose China projects pipeline comprises the money-spinner luxury and upscale segment, was forced to lower its gross room growth forecast for 2022.

“There is a lot of opacity with respect to how China is going to evolve this year, let’s just face it. China had a very, very, very difficult year,” Hyatt’s Hoplamazian added.

China on Friday eased some quarantine-related Covid rules but several experts have warned that the measures were incremental and reopening probably remained a long way off.

A delayed recovery in outbound travel from China is another headache, especially for online travel firms.

“Not a lot of people are leaving the country right now,” Airbnb Inc said earlier this month, after the vacation rental firm forecast weak holiday-quarter revenue.

The prospect of a recession also looms large over the travel industry that has largely been protected by household savings accumulated during the pandemic, with some analysts fretting about travel demand eventually taking a hit, though signs of that have been scarce.

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