COVID-19 and the Chinese Hotel Sector

From the 2020 Chinese Spring Festival, Covid-19 spread in China. Hubei Province was the first and worst-hit area. Successively, the contagious virus reached cities and towns all over the country within a few days. The Chinese government quickly responded to the outbreak, initiated various measures and policies to help people pull through. Nevertheless, the pandemic paused economic activities, resulting in a huge impact especially on the tertiary industry, including the travel, hotel, and catering industries. HVS combines existing market information and our own survey results, as well as the historical data of SARS in 2003, to dialectically determine the impact and provide an outlook on Chinese hotel industry.

1. The Outbreak of COVID-19

• The Outbreak of COVID-19 had a huge impact on the Chinese hospitality industry;
• Overall occupancy level dropped by 89%, from the beginning to mid January, then stayed around 10% until the end of February;
• In February, all major Chinese cities had a YoY RevPAR decline of more than 85%.

2. Survey Overview

• 498 responses were used for the analysis, including responses from 124 hotel investors/owners and 374 hotel operators;
• All hotel performance data are dated between the middle of January and the end of February;
• The hotels that the operators represent:
  • 40% closed, 40% partially open, 20% open;
  • Upscale, upper upscale and luxury categories register a major drop with average occupancy levels below 10%;
  • Most hotels did not suffer from liquidity problem.
• The hotels that the investors represent:
  • 40% of the hotels had an 80-100% decrease in revenue compare to last year.

3. Strategies and Methods

• The government and the stakeholders offered financial aids and other helps to the hotels;
• The hotels should react quickly to the situation, adjust both long-term and short term strategies, in aspects such as cost control and employee arrangement. 

4. Looking back at SARS

• What happened during SARS is not directly comparable, but is of reference value;
• 2020 china hotel occupancy predictions:
  • If the domestic situation can be brought under control within the first quarter, then the decline of overall occupancy in 2020 would be approximately 3.5 percentage points.
  • If the imported confirmed cases keep rising, making the situation unclear or even worse, then the overall occupancy decrease in 2020 would be approximately 5.5 percentage points or more. 

5. Recovery and Investment Outlook

• More than half of the operators and investors/owners who participated in the survey think that hotel market will fully recover within 2020;
• The long-term investment activities are less likely to be influenced by the outbreak, but the shortterm will;
• It is important for hotels to stay competitive when the market is unstable, and a hotel can improve its competitiveness by many ways such as adjusting the market mix and distribution channels.

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