GLOBAL REPORT—Chinese conglomerates and hotel companies are buying hotel chains and portfolios in order to fill ownership gaps in their customers’ booking journeys, according to sources.
Growing Chinese hotel offerings is the next logical step as domestic travelers are already using search engines, booking on in-house or online travel agency distribution platforms and finalizing itineraries through tour operators that are backed by Chinese companies. Shanghai-based Jin Jiang International Hotels Group and Beijing-based HNA Tourism Group have already made headway in this new direction.
Pierre-Frédéric Roulot, CEO of Louvre Hotels Group, which was acquired by Jin Jiang 18 months ago, said the strategy is the future of the hotel industry.
“Owning all the parts of the booking journey is the future,” Roulot said. “Alliances are key, as we’ve seen in the airline industry. It is the way the future will compete with difficult players such as OTAs and Airbnb. We need to be bigger.”
Roulot said such acquisitions are the only way for the hotel industry to secure the adequate capital expenditure needed to fund information technology progress.
“In the future, we will only have three or five big players,” Roulot said, whose approximately 1,200 Louvre properties are now a part of Jin Jiang’s 5,300-asset portfolio.
Roulot added Jin Jiang’s backing has increased Chinese booking in Louvre’s properties, the majority of which are located in Europe.
“Awareness of our brand certainly makes it easier for Chinese travelers,” he said.
Reaching out
Several transactions—including Jin Jiang’s Louvre buy—have been a part of the recent surge of Chinese investment in Western hotel circles. Consider the deals that have been announced in the last 21 months alone:
- May 2016—Jin Jiang and its partners increased their stake in France’s AccorHotels to 15.06%.
- April 2016—HNA Tourism Group reached a deal for an undisclosed sum to buy U.S. hotel firm Carlson Hospitality Group, which includes Carlson’s 51.3% stake in The Rezidor Hotel Group.
- February 2015—China’s Fosun acquired French vacation package firm Club Méditerranée for a reported €939 million ($1.06 billion).
- November 2014—Jin Jiang International Hotels, The Thayer Group and Phoenix Global Investment acquired French hotel company Louvre Hotels Group for approximately €1.2 billion ($1.36 billion), which gave the Chinese consortium the Première Classe, Campanile, Kyriad, Tulip Inn, Golden Tulip and Royal Tulip hotel brands.
But Chinese capital has experienced some setbacks. Anbang Insurance Group jostled with Marriott International for Starwood Hotels & Resorts Worldwide but ultimately withdrew its bid. Elsewhere, shareholders at Spain’s NH Hotels removed four HNA-appointed members from the company’s board in June 2016, which was linked to concerns about HNA’s buy of Carlson Hospitality Group and its 28.5% ownership stake in NH forming a conflict of interest.
Jileen Loo, director of international capital markets at business consultancy CBRE Hotels, said changes to Chinese regulations have liberalized Chinese insurance and financial entities, permitting them to directly invest in overseas real estate. She added this trend will only continue.
“Additionally, institutional operators like China Travel Service, Hanting (by China Lodging Group) and Green Trees Hospitality have been actively studying the (United Kingdom) market, and some have already acquired platforms,” Loo said. “Almost all the groups (I) met with whilst I was in China … still see the U.K. as a market to diversify into, and given the (pound sterling) devaluation, it is seen to be 10% cheaper, so some are taking advantage of current times of uncertainty to take advantage to buy, whilst their more conservative competitors take a wait-and-see approach.”
Loo agreed that Chinese companies are looking to link the parts of the Chinese booking journey but said this tactic will be employed only by the larger companies.
“There is a lot of private wealth looking to diversify their real estate portfolios to include hotels. … Private wealth investors just want to park their money into an income-generating asset and often prefer an international brand or operator to look after their hotel investments,” she said. “Only larger institutional players such as Fosun, which partners with Utour from Beijing for their Club Med deal, are interested in providing vertical holiday solutions from ticketing to travel to accommodation. Other Chinese groups such as HK CTS compete in that space, too, but they are not the majority of the new Chinese investors buying hotels.”
Loo added that Chinese investors are open to forming local partnerships, but in most cases Chinese companies end up holding the majority stake in the agreement.
“It helps them to access market intelligence quickly and react to deal milestones efficiently,” Loo said.
IT sticking point
Roy Graff, managing director of the U.K. at digital marketing firm Digital Jungle and author of “China, The Future of Travel,” said Chinese companies are active but few are able to understand and negotiate fully across the global market.
“They have invested in and acquired tour operators and hotel chains, which constitutes much more of their need, as the Chinese have a particular way of traveling,” Graff said. “The integration of technology into platforms in other countries, however, is where they need partnerships.”
Graff said technology integration is not a problem limited to China. He cited Expedia selling its stake in Chinese OTA eLong to Shanghai-based CTrip for approximately $670 million and CTrip’s $160-million acquisition of London-based metasearch firm Travelfusion as evidence that partnerships are needed but sometimes do not work.
“Chinese companies are showing every indication they are trying to speed up in terms of providing for their customers as much of a seamless booking journey as they can,” Graff said. “Chinese business overall remains cautious and conservative.”
Dev Anand, director at hospitality consultancy The Hotel Property Team, said Chinese travelers are still relatively new to the online booking world.
“They are not using credit cards to book,” Anand said. “They prefer face-to-face and telephone contact, but clearly that is changing, and such is China’s huge population (that) a small change will create a big effect this year and in years to come.”
Anand added Chinese acquisitions continue at pace. He mentioned MGM China’s decision to increase in its stake of MGM Resorts International to 4.8%, although MGM Resorts itself recently increased its stake in MGM China by 5% to 56%.