SHANGHAI—Economy and midscale operator China Lodging Group Limited is preparing to dip its toes into luxury hotel waters.
During a conference call with analysts on Monday, Qi Ji, China Lodging’s founder, executive chairman and CEO, confirmed rumors that the company is developing a 5-star brand.
“We are working on our new brand, which will provide a 5-star level quality of rooms,” he said. The new brand will feature all the “necessary supplementary services” travelers would expect from a high-end hotel—such as restaurants and bars—which is something of a departure from the group’s stripped down operating model.
The company’s flagship Hanting Express, for example, gained prominence as a stripped down, true economy brand as its competitors attempted to provide restaurants and other amenities.
That said, the new luxury brand will be devoid of costly and unnecessary frills, Qi said.
“Clearly, people are seeing those 5-star hotels are having super luxury facilities in China, significantly better than the hotels in their home markets, no matter if in Europe or the U.S. As a result, that leads to a very high investment by the owner, which depresses the return on their investment,” he said through his translator.
The goal, Qi said, is to think like an investor or owner, where the emphasis is on returns.
More details about China Lodging Group’s foray into the 5-star space will emerge during the next 12 to 24 months, he said.
Development efforts
Meantime, China Lodging’s aggressive, multi-brand expansion strategy continued unabated during the third quarter, as the company opened 108 leased-and-operated and franchise-and-managed hotels.
As of 30 September, the group had 415 leased hotels, 446 manchised hotels, and 77 franchised hotels in operation in 149 cities. The leased and manchised hotel rooms in operation increased by 31% and 64%, respectively, from a year ago.
Qi said in a news release that by the end of 2012, the company will have approximately 1,000 hotels under four brands, and he expects the new opening of manchised hotels for 2012 to exceed 200.
The company expects to open 100 to 110 leased hotels and 230 to 270 manchised hotels in 2013, “including conversion from franchised Starway hotels,” he said.
The goal, Qi said, is to become a top 10 global hotel company.
To meet that aim, China Lodging Group is committing much of its resources toward restructuring the Starway Hotels portfolio, in which the group acquired a majority stake this past June. The company is working to weed out lower quality assets from the midscale brand and convert franchises to a manchised or leased model, according to CFO Min “Jenny” Zhang.
China Lodging’s brand portfolio also comprises Hi Inn (economy) as well as the Seasons brand (midscale).
The three smaller brands—Hi Inn, Seasons and Starway—accounted for 12% of the company’s net revenues during the quarter, up 2% from last year.
The multi-brand strategy sets China Lodging Group apart from its competition, Ji said. It allows for wider coverage in more cities throughout China to better meet the needs of the Chinese consumer.
China Lodging Group’s HanTing Club loyalty program had more than 8 million members who contributed more than 80% of roomnights sold during the quarter.
Strong returns
The group reported strong results during the quarter, including a net revenue increase of 42.6%, which exceed the high end of the previously announced guidance by 3%.
Excluding franchised Starway hotels, the company's revenue per available room grew by 1% year-over-year and same-hotel RevPAR grew by 5% year-over-year. Average daily rates increased 3% during the third quarter.
Looking ahead, the company’s expected net revenue of 825 million renminbis to 840 million renminbis ($131.7 million to $134.1 million) is down slightly from the third quarter’s net revenue of 893.6 million renminbis ($142.2 million).
The expected slowdown—the first in several years—is the result of challenging year-over-year comparables, CFO Zhang said.