China Hotel Profitability Slumps Further

The Gross Operating Profit (GOP) levels of the 5-star hotel sector in China have fallen to the lowest level recorded in the eight years the China Hotel Industry Study has been published.

The GOP level of RMB 91,752 per room (US$ 13,375) is 39% lower than the peak recorded in 2005 and is the fourth straight year the figure has declined.

In Beijing and Shanghai, the two largest hotel markets in the country, GOP levels in 2009 were RMB 86,194 and RMB 119,645 respectively.

The Beijing hotel market in particular suffered dramatically recording an occupancy of only 47.5% and an average room rate of RMB 836, which resulted in a RevPAR of only RMB 397.

“Quite clearly, the continued decline that we have witnessed in hotel profitability in China over the last few years can be attributed to the over supply that we see in many markets across the country,” said Julie Dai a Director of Horwath HTL based in Beijing. “The post Olympic slump in Beijing was quite spectacular given the combination of a massively over-supplied market and the global financial crisis.”

However, not all markets suffered. The resort destination of Sanya posted a 29% growth in GOP to RMB 210,926 per room.

“As the only real tropical area in China and its status as the premier resort destination in China, the success of Sanya lies in the excessive demand for the market during the peak winter season, particularly over the Chinese New Year period,” said Nigel Summers, a Director of Horwath HTL based in Hong Kong. “This gives hotels in the market an incredible ability to yield extremely high room rates during peak season, premiums which add directly to the bottom line.”

Ironically, new supply in Sanya has been driving much of this growth bringing international brands and quality supply to the market. This in turn has resulted in higher average room rates and a greater recognition of the destination.

The 2010 version of the China Hotel Industry Study will be released at the end of July 2010.

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