Chinese luxury hotels forced to cut prices due to over-expansion. (Photo : Getty Images)
Chinese hotel companies are now offering very cheap rates after seeing four out of 10 rooms sitting empty due to the over-expansion of accommodation companies in the country.
A report from The Wall Street Journal revealed how Chinese hotels are now experiencing a difficult time in maintaining revenue amid an overexpansion in hotel chains and the previous anti-corruption crackdown of the Xi Administration.
According to the outlet, vulnerabilities fall on those located in the secondary cities in the country even after the supposed benefit from the domestic travel boom from China's growing middle-class citizens.
Boom in Domestic Travel
In a report posted in December, Fitch Ratings predicted an improvement in the situation of Chinese hotels after the country sees a strong travel and tourism rate during the first half of 2015.
This comes a few years after several factors such as the widespread crackdown on corrupt government and private officials under the leadership of the Communist Party of China (CPC) and President Xi Jinping as well as the imbalance in the supply and demand scale.
Fitch said that Chinese tourists spent 14.5 per more in travels and tours in January to June 2015 compared to a year-on-year status, with as much as $267 billion spent on such luxuries.
Hotels also recorded a stellar increase in revenue with a hotel revenue per available room or RevPAR year-on-year growth of 0.3 percent as of the third quarter of 2015.
"With this pace of growth, it could to large extent accommodate all the new demand and drive the low occupancy rate of China hotels to a level close to developed countries," the Fitch report stated.
Empty Rooms
Despite this optimistic prediction, reality still kicks in hard as hotels are forced to offer their luxury rooms for a much lower price.
According to the WSJ, the RevPAR declined by 0.7 percent during the first half of 2016 per data they collected from STR Global.
Secondary cities such as Changsha in the central part of China are particularly vulnerable to this because of overexpansion which leads to more room "supply" than what is needed.
Because of this, many hotels are slashing their luxury room rates to nearly half.
"I went to Changsha for a friend's wedding, and the hotel there was much cheaper than what I might have to pay in Shanghai," Beijing resident Liu Yiling told the WSJ, noting that she paid 600 yuan ($90) a night in Changsa for similar accommodation that would cost about 800 yuan in Shanghai.
Despite this, hotel chains continue on their current path of overexpansion with some noting that there is a bigger picture to look at in this situation.
"Traditionally people say China's hotel market is not doing well, it's one of the worst performing markets and it has tremendous oversupply, [but] I see it as different," Pan Pacific Hotels Group CEO Bernold O. Schroder explained.
