Five-Star Ratings Are Driving Away Business for Chinese Hotels

on January 30 2014 | in Travel | by | with No Comments

Grand Hyatt Hotel, Shanghai, Chinese hotels, five-star hotels

Most hotels and restaurants around the world are more than eager to up their star ratings, not so with some hotels in China these days.

China’s drive for frugality is taking a massive toll on the country’s five-star hotels.

The rating used to signify prestige and guarantee high profits for these accommodations, but now, those profits are declining. According to a report from the China Tourist Hotel Association, total revenues of five-star hotels dropped by 14 percent during the first half of 2013.

Business leaders are already taking action. Chen Miaolin, Chairman of New Century Tourism Group based in East China’s Zhejiang province has opted to delay plans to upgrade his five four-star New Century Hotels to five stars. Chen, who also serves as vice president of the China Tourism Association, said that other lower-rated hotels have done the same, and that 56 five-star hotels even sought to lower their ratings last year.

Chen said that the business decline is the result of the Communist Party of China’s (CPC’s) recent ban on official spending at five-star hotels at public expense.

But the ban isn’t just affecting top-notch accommodations. The entire Chinese hospitality industry felt the pinch last year, with 20 or more hotels closing down each month. The industry also reported a 25 percent decrease in its aggregate business turnover in 2013, said Chen.

The average lodging rate of Chinese hotels with ratings of three or more stars dropped by six percentage points to 53 percent during the first half of 2013. Hotel catering businesses also suffered, with their average revenue declining by 17.2 percent. The average revenue generated by hotel events, such as official meetings, dropped by 17.8 percent.

Yang Xiaowei, a sales manager at Beijing’s Lijingwan International Hotel, told China Daily that many government organizations canceled their traditional year-end banquets because of the austerity push. In 2013, the business generated less than less than four million yuan ($655,738), down from six million yuan in 2012.

“High-end restaurants and hotels are really suffering, as nearly 60 percent of our turnover used to come from governmental departments and state-owned enterprises,” Yang said.

Leaders in the industry are now trying to make up for lost profits through business innovation. Yang has directed her company’s efforts toward private consumption, offering more deals to consumers and seeking to increase its online presence. Chen plans to reopen one of his closed-down hotels as a nursing home after the spring festival.

Zhang Yan, a sociologist with the Shaanxi Provincial Academy of Social Sciences, stresses that these kinds of business strategies are essential in China’s current political climate.

“They have to innovate their operations and marketing activities to become more appealing to individual consumers. Meanwhile, as too many hotels exist in the market, mergers and acquisitions are indispensable this year,” she said.

image credit: peter morgan

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