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Hotels that close when the group is doing well: the case of Huazhu

Despite very positive results, the Chinese group has just announced it closed 60 hotels in the first quarter 2019. A look at the whys and wherefores of such définitive and radicale measures.

Founded in 2005, Huazhu, represented 3,907 hotels as of January 1, 2019, or 388,087 rooms (according to the ranking by Hospitality ON), in over 350 business and leisure towns in China. Its brands range from economy to upscale segment, among which Joya Hotel, Manxin Hotels & Resorts, Ji Hotel, Starway Hotel, HanTing Hotel, Elan Hotel, and Hi Inn. Otherwise known as China Lodging Group, the firm entered into the capital of Accor in 2018 with 4.5% stake. In reality it is a cross-participation, since Accor holds 10.3% of Huazhu.

Moreover, the group has shown remarkable performances by announcing it is the fourth most profitable hotel group worldwide last year. It was valued at 12.8 billion dollars (11.04 billion euros) on May 31, 2018, whereas it ranked ninth in terms of volume of rooms. In other words, the hotelier knows how to turn its properties to profit, focusing on quality over quantity. This strategy, which proves to be profitable, explains the recent closing of sixty properties that it owns.

The 12 of the hotels in question are rented, while 48 others are franchised. The problems that have led to these closures have been primarily administrative, geographic and qualitative.

First of all 22 properties have shut down due to a change in zoning or upon expiration of a lease agreement. Then 18 others had to go out of business because of operating losses due to their geographic location in less important markets, in third ranking towns.

Finally, the third reason raised consists in the inadequacy of the group's positioning. Ten hotels had to leave Huazhu because they no longer met the hotelier's standards, and ten others will be transformed in the years to come in order to boost the the quality of the latter. These twenty hotels are under the brands HanTing and Hi Inn. This measure makes it possible to pursue the quality strategy that the group has engaged, since "by eliminating hotels of lesser quality, the company was able to achieve a more coherent customer experience, which will contribute improving both the brands and future profitability" as a press release from the group announcing the financial results for the first quarter 2019 explains.


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