Hotel performance recovery in China: A temporary setback due to Qing Ming

China's hotel industry showed strong recovery in the first quarter of 2023, with domestic travel for both leisure and corporate purposes maintaining a V-shaped trajectory across the country and segments, including provincial and capital levels. As a result, hotel profitability has improved due to the return of demand, a sharp increase in hotel rates, and the industry's ability to manage the new reality of rising costs in labor, energy and logistics.

Unfortunately, this year's Qing Ming, also known as Tomb-Sweeping Day, which fell on a Wednesday (5 April), created a sudden stop to the growth recovery. The national holiday runs off the lunar calendar and affected both corporate and leisure travel. People were reluctant to take two full weekdays off work for a leisure trip, while business travel was also impacted. During the holiday, hotel occupancy levels dropped as low as 45%, as shown in the graphs below.

The impact of Qing Ming was visible when comparing the average of the four Tier 1 cities to that of the 15 Tier 1.5 cities. The occupancy growth (and drop) was identical between the two groups in the past 45 days, including during Qing Ming. Even when analyzing more regional areas beyond these top tiers, the trend was similar. The tier-based ranking is not an official government definition but rather a frequently-used system to rank cities in China.

However, Sanya, known for its longer “length of stay,” saw much less of an effect on the beaches of the big resorts in Hainan. Hong Kong S.A.R and Macau S.A.R also saw less impact, with inbound flights and the return of travel continuing to lift recent occupancy levels to over 80%, with room rates climbing up towards more historically decent numbers.

While the recent holiday did not have a directly correlated effect on average daily rate (ADR) in hotels, the metric has risen sharply in several cities since the reopening of travel in China from February onwards. This trend is also visible in the last couple of weeks, as pent-up demand remains strong, and costs continue to increase for hotel operators. Rates in Guangzhou, Chengdu, Chongqing, Shanghai, and Tianjin have recently reached high levels, becoming a topic for event organizers looking to plan conventions and large meetings, where traditional meeting markets are starting to see increased competition from those where rate growth is still held back.

Looking forward, we still expect to see growth come back during April and onwards, with the effects of Golden Week in the first week of May, the first extended and major holiday after markets opened, and people truly started to place the pandemic in the rear-view mirror. Our upgraded forecast still sees China progressing to strong historic levels during 2023, even if Tier 1 cities will create a drag effect on an annualized basis for the entire country.