Hilton, Wanda In New China Budget Plays
There’s a bit of buzz in the travel space today, with word of major new initiatives in the hotel and airline sectors for global hotelier Hilton Worldwide (NYSE: HLT) and domestic real estate titan Wanda Group. The former will see Hilton roll out the welcome mat for one of its main low-cost brands in China, taking aim at names like Home Inns (Nasdaq: HMIN) and China Lodging Group (Nasdaq: HTHT). The latter move has Wanda’s talkative founder Wang Jianlin discussing a potential new airline launch, as his company also makes a big push into the travel and leisure sector.
Both of these moves reflect the huge potential of China’s domestic travel market, which is rapidly expanding as millions of Chinese find themselves with cash and other resources to spend on vacations and business trips. One of the fastest-expanding segments of the hotel market has been the mid- to budget-end, which so far has been mostly dominated by domestic brands like Home Inns and Hanting. Hilton’s move could change that, with word of its plan to roll out its Hampton brand in China through a local partnership.
Meantime, Wanda’s push into the airline space would come as China tries to shake up the stodgy sector now dominated by big state-owned names. One of the biggest changes taking shape is recent moves that have made it much easier to launch budget airlines. Accordingly, I strongly suspect that’s where Wanda would make its move if it goes ahead with plans to enter the airspace.
All that said, let’s begin this travel round-up with the Hilton, which says it will open up to 400 Hampton hotels in China in partnership with local franchising specialist Plateno Hotels Group. (company announcement; Chinese article) The first Hampton hotel, which Hilton describes as a 3-star, mid-end brand, will open by the end of 2015. Plateno is already a major hotel franchiser in China, with 3,000 hotels in 300 cities. One of its brands is budget chain 7 Days, though I’m unfamiliar with most of the others.
Hilton, which already operates 5 of its brands in China, describes the move as a play for the mid-range of the market, in contrast with the budget end that is much more developed. Other international hoteliers that have launched similar lower-end brands in China include Accor (Paris: AC), with its Ibis chain, and Intercontinental (London: IHG), with its Holiday Inn Express. The market does seem like it’s getting a bit crowded, though Hilton could benefit by pairing with an experienced partner like Plateno.
Next let’s look at the latest remarks from Wanda founder Wang Jianlin, who is one of China’s richest men and has been launching new initiatives all over the map lately. One area that’s captured his interest is the travel sector. Wanda recently purchased a major travel agency in wealthy Zhejiang province (previous post), and has indicated it is planning an aggressive global expansion for its hotel brand.
Now media are citing Wang saying that it’s not enough to own vacation villas and travel agencies, and that airline ownership is also important for a serious travel company. (Chinese article) Wang made the remarks to a reporter at an event in the tourist city of Kunming, and there’s no additional detail about any airline intentions he has.
But such a plan would certainly be consistent with a recent mini-explosion of activity in the Chinese airline space, especially among budget carriers. Shanghai-based carrier China Eastern (HKEx: 670; Shanghai: 600115; NYSE: CEA) is planning to launch a budget carrier, and the new 9 Air also got its flight permission earlier this month. I could easily see Wang entering this increasingly crowded space, where there’s plenty of room for profits from Chinese travelers tired of paying full fares for lackluster service on existing state-owned airlines.
Bottom line: Hilton’s new China budget hotel bet is a bit late but could get a boost from its experienced partner, while a new Wanda budget carrier would also do well against established airlines.
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