The close of the year has prompted many in the hotel industry to take stock of their business performancesA common sentiment has emerged among hotel professionals: times are tough, particularly in the latter half of the year.

However, when it comes to understanding the reasons behind the industry's struggles, differing opinions ariseOne prevalent argument centers around the performance of OTA (Online Travel Agency) platforms, which have thrived while hotels are facing declining profitsCritics argue that the high commission fees demanded by these reservation platforms are significantly impacting hotel revenues.

This debate is rather old-fashionedAs long as OTAs operate, discussions about their "blood-sucking" tendencies will persist.

From another angle, there’s an interesting perspective from industry veteran, Lao ShaHe believes that the transient boom experienced by the hotel industry in 2023 led many to misguided judgments

A surge of new hotels hitting the market has caused a significant imbalance between supply and demandCoupled with economic uncertainty, spending among consumers has become more measured, intensifying competition within the industry.

To understand the situation better, one can examine core operational data from both domestic and international hotel groupsThe increase in hotel supply, along with a downturn in inbound tourism, has created a pressurized environment that many operators have found unsettling this year.

Lao Sha argues that attributing blame to a single entity, whether it’s OTAs or market conditions, oversimplifies the complex transformations the hotel industry is undergoingEvery aspect of supply and demand, as well as distribution channels, plays a crucial role, and oversight of any segment can have significant repercussions.

So, is there merit to the narrative suggesting that 2023 misled industry perceptions? Lao Sha still firmly believes that the so-called "revenge travel" phenomenon in 2023 has clouded many viewpoints.

In conversations with hotel investors, Lao Sha often uses a haircutting analogy

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During the pandemic's intense years, he went from trimming his hair every two weeks to extending it out to a month or even twoOnce restrictions lifted entirely, people flocked to salons, creating a temporary boom in business at these establishmentsYet, post this surge, the market would inevitably settle back to a more stable state, and the previous years of normal demand for haircuts wouldn't return.

The hotel sector mirrors this trajectoryHospitality offerings are tied closely to time and place and are highly sensitive to immediacyLockdowns had bottled up travel enthusiasm, which exploded when restrictions were lifted, creating a momentary upsurge in the industry.

Last year's hotel market saw conditions that many are all too familiar withThis unprecedented spike was driven by pent-up demand accumulated over many yearsIt led to inflated operating metrics for the year, which in turn boosted investor confidence among franchisees.

Yet, despite all this growth, Lao Sha found that the number of barbershops didn’t increase in his area because the population remained relatively stable

No one suddenly decided to open a new barbershop meaningfully.

In stark contrast, the Chinese hotel market anticipates a major surge in supply heading into 2024. His friend, MrCui, who runs a mid-range hotel in Luoyang, Henan, shared insights revealing an estimate that hotel supply will increase by 15% to 20% in 2024.

Since the latter half of this year, five new hotels have opened within a 1.5-kilometer radius of Cui’s property—three are recognized national chains, and two are individual establishments, not counting unregistered family-run inns.

"In Henan, Luoyang’s hotel market stands out as relatively robustParticularly in 2023, consumer spending surges indicated 'revenge consumption,' leading to explosive growthLast year’s business was undoubtedly good, which prompted many investors to increase their hotel investmentsThis influx has resulted in numerous new openings, and I’ve visibly noticed a decline in my hotel’s performance

Room rates aren’t rising and bookings have started to dwindle,” MrCui relayed.

The sheer number of hotels available this year is a sentiment resonating with many in the sector.

MrCui’s mention of nearly a 20% market increase in Luoyang is tough to verify right nowNonetheless, monitoring data from AVC indicates that in the first half of 2024, approximately 23,000 new hotels will open, adding 1 million rooms.

To put that figure into perspective, a report titled "2024 China Hotel Industry Development Report" indicated that the entire Jiangsu Province has about 1.04 million hotel rooms, ranking fourth among the 31 provinces and municipalitiesThus, the new hotel rooms coming online in the first half of this year are nearly equivalent to the total inventory of Jiangsu from the previous year.

Furthermore, many executives from prominent hotel groups have stated that the positive operational data from last year due to "revenge spending" naturally tapering off this year is a phenomenon to be expected.

Therefore, Lao Sha advises caution when making year-on-year comparisons, particularly against the extraordinary achievements of 2023, warning that such metrics can misguide professionals' judgements and mentalities.

Indeed, the hotel industry appears to have entered a stage of surplus

During various industry events, many leaders have expressed views affirming that domestic hotel supply is exceeding demand.

Lao Sha perceives that beyond a mere increase in the absolute number of hotels, severe homogenization within hotel offerings, the diversion of high-net-worth clients away from domestic markets, and shifting consumer spending expectations further escalate the feeling of surplus.

To start, industry homogenization has led businesses into a low-level, inefficient competitive battle.

As the second half of the year progressed, MrCui began feeling despondentDespite his concerted efforts to enhance customer services, noticeable improvements in hotel performance remained elusive.

The hotel model he manages caters to the mid-market business segmentLao Sha remarked directly that if you remove the branding from his hotel’s signage, it almost resembles his competitors—guest services and room amenities are hardly distinctive

When everyone offers the same services, consumers no longer view them as exceptional but rather as expectedConsequently, MrCui and like-minded operators cannot escape this sameness, and their business inevitably suffers the consequences.

Another issue arises from the dispersal of affluent travelers, largely due to rising outbound tourism rates that weaken the spending power at domestic hotelsInternational hotel executives, including those from Hilton and Marriott, have previously commented on how outbound affluent visitors negatively impact domestic revenue streamsAccording to Ctrip founder Liang Jianzhang, much of the company’s hotel revenue growth stems from its cross-border travel business.

Data shows that in the first half of 2024, outbound tourism figures soared to 60.71 million, marking a year-on-year increase of 50.4% and returning to approximately 74.7% of pre-pandemic levels

Projections indicate that by the second half of 2024, outbound travel might recover to around 90% of 2019 figures, eventually returning to growth by mid-2025.

The exit of high-net-worth clients for overseas leisure directly impacts domestic business, exacerbating the feeling of overcapacity.

Lastly, consumer spending has grown more cautiousConcerns regarding future income growth have escalated, leading predictions about economic recovery to soften—resulting in restrained spending behavior.

Of course, one could argue that consumers are simply becoming more rational in their expendituresBut in reality, while the total number of travelers may fluctuate, their actual purchasing power appears to be diminishing

The prior boom enjoyed by specialized travel offers gives hoteliers a sense of "hunting for illusive profit"—the crowds look appealing, yet the potential guests actually booking rooms are far fewer than anticipated.

This trend is reflective in the operational numbers of international hotel chains in China

The moderate-sized publicly listed hotel chains indicate similar struggles in their third-quarter performance metrics.

It's no wonder MrCui feels the pressureStepping into a market with overarching competitive trends, his hotel with only around a hundred rooms faces immense challenges in striving against these headwinds.

Ironically, OTA platforms find themselves bearing the brunt of this critiqueAs the core operational data of many hotel groups declines while OTA revenues and profits grow significantly, frustration has shifted blame towards OTAs.

Two critical clarifications are needed here:

First, are there considerable discrepancies in hotel data across different booking channels? The information Lao Sha has gathered suggests that OTAs have not fluctuated their commission fees this year, and thus hotel costs associated with booking channels have not surged.

Additionally, there is a growing trend of hotel chains' membership channels increasingly contributing to their total bookings, yet their core operational data still indicates declines.

This situation suggests that the volatility observed at the operational level is largely driven by market conditions, not directly tied to OTA influences.

The second question concerns the increased performance of OTA platforms

Lao Sha argues that their solid performance can be attributed not only to cross-border tourism boosting accommodation earnings but also to the sheer volume of available hotel options.

New market entrants require effective channels to connect with customers, and besides their own membership systems, OTAs represent vital avenues for customer acquisitionWith the rising number of market hotels, it comes as no surprise that OTA revenues have also surged.

Previously, a group leader from a hotel management company in Chengdu expressed the challenges due to their limited member database, which led to over 85% of their clientele stemming from OTA platformsThis booking method offers promising growth for small- and mid-sized hotel operators who might struggle without comparable brand recognition.

Moreover, intensifying competition among hotels propels businesses to step up their marketing efforts through various booking channels.

The emergence of platforms like Douyin has induced many hotel operators to offer exclusive deals and discounts, and OTAs strategically introduce subsidized pricing during critical periods.

Mainstream OTA platforms also frequently run special events, merging hotel, destination, and ticketing resources into vacation packages that attract customers, ultimately translating this promotional activity into their operating profits.

Additionally, OTA platforms have been diversifying their service and product offerings, bolstering interaction and loyalty with hotels

Initiatives like Ctrip’s charity live courses and specialized sessions have empowered hoteliers to elevate their skills, such as English training aimed at catering to inbound touristsMeanwhile, Meituan’s various rankings help consumers make quick decisions while driving traffic growth for the hotels highlighted.

Such initiatives not only enhance the frequency of engagement between hotels and platforms but also solidify a mutual relianceIn typical business logic, it’s entirely reasonable and expected that OTAs derive revenue through these channels.

Ultimately, it’s essential to note that industry reflections shouldn’t serve as a convenient scapegoat narrative, but rather as an endeavor for progress, aiming for enhanced business performance and sustainable growth across the sectorFrom this perspective, gathering for profound discussions is both an urgent and practically significant undertaking.