China Hotel Management: Comparing SARS to COVID-19 | In Practise

China Hotel Management: Comparing SARS to COVID-19

Former Area General Manager at Accor China

Why is this interview interesting?

  • Outlook on Chinese demand for domestic and international travel
  • Operational challenges for hotels during the coronavirus pandemic
  • How hotels in Hong Kong reacted during SARS versus today during Covid-19
  • How hotel owners and franchisees are approaching the challenges compared to large management companies

Executive Bio

Guido Milner

Former Area General Manager at Accor China

Guido has nearly 30 years working in the hospitality industry in China. In 1995, he started his career in Accor as the Rooms Division Manager before leaving for Hong Kong in 2001 to manage a Sofitel Hotel in Shanghai. Guido worked through the SARS epidemic in Hong Kong and has managed various high end Sofitel and Pullman hotels across China for 20 years. He is currently an advisor to Chinese hotels based in Shanghai. Read more

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Interview Transcript

Guido, can you share some information about the situation, post-Covid, today in Shanghai?

The lockdown of Wuhan was lifted on 8th April, which was a milestone. Whereas Shanghai was, more or less, starting to go back to normal from 24th March, onwards. Not all the hotels have reopened, but those that have are seeing quite a good turnout for domestic demand, although it’s a L-shaped rebound, rather than a V-shaped rebound, as SARS was. SARS was really a V-shaped. Within two months, all the hotels were back to high occupancies, without losing ADR. Whereas now, the growth is much slower. Traffic is, pretty much, back to what it was previously, before Covid. Maybe there are, actually, more people taking taxis, rather than subways, because of the social distancing. But the alert level is still high, because the Chinese government has been implementing very strict quarantine measures, which have been stepped up over the past month, due to the imported cases, from flights, which triggered the closing of all international flights, on 20th March. We still receive daily communications on how many imported cases are arriving, from the few flights that are still taking place.

They have also, significantly, increased the harshness of the confinement. That means, for a certain period, you could confine either at home or in hotels or in government structures. From one month ago, you are not able to confine anymore in your home or at hotels. You have to be confined in government structures, which are hotels as well, but they are hotels dedicated for that.

Most recently, they have added an extra week of confinement, so you are confined for two weeks in a government structure and then you can go home, where you are confined for an additional week. So it’s for three weeks now.

So no one is going to be travelling to China or move internationally?

Absolutely. They have reduced flights from 1,500 per day, to just 150, during the month of April. In May, they are negotiating, country by country, to restore some of the flights. However, particularly for foreigners, you can catch a flight to get out, but you’re not sure if you can come back in. In terms of morale, for the foreigners especially, it’s still a pretty tough situation. You’re not necessarily able to enter all the premises that you want, as a foreigner, because there is still some stigmatism. Other than that, the economy is back to 80% or 90% of what it was before, domestically, at least, and China has a huge domestic demand, so it’s enough for the international hotels, to be able to see revenues going up.

You mentioned that it’s more of an L-shaped recovery than a V-shaped. Can you just elaborate on how you’ve seen ADR and occupancy change today, versus pre-Covid?

One of the lessons of SARS was that you shouldn’t play with ADR. If you play with ADR, you’re not necessarily going to gain in the short term, with a higher market share, firstly. Secondly, you’re going to suffer long term, because if you drop your rates, then it’s going to be tougher to go back to the rate strategies that you had before. That’s one of the key learnings from SARS.

However, in terms of occupancy, RevPAR is going to be affected on the occupancy side and the cost structure is expected to be higher, because of all the huge cleaning supplies that hotels have stocked up, in terms of purchases and usage.

What’s been the change in occupancy, in RevPAR?

Generally speaking, the occupancy dropped from the mid-80s, just before Chinese New Year, down to single digits. The single digits lasted until the end of March. In April, they went back to double digits. Overall, I would need to check the latest figures, but three weeks ago, the economy hotels, economy scale and two and three stars, were back in the 70% range. Five star and four star were in the 40% range. It depends on location; it depends on the city. Shanghai is better served than Beijing, because in Beijing, the rules are much stricter, due to the presence of the Chinese government in that city. They are not taking any risks there. Even today, Beijing is one of the cities where it’s quite difficult to travel to.

What is your outlook on those four and five star hotels returning to 70% or 80% occupancy, in China?

I think it’s going to very much depend on the opening up of the country to international business, that is going to give the extra boost, not only of confidence, but also foreigners in China will have to compensate, somehow, for the lack of travel over the past three months. Although you need to also consider that, I think people in general, will be much more travel wary than they were before, not only because of the expenses, but also because of a change in mindset, regarding airlines.

Do I really need to take a plane now that we’ve been used to Zoom meetings and digital meetings? We’ve realized that a lot of issues can be solved without being on-site, in person. It depends on the kind of reasons as to why you need to move. If you have to go and check a site construction, it’s better, sometimes, to see things with your own eyes. However, I think that the homeworking space has had a huge impact on the policies of companies.

You mentioned that the big lesson you learned from SARS was to not move the ADR. Have you seen those economy or two to three star hotels decrease ADR, or even the four and five star ones?

Yes. There is a decrease, obviously, but it’s not a big decrease. It’s a promotional rate range, but they’re not dropping rates 50%. It’s really a range between 15% to 25%, depending again, on the location and on the city, the province and the pressure from the owners.

What’s your sense on the Chinese consumer and their willingness to travel, internationally?

Internationally, at the moment, I really don’t think they are travelling that much.

Do you think the behavior of the Chinese national has changed, in that they want to still go and visit new regions in Europe, in the US? Or do you think there’s been a bit of a behavior change?

It’s too early. It’s really going to depend on the opening up of those countries. It’s a trend that you can anticipate in every country. It’s domestic demand that’s going to be impacted first, even in European countries. French people will discover places around their homes and, in every country, I think that the behavior will be like that, initially. In terms of international travel, the airline sector has been hit so much that the reboot strategies of each airline company is going to be very interesting to follow but I absolutely don’t expect that to go back to what it was, previously, for at least two years.

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China Hotel Management: Comparing SARS to COVID-19

May 4, 2020

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