HAITONG INT'L: Hotel profit margins are shifting downwards as franchisees return to rational and cautious expansion.

HAITONG INT'L has released a research report indicating that hotel RevPAR is likely to decline in the fourth quarter, and the pressure on RevPAR is expected to persist with supply release in 2027, although the trend toward chain hotels remains unchanged. Experts predict a significant drop in RevPAR in the fourth quarter due to fewer banquets and a reduction in corporate annual meetings and supplier conferences. Currently, only four exhibitions are scheduled for November and December, which is far fewer than in previous years. It is anticipated that the downward trend will continue into 2027, with a concentration of newly opened stores from contracts signed in 2026 and a release of previously withheld properties. This increase in supply and intensified competition among brands of the same level will continue to put pressure on RevPAR. However, experts believe that the decline in chain expansion will not halt the national hotel chain rate remains relatively low, and smaller brands will be divided among leading chains, with talent and systems as core competitive advantages. Should the economy recover between 2028 and 2030, consumers may lean more toward chain hotels, with spending trends still upgrading toward four-star and five-star ratings. The main points from HAITONG INT'L are as follows: Demand has been suppressed since the third quarter. Experts indicate that the RevPAR for a sample of hotels is down about 7% year-on-year, with mid-range and high-end segments showing more resilience, and the budget segment remaining stable, while older "pseudo-mid-range" segments are being squeezed from both ends. According to expert samples, RevPAR for all stores (three-star and above) dropped by 7% year-on-year in the third quarter; mid to high-end projects (such as Atour and Orange Crystal) only fell by about three percentage points, showing relative advantages. The budget segment maintained a steady RevPAR of around 170 yuan over the past two years, with a strategy of not raising prices this year to ensure occupancy; profits have decreased, but foot traffic has remained stable. The hardest hit are traditional three-star "pseudo-mid-range" projects like Old Vienna and Old Leaf: when they sell rooms for 300 yuan, consumers can spend an additional 80-100 yuan for a stay at a whole season hotel; for a one-night stay, options for budget hotels priced at 170-200 yuan are available, leading to a "neither side benefits" situation, which is a major factor dragging down the overall average. The net profit margin of hotels has clearly declined. According to expert samples, the current net profit margin for stores is approximately 25%, a significant decrease from around 47% during the peak period of 2016-2017. Overall profits this year have declined by about four percentage points, primarily due to declining revenue, rigid labor costs, changes in tax and social security policies, taxation push from e-commerce platform revenues, and increased service and food costs. Some older stores are already in a micro-profit state. In terms of cost structure, self-hired labor costs account for about 18% of revenue, group management fees account for approximately 12%-17%, rent is generally controlled within 20% of revenue, and operational costs such as consumables account for about 8 percentage points. The industrys signing activities have noticeably cooled, and franchisers are returning to a rational mindset. Experts estimate that the number of new store signings in the industry this year has dropped by at least 30% compared to last year. Experts categorize franchisers into three types: mature professional owners are in a slow contraction or semi-observation state, focusing on whether rents are 20%-30% below market; fund cooperative owners carry a certain bottom-fishing mentality, seeking to attract external funds through fixed returns or equity partnerships; hot funds from other industries and novice investors in the industry have clearly diminished this year due to insufficient location evaluations and unsatisfactory store revenues. The industry as a whole has entered a more rational phase. Branding has intensified beyond expectations, and investment logic is shifting toward property conditions and proximity protections. Experts did not continue to sign with Huazhu this year primarily because the pace of expansion among leading chains exceeded expectations, leading to inadequate store protection. Future brand selections will be based on property conditions: properties that can only accommodate three-star hotels may still consider whole season hotels (model standards); small-sized properties of 4,000-5,000 square meters are likely to choose Huazhu; four-star hotels will prioritize Atour (with better quality); properties with better conditions may lean toward international hotels, aiming for a competitive edge that allows their stores to sustain a $100 spending capability in the next 7-10 years. Travel agencies are seeing a decline in comprehensive fee rates, and channel structures are rapidly diversifying. According to expert samples, after the new policies, Ctrip maintains a commission rate of 12%-15%, but the comprehensive fee rate has decreased by about three percentage points (savings on vouchers and reduced traffic costs). The channel structure has shifted significantly: Ctrip's share has declined, while Douyin and Meituan are taking a portion of the lower-end traffic, and younger customers are placing orders through Xiaohongshu and Xianyu. Experts believe that the real vulnerability in the future will be a shift in consumer demographics rather than a reduction in commissions. Hotel brands are increasing service and supply chain enhancements, and system automation is a major trend. In the past two months, Huazhu launched GOP assistance services, although experts believe its effectiveness is limited, since owners are unlikely to fully share real operational data (public disclosure of key data like rents would weaken their own advantages); Huazhu is also promoting a front warehouse model similar to JD.com to reduce franchisee inventory and cash occupancy. In terms of new business, brand owners are exploring directions in insurance (property insurance) and supply chains for equipment (air conditioning, hot water, heating and cooling equipment, etc.). Experts believe that the GOP system may move toward automation and consolidation in the future, with distribution and logistics costs likely folded into the cost system, which, although difficult to enforce, will be hard for franchisees to resist. Risk warnings: Business travel and event banquet demand recovery may fall short of expectations; extreme weather may repeatedly suppress travel; concentrated openings of new stores could lead to supply surplus and continued pressure on RevPAR; rigid increases in rent, labor, and other costs, as well as changes in tax and social security policies, may erode profits; a retreat of funds from other industries may cause industry signings to decline beyond expectations.