The Chinese travel market is still booming, regardless of the dire headlines about China's slowing GDP growth. Millions more people are moving into the middle class in China each year, and they're traveling more than ever. As China becomes one of the world's largest travel markets, hotel chains such as Marriott International (NASDAQ:MAR) and Hilton Worldwide (NYSE:HLT) are preparing themselves to win over a bigger share of this important market.
The Chinese domestic travel market opportunity
China's middle class surpassed that of the United States in 2015, reaching 109 million adults, compared with 92 million in the United States. That's 17% of the total estimated middle-class population worldwide. This growing middle class with its increased discretitionary income has a expanding appetite for travel.
Some of that travel growth is international. For instance, Chinese tourists now make up the largest percentage of Australian visitors. However, most of that growth is domestic travel, either for business purposes or leisure travel to China's national tourist destinations such as the tropical Hainan Island. According to The China Business Review, Chinese domestic tourism increased about 10% in 2015 year over year, and more importantly, spending is expected to grow 16% annual through 2020 to around $615 billion.
The battle for China's tourists
Hilton, Marriott, and virtually every other lodging company is hoping to get a piece of this market. In the past, high-end hotels were the ones benefiting the most in China as business professionals made up many of the domestic travelers, but increasingly it's the mid-range to economy brands that have the best opportunity to take part in this middle-class-fueled domestic travel growth.
Hilton has had multiple high-profile openings in China recently, including its first-ever full-service residences concept in China in the city of Jinan. Currently, Hilton operates and licenses nearly 100 properties in China but expects to add about 200 more in the next few years, 75% of the company's total expected development in Asia during that time.
Marriott's growth in China has been even more impressive than Hilton's. Marriott President Craig Smith, who oversees Asia-Pacific operations, said in an interview with Nikkei Asian Review in September: "China is our largest source market in the Asia-Pacific and our second-largest source market globally. I am very sure in a few years it actually would be No. 1."
Another reason Marriott looks well positioned in China is the recent acquisition with Starwood Hotels, which had a growing Chinese presence as well. Marriott recently opened its 100th hotel in China in the southern city of Shenzhen. In a recent partnership with a local operator, Marriott announced it is also planning to open more than 100 properties under the Fairfield brand through 2021, which will offer smaller rooms for more economical travelers. As of the acquisition, Starwood owned or licensed around 150 properties in China, with about 150 more planned to open in the next three years.
Competition will be intense
Of course, these U.S.-based companies will be competing with local hotel companies, such as China Lodging Group (NASDAQ:HTHT), that's also expanding rapidly. Another trend taking market share in China just as it has in many other markets around the world is the rise of sharing-economy style lodging through companies such as Airbnb and others, including local companies such as TuJia.com. So while the market opportunity is incredible, the competition will be fierce.
Still, this market should provide a great growth opportunity in the decade ahead for those companies investing in it now. Continue to watch in the quarterly releases and earnings calls ahead how much China becomes an even bigger focus for companies such as Hilton and Marriott.