China tourism price wars threaten rare bright spot in consumer spending

Macro

Summary · why it matters

China's domestic tourism market is weakening faster than expected, clouding one of the few bright spots in the country's sluggish consumer economy. Hilton China now expects revenue per available room to fall by low single digits this year, worse than earlier expectations for a flat performance, after swinging from 1.3% growth in the first quarter to a 2.2% fall in the second quarter. Across China, hotel RevPAR has tumbled 6% year-on-year through late July, following a 1% drop in June, according to Smith Travel Research data cited by Goldman Sachs. A three percentage point drop in occupancy along with a 1% decline in average daily rates versus a year ago dragged down revenue. The travel sub-index of the consumer price index dropped by 0.6% in June from the prior month, with China's chief statistician pointing to sharp price drops in hotel rates and airfares. Inbound travel offers modest support, with overseas visitors accounting for 12% to 13% of total tourism spending, and Hyatt's Greater China RevPAR rose 7.2% year-on-year in the second quarter, driven by leisure luxury.