White Plains, New York-based Starwood Hotels & Resorts Worldwide Inc (HOT) recently announced its intention of opening seven new Sheraton hotels by the end of September this year, which is in line with the company’s goal of operating100 hotels in China by end of next year.
Sheraton currently operates more than 400 hotels in 70 countries. Recently, Sheraton completed a $6 billion brand-wide revitalization program, including $400 million in signature brand initiatives. Sheraton is now investing an additional $5 billion to open approximately 50 new hotels by the end of 2013.
The company expects to open half of the new hotels over the next two years under the Sheraton brand. With the addition of 7 new hotels, Sheraton will operate 42 hotels in China by the end of this year. The seven hotels are expected to come up at Beijing, Xian, Chongqing, Yantai, Guangzhou, Zhenjiang, Wanning and Hangzhou.
Outside the U.S., China is already Starwood’s largest market, representing eight of its brands. The company currently operates 74 hotels in China and has an additional 90 hotels under development. Thus, Starwood remains focused on boosting its presence in the fast growing Chinese market and expects China to outpace the U.S. as its largest market going forward.
Last month, the company shifted its management team, including its president & CEO Frits van Paasschen, to Shanghai on June 8 in order to strengthen its operation in China. The group will stay in China until July 11 and will evaluate Starwood’s business pattern in China and understand the market more closely through interactions with local stakeholders, while exploring new properties throughout the country.
Of the company’s total pipeline, more than 60% is concentrated in the Asia-Pacific markets. Within Asia-Pacific, China promises immense growth potential with visits expected to double by 2014.
While in the past, Starwood hotels in China were mainly occupied by Western travelers, today, more than 50% of the guests are Chinese. This is indicative of China’s fast growing domestic tourism.
According to an analysis on the enrollment and travel trends of Starwood Preferred Guest members, Chinese enrollment in Starwood’s loyalty program, shot up 71% in 2010.
Starwood enjoys a first-mover advantage in China as it opened the first branded hotel, The Great Wall Sheraton Hotel, in Beijing in 1985. Presently, Starwood operates four and five star hotels in China and is preparing to take a lead with a pipeline, which is significantly larger than its peers.
However, Starwood’s nearest competitor Marriott International Inc. (MAR) also plans to double its portfolio in China, which is expected to remain the second largest market of Marriott after North America, over the next five years.
The other markets that Starwood is eyeing for expansion, apart from China, are Brazil, the United Arab Emirates and India.
Starwood currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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