China Lodging Group moves upscale with Crystal Orange Hotels acquisition

The JI Hotel Chaoyangmen Beijing is part of the China Lodging portfolio (JI Hotel Chaoyangmen Beijing)

Last month, economy hotel operator China Lodging Group (which also operates under the name "HuaZhu") announced plans to acquire Beijing’s Crystal Orange Hotels from investors led by Carlyle at $530 million. The deal’s closing is subject to the approval from the Antitrust Bureau of Ministry of Commerce of China.

When the acquisition is finalized, Crystal Orange will be kept as a separate unit within China Lodging Group, and its founder and CEO Wu Hai will continue to head Orange Crystal’s operation. In the meantime, China Lodging Group is providing assistance including IT, membership, and business development.

"Global consolidation of hotel operators is continuing," Zhang Min, CEO of China Lodging, told China Money Network. "Crystal Orange [attracts] a complementary segment of the population to Huazhu's existing members. This will help strengthen our leading position in the hotel sector and provide more choices for our 78 million members."

China Lodging is now the country’s second-largest hotel company. As of 2015, the company had a 3.9-percent share of the $58-billion China market, only 0.1 percent behind leader Homeinns, according to research firm Euromonitor. China Lodging had 3,270 hotels in 367 cities across China at the end of 2016, mostly in the economy and midscale markets. 

This fits in well with Crystal Orange, which launched 11 years ago and now has 100 hotels across three brands in China’s first- and second-tier cities. The company targets middle to high-end consumers, and its flagship Orange Crystal brand is promoted domestically as a competitor to global luxury chains like Four Seasons. 

This growth comes just over a year after AccorHotels finalized its alliance with China Lodging Group, bringing more than 90 AccorHotels-branded properties under the Huazhu platform. The benefits of that deal were immediate: In the first quarter after the alliance was finalized, China Lodging Group's net revenues rose 18.8 percent year-over-year to $223 million, exceeding the high end of the guidance. The group credited its year-over-year average daily rate increase of 2.5 percent to a "more favorable brand mix with an increased proportion of midscale and upscale hotels."

If China Lodging Group is looking to expand into the upscale and luxury sectors, the company may be poised for another year of dramatic revenue growth. Of course, we'll have to wait for the deal to be finalized before we see any numbers—and if this deal is anything like the one with AccorHotels, that could take months if not longer.