Huazhu Group Defies China Hotel Downturn, Expands Franchise Model
China's Huazhu Group reported 131.17 billion yuan in H1 2026 revenue, up 11% year-on-year, as it shifted to a franchise-heavy operating model amid industry overcapacity.
China Hotel Market Faces Overcapacity
China's hospitality sector experienced significant overcapacity in 2025, leading to widespread closures, according to iResearch. The firm reported that nearly 340,000 hotel rooms ceased operations nationwide last year, with approximately 80% of these belonging to independent establishments.
The China Tourism Hotel Association further projected that hotels lacking strong brand recognition and operational efficiency would face accelerated exits from the market over the next three years. Despite this challenging environment, Huazhu Group announced robust financial results for the first half of 2026.
The company's total revenue reached 131.17 billion yuan, an 11% increase compared to the previous year. While attributable net profit saw a slight 1.8% decrease year-on-year, reaching 23.94 billion yuan, adjusted EBITDA grew by 21.7% to 45.83 billion yuan, indicating strong core business performance when accounting for exchange losses and fair value changes.
Franchise Model Drives Growth
Huazhu Group's strong performance is attributed to a strategic shift towards an asset-light, franchise-centric business model. By the end of 2025, the company operated 12,858 hotels globally, with 12,285 (95.5%) being franchised or managed properties, while its directly operated portfolio, numbering only 573, continued to contract.
This transformation is reflected in its revenue structure: management franchising and licensing revenue increased from 9.5 billion yuan in 2024 to 11.7 billion yuan in 2025, a 23.1% year-on-year rise. This segment's contribution to total revenue grew to 46.2% in 2025, surpassing 50% for the first time in the first half of 2026, with a 22.9% increase year-on-year.
In contrast, revenue from directly operated stores declined by 3.3% during the same period. This model also yielded a gross margin of approximately 43% for Huazhu, significantly higher than the hotel industry's average of 28% reported by WIND for the first quarter of 2026.
Member Base Fuels Direct Bookings
A key factor in Huazhu's success is its extensive membership programme, which boasts 311 million members. According to the company's annual report, in 2025, 73% of Huazhu China's room nights were booked by members, with 77% of all room nights generated through its proprietary channels.
This strong direct booking capability minimises reliance on online travel agencies (OTAs); Huazhu disclosed at its Q2 2026 performance conference that OTA channels account for only 20% to 25% of its room nights. This contrasts sharply with the broader industry, where most bookings occur via OTAs, incurring commissions of 8% to 15% per room night.
Independent hotels, lacking membership systems, often face even higher commissions, starting from 15%. Huazhu's comprehensive commission for franchisees, estimated at around 13% by market analysts, includes management and central channel fees, offering a guaranteed passenger flow that proves valuable during industry downturns.
Implications for Asian Hospitality
The challenging market conditions in China, which saw numerous independent hotels exit in 2025, paradoxically fuelled Huazhu's expansion. The group opened a record 2,444 new stores last year, adding over 120,000 rooms, representing nearly 20% of the nationwide total new rooms.
This counter-cyclical growth demonstrates the resilience of a strong brand and membership system in a fragmented market. For other Asian hospitality groups, Huazhu's strategy offers a case study in navigating oversupply through an asset-light, direct-to-consumer model.
Operators in markets facing similar competitive pressures or considering expansion could examine the benefits of a robust membership base and a franchise-heavy portfolio to secure consistent traffic and higher margins, particularly as regional travel patterns continue to evolve in 2026 and beyond.
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