In "The Big Banks," Citigroup predicts that the investigation of Trip.com by the mainland may not be beneficial for Huazhu and Atour

Citi's research report pointed out that after the State Administration for Market Regulation of China launched an antitrust investigation into Trip.com Group (09961.HK), some investors inquired whether the investigation might lead to a reduction in commission rates for online travel agencies (OTAs), which could benefit chain hotels such as Huazhu Group (01179.HK) and Atour (ATAT.US). Citi's answer is "not necessarily."

The bank explained that the network effects of online travel platforms are very strong. Even if commission rates charged to hotels are lowered, the structural possibility of shifting booking volumes to the hotel group's own applications is low. Hotels may even pass on the savings from online travel platforms as lower room rates, which could lead to a decline in average revenue per available room (RevPAR).

Secondly, the penetration rate of chain hotels may stabilize, as independent hotels that rely more on online travel platform bookings may perform relatively better. Thirdly, chain hotel groups may not take the opportunity of reduced platform service fees to increase their own commission rates; instead, they are more likely to accelerate store openings to capitalize on the improved profitability of franchise hotels. This could lead to a resurgence of market oversupply and depress average revenue per available room.

Overall, Citi expects that the Chinese hotel industry will see more new hotel openings (including independent hotels), but believes that the positive growth trend in average revenue per available room may shorten. Currently, they are more optimistic about Atour rather than Huazhu, as Huazhu's profitability is more sensitive to the trend in average revenue per available room. Although Atour's average revenue per available room growth is weaker than Huazhu's, the company is smaller and has a faster growth rate in the number of stores. Additionally, its higher contribution from business travel revenue in first-tier cities makes it more resilient to the impact of the recovery of independent hotels