China's Domestic Tourism Market Faces a Tougher-than-Expected Slowdown, While Inbound Travel Offers a Glimmer of Hope
China's domestic tourism sector is showing signs of a sharper slowdown than previously anticipated, with a noticeable drop in hotel prices. Hilton China recently adjusted its revenue outlook, forecasting a low single-digit decline in revenue per available room for the year, which is a more negative projection than the flat performance initially expected. Q2 data revealed a 2.2% drop in revenue per available room, a steep contrast to the 1.3% gain recorded in the first quarter.
Christopher Nassetta, President and CEO of Hilton, highlighted the inconsistent pace of economic growth in China during the group's earnings call. He emphasized that while the country is still growing, it is not doing so at the same levels as before. This slowdown has rippled through the hospitality sector, with hotel operators grappling with reduced occupancy and average daily rates. The recent data from Smith Travel Research, cited by Goldman Sachs, indicated a 6% year-on-year decline in hotel RevPAR through late July, following a 1% drop in June. The mild springtime gains have given way to a more challenging environment, with both occupancy rates and average prices falling compared to the previous year.
Hotel Price Discrepancies
An August weekend at a Hilton resort in Dali, Yunnan, a prime destination for domestic Chinese travelers, costs $173 per night. However, options on Trip.com are significantly cheaper, with one alternative costing as little as $50. This price disparity underscores the growing competition in the market and the shift in consumer preferences. As Chinese travelers seek more affordable and unique experiences, the broader hotel sector is adjusting to meet demand with a mix of budget and mid-tier offerings.
Gary Ng, a senior economist at Natixis, has noted a pronounced decline in per-capita spending on travel beginning in the third quarter of 2025. Although tourism still remains a relatively strong part of the economy, it is not immune to the broader macroeconomic challenges. Consumers are now increasingly drawn to unique or high-quality experiences despite the slower pace of wage growth. This trend is reshaping the market, with budget and mid-tier options gaining popularity over premium offerings.
According to Trip.com's data, popular summer travel regions like Shanghai, Xinjiang, and Yunnan showcase strong price competition. For example, an August weekend stay in Kashgar starts at 192 yuan ($28), in Dali at 373 yuan ($55), and in Shanghai at 595 yuan ($88). While select luxury rooms can cost thousands of yuan, budget-friendly options dominate availability across all three destinations, illustrating the shift toward affordability. These price ranges reflect a wide spectrum of consumer choices, with the median price point significantly lower than the average due to the prevalence of inexpensive options.
Rise in Luxury Hotel Demand
As domestic tourism weakens, the luxury hotel segment is gaining traction due to a rise in international visitors. U.S.-based Hyatt recently noted an 18% increase in U.S. travelers and a 24% increase in European visitors to China in the past quarter. This shift is driven in part by China's policy allowing visa-free entry for citizens from a growing list of countries, particularly in Europe, who have significantly higher average incomes. This new wave of international tourists is helping to offset some of the domestic challenges facing the hospitality industry.
Hyatt's revenue per available room in Greater China rose by 7.2% year-on-year in the second quarter, with 'leisure luxury' playing a central role, as highlighted by CEO Mark Hoplamazian. Overseas visitors contribute 12 to 13% of China's total tourism spending, based on Natixis estimates, offering a modest but vital cushion to an otherwise struggling domestic market. The luxury segment continues to outperform the rest of the industry, driven by demand from wealthier international visitors seeking high-end experiences in China.
Chief statistician Dong Liquan attributed this decline to sharp price drops in hotel rates and airfares, further highlighting the challenges faced by the domestic tourism market.
Adaptation and Resilience
Despite these challenges, the hospitality industry continues to adapt, with inbound travel emerging as a potential bright spot. As visa-free policies expand and attract higher-income travelers, hotel operators are seeing some resilience in the luxury market. However, the overall picture for domestic tourism remains difficult, with broader economic pressures weighing on consumer spending and travel behavior.