Most of our clients are travel-related businesses, so we keep a keen eye on the machinations within the Chinese hospitality and tourism sectors. This article on FT.com about the problems with hiring staff brings up some of the same issues I complained about in an article for China Hospitality News a couple years about the struggle to find qualified staff to fill the hotels in China.

But another side to all this fast hotel growth in China is also the frequent de-flagging of hotels. De-flagging is not reported on — and in our trade-friendly Chinese hospitality magazines we rarely discuss it — but de-flagging happens quite a lot and shows some of the problems associated with the hotel sector in China. Some hotels are growing at 80-100% per annum in China, and along with that fast growth comes some problems.

De-flagging is when a hotel management company removes (or is removed) its brand from a hotel (ergo, it takes down its flag). Besides Hong Kong-based Shangri-La, which owns most of the properties it manages in China, Starwood, IHG, Marriott, Kempinski, Hilton, Wyndham, and all the others are only management companies in China — vendors who are brought into a hotel to assist managing a property that a (very) rich local Chinese person/company owns. This is why, by the way, we spend a lot of time with local owners and not the management companies — it is the local owner who ultimately controls the budgets and not the big-name international management brand in a hotel.

In Shanghai, one local hotelier has, in the past few months, eliminated two different international management companies at two of his different hotel developments in the city. The second de-flagging came in the last week, with no advance notice supposedly to the general manager.

De-flaggings happen for various reasons — maybe the local owner is difficult to deal with or the international management company promises the owner a level of revenue that does not materialize. It's a guessing game sometimes. It sometimes also leaves the hotel with poorer management and a lower level of service.