A low cost option

In straightened times, travel buyers are looking to squeeze more value from their hotel spend. Catherine Chetwynd finds out how budget hotel brands are growing their share of the business travel market

The budget hotel sector is arguably the most dynamic in the UK. It continued to grow, even over the past two or three years, and its pipeline reflects its unfulfilled potential – the market is still small compared to other mature markets.

Research undertaken by Melvin Gold Consulting (Considerations of UK Serviced Accommodation Supply – 2nd edition) and TRI Hospitality Consulting (Budget Hotels 2011 UK) shows a fast-growing market that has adeptly responded to the needs of business travellers.

The business accounts provided by Premier Inn and Travelodge, the two biggest players in the UK, are testimony to this – and this responsiveness has been rewarded by increased revenues.

HSBC uses many budget properties, including Ibis and Travelodge. “HSBC practises strict expense discipline and these hotels help us to achieve our savings goals,” says HSBC’s UK travel and fleet manager Lee Whiteing.

“Our travellers are very cost conscious and many of them are more than happy to stay at budget hotels, with location being a key driver.
As we strive to continue to reduce our cost per trip, budget hotels are likely to continue to increase their presence within our programme.”

The numbers paint the UK business picture. In 2010, UK occupancy from Monday to Thursday increased from 71.8 per cent to 75.2 per cent, with RevPAR (revenue per available room) of £39.32, up from £37.83 the previous year, an increase of nearly 4 per cent, despite rates barely moving (TRI).

Results for London properties were even better, with only moderate drops in performance: occupancies during the business week were 88.7 per cent, a rise of 6.2 per cent over 2009; and brands were even able to raise rates to £67.20 for the corporate market, against £64.47 (TRI).

The weak economy also played into the hands of developers, allowing them to buy sites at advantageous prices, although as the market recovers, this is likely to fade away. The upside of recovery is that more development finance should become available, which will be a particular advantage to brands expanding through franchise arrangements. However, inflation will take its toll, putting pressure on the low prices that are the benchmark of the sector.

The five major players in the sector are Premier Inn with 585 hotels; Travelodge, 452; Holiday Inn Express, 115; Ibis, 55; and Jurys Inn, 24 (Melvin Gold), which shows the disparity in size between the various players.

What these figures don’t show is the varying levels of services provided. Travelodge offers a bed and shower for the price and free wifi in public areas – anything else you want, you pay for. Premier Inn is the next step up the amenities ladder and the remaining three are at the top end, providing hot competition to the three-star/mid-market sector.

Best face forward

Recent investment is also testimony to the importance of corporate business to the market. Holiday Inn Express was rebranded in 2008. More recently, the Express Start breakfast (included in the room rate) was expanded to include hot food. In the room, there are firm and soft pillows, a well-lit desk for working, internet access and pay-per-view films. Reception operates 24 hours.

Jurys Inn is upgrading hotels and has also put £2 million into developing yield management systems to facilitate dynamic pricing. In this it is not alone, according to director of hotel consultancy service HVS London, Tim Smith. “Each of the major brands has developed highly sophisticated revenue management and maximisation systems that produce a dynamic pricing model, which changes instantly in line with demand,” he says.

Accor has rebranded All Seasons and Etap as Ibis Styles and Ibis Budget respectively. The group plans to complete the new segmentation worldwide by early 2013 and it will also be investing in bedding, common areas, food and beverage, and consumer technology.

In ninth place in the Melvin Gold list is Louvre Hotels’ mid-market Campanile, with 18 properties and one super budget Première Classe. Campanile has upgraded bedding and sets its stall by its good food and wines. Recently launched Next Generation Campanile includes wet rooms for showers, individually controlled air conditioning, a larger working space with copious electric sockets and improved lighting, and noise insulation. These are installed in the company’s Nottingham, Swindon and Bradford properties. The group is looking at London, Edinburgh, Leeds and Bristol as possible further locations.

Choice Hotels Europe has been investing in its brands and as a result, Comfort Inn provides 24-hour reception, free internet access or wifi throughout and a consistent breakfast offering. Hampton by Hilton includes breakfast and in-room internet access or wifi in the rate. Hampton also promises that “if you’re not satisfied, we don’t expect you to pay”.

Premier Inn guarantees a good night’s sleep and gives a refund if you don’t get one – even if the cause is outside the hotel’s control. There is paid wifi throughout and 24-hour reception.

Substantial savings

Serco uses Premier Inns “very successfully”, according to director of global travel services Margaret Birse. “We find the product to be consistent, with excellent coverage. The team at Premier have engaged with us very well, creating a programme that works well for us. Our savings have been substantial, with really good customer satisfaction,” she says.

And Travelodge aims to grow the number of hotels and its share of the business market, according to e-commerce director for Travelodge Charlie Herbert. “We are opening 35 hotels in the next 12 months and, in October, we opened the first budget hotel in London’s Square Mile, in St Swithin’s Lane, with 75 bedrooms.” Guests get free wifi in the cafe bars and pay for it in rooms, and self-service check-in has been introduced in city centre and airport hotels, promising a one-minute service.

Travelodge’s recent launch of Metro properties, with up to 40 rooms, is a reflection of the move to city centre locations, with smaller plots of land. It plans to have 100 by 2020.

The central properties may swing the balance for some travel buyers, who feel the largely peripheral locations of budget hotels are a drawback. “We don’t really use budget hotels as most of our offices are in city centres and the budget hotels tend to sit a bit farther out,” says head of UK hotels and venues at PricewaterhouseCoopers, Samantha van Leeuwen.

“That said, the only exception is Manchester, which has a Premier Inn nearby. However, due to demand, the rate is very close to some four-stars we use. Also, as our business can have short lead times, the attractive feeder rates of £29 for budget hotels are non-existent and instead, rates are close in price to full-service hotels.”

Chic and cheerful

The dynamism of the market prevails, exemplified by the arrival of new brands such as Tune, CitizenM, Dutch operator Qbic Hotels and Sleeperz.
A Tune Hotel opened near Westminster Bridge in 2010, and it has since run at 90 per cent occupancies with an 80/20 leisure/business mix. “We use demand-based dynamic pricing and charge for TV, laundry, wifi and housekeeping,” says CEO Mark Lankester. “But we have five-star beds with Hypnos mattresses and 250 thread-count sheets: the sleeping experience is very good.”

Tune is opening a hotel in Liverpool Street next year, which is expected to attract a higher business/leisure ratio of guests, and has plans for two other locations.

Cheap-chic brand Qbic opened in the World Trade Centre in Amsterdam five years ago. “We are trying to get the right location in London but if that takes too long, we will look at Birmingham, Glasgow and Bristol,” says managing partner Paul Janmaat. “The Qbic is a flexible object into which we can put a bedroom and bathroom. We can create a hotel in three months, so we are paying rent for only a short time before we get an income.”

The brand is already evolving: in the next location “we want to upgrade the social part of the hotel,” says Janmaat. “We have a concept for a lounge where there is a lot of social media and a lobby host to bring people into contact with each other.”

CitizenM aims to provide quality at affordable rates. “Rooms are small but what is in the room is luxurious,” says co-founder Robin Chadha. There is a strong design element, evident in the lobby lounge, which is known as the Living Room.

WifiWireless free internet access is free throughout, self-check-in/out is an option alongside 24-hour reception, and self-service CanteenM is open round the clock. The company has eight hotels in the pipeline, including three in London, one of which opens close to Tate Modern next year.

Rail and runway

Sleeperz launched its Cardiff property in 2008 with free wifi throughout. A second establishment opens in Newcastle in December, with wet rooms, heated mirrors, bespoke furniture and slightly larger rooms – a model Sleeperz plans to stick to, according to sales and marketing director Javeed Anwar. “Good value pricing is a very important feature for us,” he says. Plans are for a Liverpool hotel in 2013.

Sleeperz has a relationship with Network Rail, which gives it a major advantage. “They plan to be next to a station wherever they can and the relationship with a large land-owner should give them greater potential to roll out quickly,” says consultant to the hotel industry Melvin Gold.

And Yotel provides cabin-style accommodation inside terminals at Gatwick and Heathrow airports. Cabins can be booked by the hour, four-hour slot or overnight, with a choice of standard or premium rooms.

The latter come with motorised beds for creating space, shower, ‘techno wall’ with TV, music and power services, workstation and free wifi. “It is our priority to open a city centre concept in London and one or two other UK cities,” says Yotel’s CEO Gerard Greene.

However, it is tough for new brands to get a foothold in the sector. “After the first one or two properties, the smaller brands are challenged in getting critical mass against the top two operators with 500 to 600 hotels, who can offer consumers a hotel in virtually any place they want to go,” says Melvin Gold.

Driving business

One of the main problems surrounding budget properties is ease of booking. “A good proportion of budget hotels will be bookable via the GDS [global distribution system] – that is number one for us,” says director of global hotel relations for HRG Margaret Bowler.

However, she says, “some are driving business through their own portal, so there is also an increase in direct connect. The bottom line is to make it as seamless as we can, and we will set up direct connect, though it costs more. We have to make sure they work to our technology standards – no two direct connects are the same and it takes six to eight weeks [to set up],” she says.

Bowler also notes changes in the marketplace. “We have seen budget providers switch to more flexible pricing and we are seeing rates grow – they are not a lot lower than three- or four-star, so they are competing for the same business,” she says. “It is a case of pulling out the value. If you have a £30 room-only and £31 with breakfast, £30 is not better value if you are going to eat breakfast.”

The levels of investment in the sector reflect the hot competition, but there are still stumbling blocks for some travel buyers, not least chargeable use of wifi in many cases, and non-central locations.

But given that since Travelodge and Ibis entered the UK market in 1985, when this sector was the Skoda of the industry, standards and comfort have come a long way, and with new entrants to keep the traditionalists on their toes, standards should continue to rise.

This article was first published in ABTN's sister title Buying Business Travel, the award-winning magazine for company travel & meetings buyers and arrangers.

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