Budget Hotels, long associated in Malaysia with cheap day stay rates and hourly use, is set to be the next growth market in Malaysia and Asia. With comfortable, clean accommodation and convenient service at an inexpensive price, budget hotels are becoming increasingly popular. The term also refers to hotels which provide limited but professional services, and satisfy customers' basic accommodation demands with reasonable prices. Unlike star hotels, budget hotels do not provide business or entertainment facilities such as business centres, conference halls, swimming pools and health-centres. The major features of the budget hotel are economical price, cleanliness, safety and convenience.
In foreign markets like the European Union and the United States, the budget hotel is a major business model, accounting for 70 per cent of the hotel industry. For example, the international hotel giant Accor has 71 Ibis inns in Paris, a city with a population of some 4 million as compared to a grand total of only 25 budget hotels in Kuala Lumpur. In fact, the total room count of budget hotels in Malaysia is a total of 5,801 rooms amounting to 3.99% of total hotel rooms available in Malaysia.
Notwithstanding the current size of the market, both regional and global hotel groups are already targeting budget travelers with the launch of economy brands and this new sector will spur intra-regional and inbound travel. There is at present huge gap in the market for branded budget hotels that I believe are essential to maintain visitor growth to Asia.
I have noted the growth in the mid-scale segment in Asia as well as a boom in pan-Asian tourism – which made me realise that it is viable for investors to invest in budget hotels in Asia to provide quality service with value for money. The budget hotel sector, which taps the growing number of business class travelers and tourists who want economical but comfortable accommodation in cities, has much more room to develop.
And this opportunity gap has not escaped the bigger brands in the region. The first Express by Holiday Inn has already opened at Knowledge Village in Dubai last year with 240 rooms, and there are plans for up to 20 properties in the Asia, as well as a further 20 in Middle East, an expansion plan also taken by Centro by Rotana, the UAE hotel group’s new economy brand.
The average room rates across the region have been rising steadily but there are no branded three-star economy hotel chains operating across Asia. Travelers have to pay a high rate and stay at a full-service four/five star hotel, or pay the ‘economy’ price and stay at a sub-standard hotel which allows a great opportunity for hotels of this nature in this region.
I am also of the opinion, that budget hotels in this region will most probably adhere to slightly different standards to those elsewhere, with larger sized rooms, additional cupboard space, shower only bathrooms, business laundry service and high speed Internet connections along with small meeting rooms within an efficient business centre, a mini-gym, connecting rooms (for many traveling Asian families) and shuttle transfers to the airports.
But, while the full service but low cost model is the route taken by some of the leading hotel operators – Accor has announced plans to add 200,000 new rooms over the next four years, of which half will be in the budget sector – several “mavericks” will revolutionise the low-cost hotel sector with radically different products.
Chairman of the Easy Group, Stelios Haji-Ioannou has launched his budget hotel concept in the Middle East, starting in Dubai in a bid to slash the cost of accommodation. The first easyHotel in Dubai will be opening this summer. The low-cost franchise is expected to operate offering rooms as low as US$20 a night. easyGroup’s budget hotel company easyHotel Ltd has also decided to venture into India. easyHotel has formed a JV with Istithmar PJSC, an investment house based in the UAE focusing on private equity and alternative investments, for setting up eight budget hotels across India in the next four years.
The alliance also plans to open more easyHotels in the Middle East, North Africa, Levant and Pakistan over the next five years. Initially, the two companies will establish four easyHotel properties in Delhi, Mumbai, Chennai and Kolkata by end 2010. Next in the pipeline would be four more budget hotels in the following year.
In December 2007, Istithmar had raised its stake in low-cost carrier SpiceJet to US$50 million. Now, it has come up with even bigger plans for hospitality sector in India. Bringing the easyHotel chain to India will alleviate the acute shortage of rooms available to the budget traveler. With its no-frills, economical prices and low overhead costs, the easyHotel brand is perfectly suited for budget travelers in Asia. A typical easyHotel provides 80 to 120 rooms in city centre each measuring about 12 square metres in three categories - small, very small and tiny. Since the hotels will be in the city centre, the guests can go to any of the eating joints in the city for meals. What is provided is a safe and clean option to sleep.
Closer to home, low-cost airline AirAsia Bhd chief executive officer Tony Fernandes has also ventured into the budget hotel business, Tune Hotels. Fernandes is in this business in his personal capacity and to synergise with that of AirAsia’s. As per the information available, a chain of between 60 and 70 budget hotels is being planned further, to leverage its existing hotels. Each hotel will has between 100 and 250 rooms, depending on their locations and the hotels are charging a room rate of between US$13-$26.5. The budget hotel business will complement AirAsia’s, which now is the region's most successful low-cost carrier. Many budget travelers prefer to book their airline tickets and hotels together and Fernandes offers AirAsia customers the facility of making room reservations online as they book their flights.
Most budget hotel investors want to capitalise on the aviation boom in Asia and will even look at joining hands with some of the Budget airlines in the market for joint promotions.
Further abroad, the Kuwait-based IFA Hotels & Resorts has made a major investment in the small-capsule room style hotel brand, YOTEL, with properties at Heathrow and Gatwick airports– raising the specter of the concept moving in to Asia.
I am sure that Asia’s highly fragmented hotel sector, plagued by inconsistent service and poor management, is ready for the kind of good-value, branded hotels that swept through the North American market in the 1960s and 70s and the Europe in the 80’s, providing superior returns to an otherwise simple business model!!
Labels: Budget Hotel, Hotel, Hotel Dealmakers, Hotel For Sale, Hotels, Management of Hotel, Resort, Resorts
