Limited service, unlimited potential

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A bird’s eve view of the new ‘pods’ easyHotel will join together to create its new concept in budget ‘shower and sleep’ experience, as part of 38 easyHotels across the region.

With the Middle East market maturing rapidly, large hotel companies are rushing to launch their branded mid-market and budget hotels.

Although budget hotels are not a foreign concept to the market - logically hotels develop as small entities in any location before they grow and larger hotels recognise the destination's potential - the evolution of the branded budget hotel concept is a recent development.

For example in the past 18 months Rotana has announced its new Centro by Rotana brand, Istithmar Hotels has joined forces with easyHotel to develop ‘ultra-budget' hotels across the region, Coral International has launched its no-frills chain Ecos Hotels, and UK-based hotel company Whitbread has announced a joint venture with Emirates to launch the Premier Travel Inn brand in Dubai.

And the reason for the surge in investment in the budget and mid-market segment, according to hoteliers and industry experts, is that the timing is right.

Budget time

Several factors are creating market pressure for budget brands being introduced, according to a presentation by UK-based consulting company BRDC at the Arabian Hotel Investment Conference.

Chief executive Crispian Tarrant says the first issue is one of money.

He points to the high average daily rate and RevPAR figures recorded by Middle Eastern hotels compared to other markets as creating a price point opportunity for hotels in the limited services sector.

Accor Middle East sales and distributions director Anthony Slewka-Armfelt says the gap opening up between luxury hotels and the next tier of accommodation represents an opportunity.

"Because we have had tremendous growth in RevPAR in the top end of the market, it means there is a lot of extra space [for lower priced hotels]," he says.

"There is a lot of space at the moment because of the rate structure and the demand, and it is a tremendous opportunity."

Rotana Hotels president Selim El Zyr says his company was also looking to introduce the Centro brand as a means of providing diverse accommodation options to the market.

"There is a need for mid-range hotels, as we believe that as a market matures it needs a whole spectrum of standards [of accommodation] to be able to attract people with all sorts of different budgets," he says.

A second factor, Tarrant continues, is the high number of Middle East business guests who have come to believe in the importance of brands.

Figures from the BDRC Middle East Hotel Guest Survey 2006 showed that 90% of respondents agreed with the statement "branded hotels generally perform better than their unbranded counterparts". "Luxury hotels have educated the market to like brands," Tarrant explains.

"This is why Isithmar is doing easyHotel, they have effectively brought the rights to the name".

International examples from mature markets also point towards increased market share for limited service hotels, according to Tarrant.

BRDC's survey results showed that in the last year, 1.2% of Middle East guests' room nights were spent in limited service or budget hotels, and 19.8% of room nights were spent in mid-market hotels.

In the more mature market of the United Kingdom, 35.8% of guests' room nights were spent in budget properties, and 26.1% were spent in mid-market hotels.

"This is a guide to the market potential," Tarrant says.

However managing the shift of customers from staying in luxury and upscale properties to staying in budget or mid-market properties is impacting on the types of lower-end brands hotel companies are introducing, he adds.

"You have a market that is very used to luxury levels: it takes a long time to get that product [budget hotels] accepted," Tarrant says, adding that this is the reason many hotel chains have introduced brands from the top end of their limited service offering.

"Accor has brought in Ibis rather than Formule1," he says.

"The operators have recognised the need to introduce the concept from its top end, because they need to get market acceptance."

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