Budget spreads roots in GCC

Real evidence of the predicted growth of budget hotels in the region is beginning to emerge as the key players secure sites, not just in the obvious places like Dubai, but also in the northern Emirates of the UAE and elsewhere in the GCC.

Ibis, Premier Inn and Ecos - the new environmentally friendly brand - all have projects in Fujairah town.

Ecos Hotels director Ralph Noblet believes there's an urgent need to address the soaring demand for budget hotels in not just the UAE, but the entire Middle East and has announced the creation of Ecos Hotels -  an innovative venture which for the first time in the region combines sound economic reasoning with ethical ecological practices.

Premier Inn has also secured sites in Ras Al Khaimah and Umm Al Quwain. Abu Dhabi too is very much on the Premier Inn hit list, with two hotels lined up, one of which will be within the Capital Centre development next to Abu Dhabi National Exhibition Centre, which also features both Rotana's new limited service brand Centro and Aloft from the Starwood stable.

Abu Dhabi is clearly a key target for the major brands and Centro alone have more than 900 rooms planned in the city, to add to their plans for almost 600 in Dubai.

I can report from our side that Premier Inn is close to announcing three hotels in Oman where we will go head to head with Centro in Sohar and Ibis and Ecos in Muscat.

We plan a similar number of properties in Qatar and a major new partnership in the Kingdom of Saudi Arabia that would establish the Premier Inn brand there as the leading player in the sector, although we'll face stiff competition from Holiday Inn Express, which has already announced a strategic partnership in the country.

In Dubai alone Holiday Inn Express, Ibis and Premier Inn all have a number of new properties under development, which together will add somewhere close to 4000 rooms in addition to their existing properties, giving the budget sector around 5% of the overall hotel supply in the emirate.

When the other newcomers such as Centro and Ecos are taken in to account the figure rises to more than 6%.

In the USA budget hotels make up around 30% of the market. In Europe the figure is generally lower, though in the high teens in many countries. Experts predict that Dubai will eventually hit at least 10%, giving the key players still considerable scope for expansion, even over and above their current plans.

I'm often asked about the market for limited service hotels in the region. I believe there is a huge demand for their simple uncomplicated value for money.

This comes not just from individual leisure travellers, but from large corporations bringing visitors to the area for a wide variety of reasons. With costs rising rapidly, more and more companies are looking for affordable accommodation and for brands they can trust to deliver consistently on service and quality.

Another question asked is if our aggressive approach to expansion is wise given the current threat of global economic downturn. That's the beauty of operating in the budget hotel sector.

Most businesses that still require their employees to travel tend to trade down when it comes to business travel accommodation. When times are good they think little of using four- and five-star hotels but when cost becomes an issue companies look for alternatives and start placing their business with a budget hotel that still provides high quality and a good night's sleep.

Pricing problems

Traditionally budget hotels operate on a fixed pricing model, relying on direct bookings, offering no corporate rates and paying zero commission to travel agents.

Despite the early stage of development of the sector in the region some of the brands have already opted to break away from this model and operate in a manner more usually associated with full-service hotels.

The result, of course, is higher prices for the individual booker, as in order to achieve an acceptable overall yield those without purchasing power are forced to subsidise those who do.

One major international budget brand in the UAE is known to offer corporate rates as low as AED 300 (US $81) while charging more than AED1000 ($272) at times of high demand.

Others feel that this is a slippery slope, which does the sector no favours and perpetuates the less than favourable impression that many corporate buyers have of the hotel industry in this region. This is nowhere more prevalent than in Dubai where rates can often double and triple during major events.

While it is clear that the budget sector has a promising future in the region, to be truly successful it may have to avoid driving up prices to the end consumer who might just decide to vote with his feet.

Darroch Crawford is the managing director of Premier Inn Middle East.

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