The battle in the skies between budget airlines is being replicated by low-cost hotel chains on the ground.
One budget chain, Travelodge, is even shifting its business model to mirror that of the low-cost airlines by moving away from fixed prices and instead charging according to anticipated demand.
The battle has been triggered by Whitbread’s &£505m acquisition, last July, of Premier Lodge, which it merged with market leader Travel Inn to form Premier Travel Inn. With more than 450 hotels, Premier Travel Inn is now way ahead of Travelodge, its nearest rival.
Undeterred, Travelodge, which has more than 258 hotels, is about to invest &£20m in a branding and marketing push. Bought by Permira in 2003, Travelodge pioneered the low-cost sector and is about to embark on its first brand overhaul since launching 20 years ago.
The revamp, developed by Corporate Edge, follows a significant investment in the refurbishment of the hotels and will support a wholesale shift to a business model similar to that adopted by low-cost airlines. Not coincidentally Travelodge has also appointed Alistair Buckle, former easyJet head of marketing, as director of brand marketing. He joined in January and will work alongside sales and marketing director Guy Parsons, the former Travel Inn executive behind the man in the moon logo, who joined in October last year.
It is a battle worth fighting for Travelodge and the other budget operators, which include Intercontinental Hotels Group’s Express by Holiday Inn and Accor’s Formule 1 and Ibis brands. Demand for low-cost accommodation is growing rapidly and not just among cost-conscious businessmen. Last year for the first time domestic demand for budget hotels exceeded business demand, according to new figures just released by independent leisure research specialist BRDC.
Buoyed by increasing demand and the acquisition of Premier Lodge, Premier Travel Inn experienced a 6.7 per cent growth in sales last year and now Whitbread, which runs the Marriott brand in the UK, plans to exit the top end of the market entirely, by forming a joint venture with Marriott International and hopefully selling up completely within two years.
Whether the new Travelodge model will catalyse further growth in the market is debatable. Rooms will be offered from &£26, with prices increasing depending on demand and the proximity of the booking to the date of the stay. Already, some locations are being priced at &£55 for the popular holiday time of late July. As with the airlines, the business model depends on driving bookings through the internet and Travelodge aims to conduct 65 per cent of its business online by the end of the year.
Premier Travel Inn is sticking to a fixed-price model and questions the Travelodge strategy. Its prices are tiered for out-of-town, town centre and London locations, starting at &£46.95 a night. Last month, Premier Travel Inn launched a &£3m animated campaign, created by Heresy, introducing the strapline “Good night, after night, after night”.
Travelodge’s new ad campaign, by Euro RSCG, is still under wraps. Its last campaign, developed by Parsons’ predecessor, former bmi marketer Simon Gregory, introduced the “Travelodgic” strategy of appealing to “new pragmatists” – relatively well-off people who have no need for unrequested extras such as shower caps, branded stationery, a trouser-press or disposable slippers, but rate a comfortable bed and en-suite bathroom.
BDRC managing director Crispian Tarrant supports Travelodge’s yield-management system and says low-cost airlines have “educated consumers” to the model.
But Premier Travel Inn sales and marketing director Gill Baker says the most important factor in securing return bookings is to offer consistency in product and price. She says a yield-management system cannot deliver this. “I believe our customers really value the fact that they know what they are going to get and what they are going to pay.”
She points out that the risk with the airline model is that loyal customers who don’t book far ahead are penalised. She adds that airlines can charge more for late bookings because there are few other practical travel options on many of their routes. However, there are plenty of other accommodation options in many places, from bed and breakfasts to friends and family.
There are also other players in the budget hotel sector, all set on expanding their estates. Although there are still plenty of under-served locations, the chains are now beginning to compete in city centres, both for business and for prime sites.
With this increased competition, says Corporate Edge chairman Chris Wood, a strong brand is essential: “People are becoming more brand aware and making brand choices – in a way, that’s why Travelodge is relaunching.”
Equipped with new branding and a plan to ride out the peaks and troughs in occupation rates, Travelodge is ready for the next phase in its development, but it will have to speed up its acquisition of new sites if it is to have any hope of catching Premier Travel Inn.