The UK budget hotel sector is big business with customer spend topping £1bn for the first time. It seems that people’s desire for “no frills” services, seen in the success of low-cost airlines, is now driving a growth in bookings for budget hotels.
According to industry experts, the popularity of budget airlines has encouraged consumers to focus on “experience spend” rather than “material spend” resulting in rising numbers of short-stay holiday breaks.
Research company Mintel says the UK budget hotel sector has grown 38% between 2002 and 2006, as reported last week on marketingweek.co.uk. The budget market was worth £1.1bn in 2006 with a total of 85,000 rooms in the UK and Mintel predicts a further 38% rise in the next five years in the run-up to the 2012 Olympics.
Moreover, it is growing three times as fast as the overall UK hotel market, which increased by just 12% to £11.2bn in the same period. The budget market now makes up 8.9% of the overall sector, up from 6.6%, by customer spend.
Brewin Dolphin Securities leisure analyst David Pope maintains the comparison between the budget hotel market and the low-cost carrier (LCC) sector is apt.
He says: “Consumers want the same thing from both services: a good location or route, safety, an element of comfort and a competitive price. They certainly don’t want luxury.”
Mintel senior travel analyst Richard Cope says the growth of low-cost air travel has spawned a generation of cost-conscious travellers and the UK budget hotel market has benefited greatly.
Cope adds: “Brits bought into low-cost airlines and now it is the turn of the budget hotel. Why pay more for a hotel when you only plan to sleep in it for seven hours or so?” Travellers are more willing to compromise on the ‘frills’ offered by more luxurious accommodation so they can invest the saved money on more short-stay holidays.”
The UK budget market is still dominated by two players, despite an influx of new and expanding brands. Whitbread-owned Premier Travel Inn, soon to be renamed Premier Inn, has 38% market share, with 480 hotels, while Travelodge has 22% with 306 hotels. In the next three to four years, they are looking to add a combined further 87,000 rooms.
Smaller brands include Intercontinental Hotel Group’s (IHG) Holiday Inn Express, which has 105 hotels, and Accor-owned Ibis, with 48 properties.
Meanwhile, new formats are being introduced; the “budget boutique” hotels, such as the Big Sleep and the Hoxton
Hotel, which offer “low-cost luxury”, and capsule hotels, popular in Japan. Capsule hotel brand Yotel offers much smaller spaces for customers and charges on the number of hours they spend there rather than nights. Cope says they have attracted a new clientele that would not usually consider staying in traditional budget hotels.
Another factor is the rise of the “budget” business traveller, with companies increasingly booking low-cost carriers and hotels for employees. Travelodge marketing and sales director Daniel Heale says that although 70% of the chain’s customers are leisure travellers, last year business guests spent 57 million room nights at the company’s hotels, up from 38 million in 2004.
Travelodge, which is owned by Dubai International Capital, markets itself as cutting customer costs by dropping all unnecessary extras. Heale says: “We have taken out the chocolate on the pillows and the shower caps and kept the fundamentals like a clean room and a comfortable bed. We are a retailer of sleep and people are patting themselves on the back for being savvy enough to take advantage of budget hotel prices.”
Some industry insiders have likened Travelodge to Ryanair, referring to their similar stance on rock bottom prices and a completely “no frills” service, while Premier Travel Inn has been compared to easyJet on the basis of their “premium budget” positioning.
The budget hotel sector has also looked to its airline counterparts for pricing structure, with a number of players offering price incentives based on when people book rooms.
Marketing is also playing a bigger part. Travelodge has this year increased its budget by 20% to £3.2m as part of a £3.5bn drive to open 40 hotels every year until 2020 (MW May 24). It is also launching travel insurance products as part of its online strategy (MW September 20).
Meanwhile, Premier Travel Inn appointed RKCR/Y&R to its £9m advertising account last month and has tasked the agency with differentiating it from other budget chains. It is undergoing a £20m rebrand to change its name to Premier Inn, which will be completed at the beginning of next year as it bids to position itself at the higher end of the budget hotel market. IHG has also committed £500m to a global revamp of its Holiday Inn brand, which includes budget offering Holiday Inn Express.
However, Katy Mousinho, a director of branding agency The Value Engineers, warns that although the big industry players are undergoing major revamps, differentiation may still be a problem as consumers continue to confuse them and their parallel offerings.
More practical restrictions could also hamper the burgeoning growth of the sector. Pope points out: “The constraint on growth will be planning problems, with less and less planning applications being passed for hotel sites.” Last month Travelodge offered the public a £150,000 “bounty” to those who can find new locations or suitable existing buildings to put up new hotels.
Others say the outlook for the budget hotel market lies in its alternative, innovative offerings such as the capsule and boutique hotels. Observers predict the UK market will take the direction of the more mature markets in Europe and US, which possess a strong hostel presence with a more family-centric environment and a broader age demographic.