Sparking a hotel price war

Famed for its cheap rooms and simple designs, Travelodge promises “everyday low prices”, marketing itself as the UK’s most affordable budget hotel. It even managed to get one British couple to live permanently in one of its rooms rather than rent a flat because of its low rates.

With rooms from as little as 9 at various times of the year, Travelodge claims to be the fastest growing budget-hotel chain in Europe and aims to be the UK’s leading budget hotel operator by the 2012 Olympics. It wants to “steal” up to 400,000 room nights during 2009 from its rivals.

Travelodge managing director Guy Parsons says: “We have spent the past three years shaping the business to be the outright winner on price. Our latest marketing strategy sees us aiming to steal 29m of our competitors’ revenues by exposing rip-off hotel practices and highlighting the major price gap between us and the UK’s major hotel brands.”

Travelodge says it is aiming to expand quickly with plans to operate 70,000 rooms through an extra 1,000 hotels by 2020. It is running a 5m campaign with a series of ads naming and shaming its higher-priced rivals and highlighting practices such as “excluding VAT” prices and “per person, per night” rates. Supermarket-style, price-comparison tables compare towns and cities across the UK, laying bare Travelodge’s prices alongside its competitors.

Travelodge was launched by hotel group Forte in 1985 to cater for drivers needing a bed for the night. It has changed ownership several times over the past 20 years, being owned by Granada, Compass and Permira, before being acquired by Dubai International Capital for 675m in August 2006.

It operates more than 330 hotels, serving over 20,000 rooms in Ireland, Spain and the UK, with 4,700 staff. According to the latest Mintel statistics, the chain has a 22% share of the budget hotels market – second to the Premier Travel Inn chain, owned by Whitbread.

Last year, 6.5 million people stayed with Travelodge and 83% of reservations were made on its website. Parsons says that as credit has crunched, this has had a major effect on the business. “Over the past two years the budget sector has made major inroads into mid- and full-service market share. Low-cost hotels have increased the number of room nights sold by 26% while the rest of the hotel market slid by 7%.

This trend will now accelerate, threatening the existence of the mid-market hotel sector. Budget hotel supply is growing at 10% per annum and will treble by 2027 to 225,000. The change in market conditions is already having a stark effect on hotel supply in this country.”

The growth can also be attributed to a rise in business travellers staying at the chain. Travelodge is aiming to double the number of corporate customers staying at its hotels this year by introducing its first “Business Account Card”.

Parsons says the card is being launched in response to requests from business customers looking to switch from mid-market hotels to the budget sector as their finances get squeezed. “We have been inundated by requests from firms looking to start booking with us and the Travelodge Business Account Card is our way of making it easier for companies to do so. Business guests get eight weeks’ worth of credit. Each card can be used to pay for rooms as well as buy food and drinks in Travelodge’s bars and caf鳬” he says.

While Travelodge argues that the recession will help its bottom line, not all players in the budget hotel sector are seeing success. Last week, Whitbread reported its sales had declined in recent weeks, as occupancy rates fell at its Premier Inn budget hotel chain, and warned 2009/10 would be a very challenging year. Whitbread chief executive Alan Parker says: “We are seeing a weakness in the leisure market as people are looking at their overall disposable income and being more prudent over the past couple of months.”

These concerns are shared by analysts who fear the low-cost factor may not be enough for the budget hotel market to maintain momentum. But Numis analyst Wyn Ellis adds that the budget sector will dominate the hotels market for a while to come: “Budget hotels continue to outperform the wider hotel market, especially compared with the overall hotel market, which is declining rapidly.”

For now, it appears that Travelodge is sidestepping the global economic blues by offering prices that attract consumers. Whether it can continue as rivals attempt to make up for lower consumer spending with more targeted offers remains to be seen. For now, the 9 bedroom appears to prove the brand isn’t snoozing in 2009.

Facts and figures

Travelodge

– Launched in 1985 as part of Forte group, it was intended to replicate the success of the US Travelodge brand, set up in 1940.

– Sold in 1995 to Granada and again to companies Compass and Permira before being acquired by Dubai International Capital for 675m in August 2006.

– Operates over 330 hotels, serving over 20,000 rooms in Ireland, Spain and the UK. It employs about 5,000 staff.

– Aiming to operate 70,000 more rooms – an extra 1,000 hotels – by 2020. It wants to be the UK’s leading budget hotel operator by the 2012 Olympics.

– Last year, 6.5 million people stayed with Travelodge and 83% of reservations were made on its website.

– It was recently the subject of bid interest from Whitbread, owner of rival Premier Inn, but no further action has been taken since.

– Targeting 29m of its competitors’ revenues by exposing “rip-off” hotel practices and highlighting the price gap between itself and the UK’s major hotel brands.

– According to a BDRC survey, 46% of hotel users prioritise price when booking an overnight stay.

– The company estimates budget hotel supply is currently growing at 10% per annum and will treble by 2027 to 225,000.