Hotel giants seek refuge in niches

Wed Jan 14, 2009 7:38am EST
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By David Jones and Deena Beasley

LONDON/LOS ANGELES (Reuters) - It's a trend pre-dating the global slowdown: big hotel chains are moving into the quirky boutique sector to tap into a niche of profitable growth. What's not clear now is how many can succeed.

Hotel revenues have fallen sharply since last October and shares in hotel groups in Europe fell by more than 30 percent in 2008 as investors anticipated pressure on earnings this year.

Nonetheless global giants from InterContinental -- the world's largest hotel group -- to Marriott and Starwood are launching boutique brands in Europe, with others set to follow as they face the biggest industry downturn in a generation.

Consulting firm PricewaterhouseCoopers in December forecast U.S. demand for hotels in 2009 would fall by 2 percent which, when coupled with an increase in supply, would reduce occupancy levels to 58.6 percent -- their lowest since 1971.

Against that backdrop boutique hotels -- individual and usually luxurious outlets -- offer big chains a chance to boost one of the industry's key measures: revenue per available room (RevPAR), which PwC saw sliding 5.8 percent in this year, after last year's estimated 0.8 percent decline.

The U.S. market looks the most exposed, according to Natixis Securities in a January 9 note. Britain, Spain and Italy look more vulnerable in Europe than France and Germany.

Picking a brand name that emphasizes the mood of the moment -- Indigo -- British-based InterContinental Hotels Group last month opened its first boutique brand outside America. The outlet near Paddington rail station in London brought its chain to 22, and it says it aims to reach 200 in four to five years.

"We saw an opportunity for a hotel with a bit of a difference, but the benefits of a big brand," said John Wagner, in charge of the brand for Europe, the Middle East and Africa.   Continued...

<p>A view of the Mama Shelter, a budget-priced designer hotel, in Paris January 8, 2009. REUTERS/Benoit Tessier</p>