A boom with a view: budget hotels take off in Asia

Fri Jun 15, 2012 2:11pm EDT
 
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Aditi Shah and Neil Chatterjee

MUMBAI/JAKARTA (Reuters) - Surrounded by fine wines and elephant motifs in the Tusker bar of Accor's new luxury Sofitel hotel in Mumbai, chief executive Denis Hennequin is unsurprisingly betting on Asia to make up for uncertain prospects at home.

He is also convinced the real elephant-sized growth will come from looking downmarket at low-cost, high-return economy hotels -- piggybacking on the rise of budget airlines that have opened up domestic travel to Asia's emerging middle classes.

Facing economic malaise in Europe and the United States, as well as heavy local competition to build hotels in China, the world's fastest growing hospitality market, global hoteliers see a window of opportunity in India and Indonesia.

"We are a French-European company, but if you look at the pipeline for the next 3-5 years and beyond, more than 70 percent of the inventory of new rooms is from this part of world," said Hennequin.

Hoteliers such as Accor, Europe's largest hotel group, InterContinental Hotels Group, Marriott International and U.S. investment group Starwood Capital's Louvre Hotels are hoping that early-mover advantage will help them build their budget brands on a profitable scale.

But it will not be plain sailing, given regulatory hurdles, a complex business environment, a lack of franchising experience and prospects that success will only increase competition.

In India, the concept of branded mid-scale hotels, where rooms cost between $40 and $80 a night, is in its infancy, whereas in Indonesia, other international hoteliers are waking up to a sector already pioneered by local firms and Accor.

"There is a real need for budget hotels in most parts of the world, notably in Asia," said Exane BNP Paribas analyst Matthias Desmarais, adding InterContinental was doing well in China but Accor was better positioned than its rivals elsewhere.   Continued...

 
A guest is seen at the lobby of a budget hotel in the Indonesian resort island of Bali April 28, 2012. Facing economic malaise in Europe and the United States, as well as heavy local competition to build hotels in China, the world's fastest growing hospitality market, global hoteliers see a window of opportunity in India and Indonesia. Budget hotels are especially appealing for investors because of the lower land costs needed for a simple block of rooms, compared to a luxury hotel that requires extra space for a grand lobby, swimming pools and conference rooms. Picture taken April 28, 2012. REUTERS/Stringer