Staying on budget

Budget hotels are appealing increasingly to business travellers. Mark Frary finds out what they really have to offer

Back at the beginning of April, the budget hotel chain Travelodge suggested that the British taxpayer could save a considerable amount of money by making MPs stay at the chain's Southwark property instead of in their second homes.

The company's well-timed publicity stunt is indicative of the buoyancy of the budget sector. With companies under increasing pressure to do more with less money, it is unsurprising that the budget hotel sector is enjoying a much better recession than other sectors of the market.

Premier Inn, for example, has had a storming year. In Whitbread's year-end results, published at the end of April, the group said that Premier Inn sales were up six per cent on a like-for-like basis. In the middle of May, rival Travelodge announced its own results: revenue up by 19 per cent and earnings up by 11 per cent.

Part of their success inevitably comes from companies forcing their employees to downtrade. "Research by BDRC shows there is switching from mid-market three- and four-star hotels to the budget sector," says Premier Inn's head of marketing Steve Conway. However, he says that the company is not immunised against the dire state of the economy. "Over the past three months, Premier Inn has been impacted by the increasingly harsh economic environment but we continue to outperform the market."

The BDRC British Hotel Guest Survey, published in March, also found that the budget sector had made "significant investments into their portfolios to close the gap in standards with the mid-market brands. BDRC director Tim Sander says: "Budget brands will not escape the current downturn unscathed. However, the market indicates that they will take less of a beating than their more upmarket counterparts."

In late January, travel management company HRG revealed the result of its half-yearly hotel survey. The company said that its clients had witnessed falling prices in the budget sector at the end of 2008 "prompted by a realisation that in certain cities budget hotels were more expensive than their three-star rivals".

Brian Garvan, director of sales UK for Choice Hotels Europe, which includes the three-star limited service Comfort brand, also feels that some companies have been trading down to lower-rated properties. "Buyers are paying more attention to the extras some hotels charge, which can easily add 50 per cent to the cost of a hotel night." At the end of June, the group made internet access free in all of its UK hotels and at some European properties, too. Charges at hotels were as much as £10 for daily access to the internet.

Accor's sales and marketing director Frederic Fontaine says that the company has noticed a cascading effect in its range of hotel brands. "Some companies have been moving from Novotel to Ibis properties or from Sofitel to Novotel, although I would not call it a trend." Instead, he says, companies are coming back to renegotiate on the rates available at the brands they already use.

At the same time, Accor has extended its Away on Business programme which is aimed at SMEs to include the group's Ibis hotels. The web-based scheme, www.accorawayonbusiness.co.uk, has attracted more than 500 companies in the month since its launch and offers discounts of five per cent on Ibis properties and 10 per cent on the group's other brands, as well as instant access to Silver level in the group's A|Club loyalty programme.

Both Premier Inn and Travelodge are actively targeting the corporate market with the launch of business accounts. While some of the attraction of such accounts is the management information that they provide, of more interest to many companies is the credit they offer.

Travelodge's managing director UK Guy Parsons says: "The biggest thing they get from the account is eight weeks' credit from the time of booking. They can use it to book rooms and for food and beverages."

With the Travelodge scheme, bookers also receive Argos points for every pound they spend. Parsons says the company has set up 1,500 business accounts since the launch of the scheme. Premier Inn reports there are 14,000 active members of its Business Account scheme and 61,000 individual card users.

The company says that last year, sales through the Business Account grew by 24 per cent to £171m. "The biggest benefit is being able to manage all business expenses through one source which are paid at the end of the month," he says.

As with low-cost airlines, budget hotels have gone down the ancillary charges route. Travelodge, for example, charges £10 for 24 hours of internet access and food is charged on top of the room rate. Parsons argues: "We are transparent about what the rate includes. When we run one of our sales and somebody sees a room rate for £9, that is what they will pay for the room."

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Breakfast has also become something of a battleground in the budget sector. In April, as part of a publicity stunt, the Express by Holiday Inn chain sent a Breakfast Express bus to Travelodge and Premier Inn properties in London and Birmingham to offer guests staying there a free continental breakfast. The bus also visited the offices of a number of TMCs. The intent was to show how breakfast is included in the room rate at the chain's hotels whereas guests must pay for it at Travelodge and Premier Inn.

Conway argues that Premier Inn, which has restaurants at all its locations, offers a number of breakfast options - cooked, continental and a "grab and go" version for those in a hurry. The chain has also introduced the Meal Deal, which offers guests a starter, main course and a drink, plus a cooked breakfast the following morning for a fixed fee of £20. Conway believes it is essential to have a restaurant for the business market. "We see that as a competitive advantage."

One of the challenges facing budget hotels is in reaching business travellers. Travelodge's Guy Parsons says: "We have taken GDS bookings for a number of years and we are currently working on direct XML links with a number of partners. But I'd be lying to you if I said we are going to be changing our distribution strategy. We want to get the majority of bookings directly."

Premier Inn's Conway says "Premierinn.com is growing massively and the majority of our total bookings go through the internet. At present we don't utilise the GDS but we are looking at the channel for the future, in particular to drive corporate and inbound sales."

Click Travel is one travel management company that benefits from a direct connection with Premier Inn. In January, the TMC announced it had implemented a new version of the link which enabled the TMC's clients to use their Premier Inn Business Account when booking to pre-authorise room charges, breakfast, dinner and car parking spend. Click Travel's managing director, Simon McLean, says: "Many corporates still don't even have access to Premier Inn hotels because their traditional TMC has provided them with an old-hat GDS-based booking tool."

Travelodge is also targeting iPhone-toting business travellers launching an application through the phone's popular App Store, which uses GPS to pinpoint a traveller and then offer to book a room at the five nearest Travelodges with availability.

Premier Inn added 55 new hotels in 2008, adding some 4,500 rooms to the estate. Meanwhile, Travelodge opened 3,800 new rooms in 2008 and plans to open a further 2,500 this year with a view to getting an estate of 70,000 rooms in the UK overall.

Although the slowdown has meant that financing for new hotels has become tougher, it has also thrown up opportunities. Parsons says that land prices have come down, particularly in some London boroughs where it was impossible to develop profitably before. There is also an increasing number of independent and small chain properties that are finding it difficult to continue operating in the current environment.

Travelodge took over a number of Purple Hotels when that chain failed recently, for example.

Premier Inn says that it will continue to expand both here and in the Middle East and India. The expansion programme remains a priority says Conway, "especially London in the run-up to the Olympics".

With more London budget hotels on the horizon and an urgent desire for cost reduction in Westminster, errant MPs will have even more choice in the years to come. They will also have the added benefit of not having to worry themselves over moat maintenance.

 

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