For years to come, the most contentious parts of the hotel ecosystem will not involve competing for the highest paying customers.
Instead, it has played out at the more affordable end of the hotel food chain.
The largest hotel companies, such as Marriott International and Hilton, have historically focused on brands in the upper midmarket (such as Hamptons and Fairfield hotels) and above. When inflation first spiked amid rising gas prices, hotel executives pointed to the logic of their high-end brands as a ploy to influence price increases more because their typical customers were more financially secure.
In recent months, that logic seems outdated.
Marriott plans to acquire Mexico-based City Express, an affordable mid-range hotel chain across Latin America. Marriott’s push into the midmarket means taking on brands like Ramada by Wyndham, Tru by Hilton, IHG’s Avid and Choice Hotels’ Sleep Inn.
Most vexing is Hilton’s foray into the premium economy segment with Spark — the brand is expected to open its first hotel in the US later this year. Hilton Chief Executive Christopher Nassetta said it could eventually have the largest number of hotels of any Hilton brand. It will do so in large part by getting more existing hotel owners to convert their properties to Spark’s branding requirements.
What is driving this trend? Think of it as adding a new level to the loyalty program food chain. Budget and mid-range brands have lower nightly rates, meaning they will appeal to younger travelers who can’t yet afford the likes of a Ritz-Carlton or Waldorf Astoria.
Giving these travelers choice means they will have earlier access to the hotel company’s loyalty program. They are more likely to stick with it because they have more disposable income to spend on travel.
“If you look at that customer base, at least half, arguably more than half, are customers who are early in their travel lives and are going to grow up and do other things,” Nassetta said on an investor call in July. “The sooner you get them into the system and build loyalty with them, the better off you are.”
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“I mean it’s not sexy, okay? It’s not as sexy as lifestyle or luxury,” he added. “But in terms of the opportunity to be a multi-billion dollar contributor to this company and its shareholders, I’m as excited about it as anything else we do.”
In the Battle of the Budget Traveler
At the recent Americas Lodging Investment Summit in Los Angeles, there was a lot of chatter about Hilton buying the business of Wyndham Hotels and Select Hotels — the two hotel parent companies with a strong presence in the budget and budget hotel segment.
Wyndham owns brands like Super 8 and Days Inn, while Choice Hotels owns brands like Econo Lodge and Rodeway Inn. Hilton leaders are focused on picking only the best hotels to incorporate into Spark, which could be a blow to Choice and Wyndham’s development teams who hope to do so.
But the leaders of those companies don’t seem to be losing sleep over going head-to-head with Hilton or Marriott.
“When we look at the quality of service we provide to hotels and the market, whether it’s a mid-range hotel or a budget hotel, we win more,” Choice Hotels CEO Patrick Pacious said in an interview. High-quality hotels.” An investor call earlier this month. “From the standpoint of the very nature of the competition, we’re winning the hotels we want to win.”
Winning budget hotel owners and customers won’t be as easy as launching a new brand, Wyndham Chief Executive Geoffrey Ballotti said on his company’s investor conference call this month.
Not only does Wyndham offer better deals for travelers than some rivals, but the company’s budget brands are also cheaper to operate in terms of ownership, he noted. Wyndham’s renovation and expansion costs associated with the company’s brand standards are three to five times lower than “many of our larger brand peers,” Ballotti said.
“We have the most recognized economy brand in the space, and we’ve been in the space for over 30 years,” he added. “We know these customers. We know these owners, and we know it’s important to both parties.”
A budget war is underway.
