Budget hotels in Asia: Rife with economic opportunties?

The term "budget hotels" has, for long, been used to refer to hotels at the lower end of the price spectrum despite the dictionary meaning of the word "budget" being "the amount of money that is available for, required for, or assigned to a particular purpose". True to all aspects of the industry connotation for the word was the recently concluded Budget & Economy Hotels Asia 2009 conference in Singapore

The conference, the first of its kind, covered a range of issues affecting Budget and Economy hotels in the largest markets for the segment including India, China, Thailand and Singapore while gaging prospects in what seems to be an underserved and fast booming segment of the industry in Asia. Sponsored largely by the industry giant in the field ACCOR, the conference was kicked off by its Asia Pacific CEO, Michael Issenberg who highlighted some of the path-breaking trends in the segment such as "manchising", a hybrid of franchising and management, that seems particularly relevant to the budget & economy segment in that part of the world.

Startlingly large GOP ratios (40-50%) and meteoric growth rates (1000% in 9 years!) in China and India (100% in 10 years) were combined with the sobering reality of oversupply in (parts of) China and enormous regulatory and infrastructure barriers in india, the two biggest markets for the region. Japan and Singapore were no different in terms of financial performance though with vastly different (and better) development tracks in terms of efficiency, transparency and ROI ratios. On the latter, the financial contrast between its brethren in the upper echelons of the industry was succinctly summarized by the effective, if trite, acronym ROI for the budget sector versus ROE (return on ego) for the luxury and upscale segments.

The pressing issues of the day for the segment were no different to others in the industry and in other parts of the world. These include financing (the lack of), technology, green issues and the seemingly extinct long-haul customer, guests originating from the heretofore robust markets of North America and Europe. Deal flow seemed to have thinned out particularly in markets like Thailand and Vietnam and was hard to come by even in hugely under-served markets such as India.

Nevertheless, the overwhelming consensus of most speakers and attendees was that the segment, particularly in Asia, had withstood the global financial crisis far better than their counterparts higher on the totem pole and was poised to reap even greater rewards as the world emerges from its deepest economic slump in decades.

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Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

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