Gloom or boom for budget hotels?

By Kevin Peachey
Consumer affairs reporter, BBC News

Iconic sites were missing good facilities, a minister says

During an economic downturn, is it a case of make or short break for the UK hospitality industry?

Discretionary spending on items like leisure breaks could be expected to be squeezed as household food and fuel bills rise.

Meanwhile, businesses should be pulling back on expenses as they face the prospect of a potential recession in the UK.

Yet, results this week suggest that budget hotels could benefit from these moves, with more holidaymakers staying in budget rooms in the UK and business people choosing cheaper beds for the night.

Quality

With Prime Minister Gordon Brown and Conservative leader David Cameron back fresh from their UK-based holidays, it has been a topsy-turvy week for tourism in the UK.

The industry is making a huge investment in facilities and rooms Miles Quest British Hospitality Association

It began with tourism minister Margaret Hodge telling Which? Holiday magazine that hotels in the UK were expensive and of "worrying" quality.

But then on Thursday, leisure firm Whitbread reported that like-for-like sales for its Premier Inn budget hotel chain were up 10.2% in the 24 weeks to 14 August.

Lessons from history tell us that the budget-range rooms do well from corporate custom during a downturn.

But will this time be any different?

Investment

Margaret Hodge angered hoteliers with her comments on the state of hospitality in the UK.

There is a range of accommodation on the UK seaside

"I agree that hotels are expensive and I worry about the quality - only half of UK accommodation is kite-marked and has the quality motif [a VisitBritain star rating]," she said.

She added that the Olympics in 2012 needed to be a catalyst for people working in the heritage and tourism industry to make facilities more attractive.

Miles Quest, spokesman for the British Hospitality Association, which represents 9,000 hotels, says that the minister failed to appreciate that VAT of 17.5% affected hotel prices in the UK, compared with a rate of just 5.5% in France.

"The industry is making a huge investment in facilities and rooms, and that has been going on for at least the last five years, and is scheduled to go on to 2012 and beyond," he says.

That investment is coming from groups such as Whitbread which says it is snapping up cheaper land and property - owing to the housing market slump - to build Premier Inns.

It has added 14 new Premier Inns this year to its stock of 570 hotels, and is targeting the corporate market.

Some 60% of Premier Inn's customers are business travellers, with a strong euro boosting European corporate visitors and domestic business people "trading down" in their choice of hotel rooms.

"Business travellers realise that they don't have to pay £150 for a good hotel room," says chief executive Alan Parker.

Face-to-face

But with new technology developing so rapidly since the last downturn, do business travellers need to get on the road for meetings at all?

Premier Inn is seeing strong demand from corporate customers.

Analyst Jonathan Langston argues that while video conferencing might be used within organisations to talk between distant offices, it is still not the chosen form of communication when first impressions matter.

Most firms understand the limitations of a long meeting via video link, says Mr Langston, managing director of TRI Hospitality Consulting.

So places that guarantee corporate travellers a good night's sleep before a meeting, are well located, but are cheaper than a full-service hotel are likely to do well, he says.

Leisure customers are also attracted by the strength of the brand - knowing exactly what they get, wherever they are, and the opportunity for a single room for a family of four.

This has been emphasised by a lack of investment in some independent, unbranded bed and breakfast which makes it more of a quality lottery.

"Some unbranded stock which reinvest can still do well and continue to grow," he says.

"But some people shy away from these hotels, creating demand for branded stock and allowing them to put another dot on the map."

When the economy picks up again and these holidaymakers might move to more upmarket hotels.

But Mr Langston says they would be replaced by people not travelling at all during the downturn.