Tunia Cherian George

Mumbai , March 14

WHILE the no-frills airlines with their low-cost business models made a splash in the market last year, 2005 has begun with something of a bang for the economy hotel segment.

Two hotel chains have so far announced expansion plans in the low-cost segment — Indian Hotels Company Ltd (IHCL) with its indiOne brand, and the joint venture between InterGlobe Enterprises and the European hotel chain, Accor, with its Ibis brand.

The middle-class traveller's search for value offerings seems to be yielding results and dictating the way investments are being made.

According to Mr Manav Thadani, Managing Director, HVS India, a hotel consultancy, there is tremendous potential for the expansion of the economy hotel segment whose target customer was the mid-level business traveller.

He estimated that 100-150 budget hotels, with a room tariff of between Rs 900 and Rs 1,400, were likely to come up in the next five years.

However, he refused to be drawn into a comparison of the profitability of the economy model vis-à-vis the five-star deluxe one, saying the two could not be compared.

The profitability of a budget hotel would mainly be decided by the relative cost of land, which should not exceed 15-20 per cent of the total project cost.

Currently, he said, there were a number of hotels in the above price bracket. However, they were unbranded and lacked consistency on pricing and product offering.

On the other hand, the branded product was easily identifiable, with consistent pricing and quality.

He added that a number of foreign brands such as Formule 1, Holiday Inn, and Comfort Inn might also look at setting up base in the country.

IHCL with its indiOne brand of `SmartBasics' hotels kicked off the trend of branded budget hotels in India last year.

The hotels are operated by Roots Corporation Ltd, an IHCL subsidiary. According to the Chief Operating Officer, RCL, Ms Sheila Nair, there is tremendous demand for the budget product.

The indiOne brand was the result of extensive research that looked into the fundamental needs of the traveller. The group would focus on the secondary and tertiary markets of business and tourist importance, as well as cities that were major railway junctions.

The first indiOne hotel, opened in Bangalore in June 2004, has reported an average occupancy of 80-85 per cent and was registering positive cash flows.

The company planned to roll out about 10 budget hotels each year, developing a national footprint in the next few years.

The InterGlobe Group has tied up with Accor to bring the latter's Ibis brand to the country.

The joint venture will invest Rs 850 crore over the next 10-12 years to set up at least 25 such properties in India and South Asia.

According to an industry watcher, the economy hotel segment with a tariff of Rs 2,000 to Rs 3,000 would present a value proposition for city-based travellers.

These hotels kept their costs down by using technology-driven solutions, optimising the use of space and cutting down on energy costs and manpower.

© Copyright 2000 - 2009 The Hindu Business Line