Mid-market hotel chain Best Western International Inc is hoping to pick up market share as travellers trade down amid the US economic slowdown, but the company's chief executive said he's concerned about a surplus of mid-market rooms.
In an interview, Best Western CEO David Kong said mid-market hotels are usually the most resilient in economic downturns, but this time around an increase in supply is causing uncertainty.
"If you look at the performance of the hotel industry in the last few downturns, the mid-scale segment, which is where Best Western is, usually fares the best," said Kong.
"So the good news is there is trading down that we can always count on. But the bad news is this time around the supply for the mid-scale segment seems to be higher," said Kong.
"That is the one threat that I see as being very real for our segment."
A mid-market hotel offers lower rates by cutting back on or eliminating multiple restaurants, meeting space, room service, bell staff, business centres and concierge and fitness facilities.
Despite record gasoline prices and a crisis in the US airline industry, Kong said advance summer bookings for privately held Best Western are level or slightly better than last year, but the fall in the US could prove a tougher market altogether.
"The summer seems to be holding up fine, but I think the fall might be a bit difficult," said Kong.
Kong said one ominous sign for the sector is the stock market. Hotel shares tend to fall three months after the broader market, he claims.
The Standard & Poor's 500 Index is down roughly 14% year to date.
"I did some analysis recently - and it seems like there is a very, very strong correlation between the performance of the hotel industry and the stock market," said Kong. "There is a three-month lag. It is very predictive."
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Best Western has 4,200 hotels, 40% of which are outside North America. On an average night, the company has about 400,000 guests. The chain is effectively owned by its member hotels.
"We are basically a private company. So unlike the public companies that are our competitors, we don't have to try to find a way to prop up the stock price," said Kong.
In the US downturn, Kong believes Best Western can use its ownership status to its advantage.
He said it is spending significantly more money on sales and marketing and running stronger promotions and more advertising to try and take market share from competitors.
"As you can imagine, many of those companies would be cutting back on their spending because they have to watch their earnings per share, and we don't have to do that," said Kong.
"We want to outspend our competitors in advertising and promotions and take market share from them during this period," Kong added.
Best Western also has its international business to help offset any downturn in the US. As with other international hotel operators, Asia and the Middle East are proving attractive locations for growth.
Europe too, is providing a boost.
"With the Euro being so strong and with the big presence that we have in Europe ... it is driving a lot of inbound business from Europe to North America," said Kong.
"We leveraged our distribution channels in Europe and in Asia to drive inbound business to North America. We are seeing a huge influx of travellers. Our bookings from Europe are probably up about 50% on the year before."
By Mark McSherry, Reuters
