MANCHESTER, England — Marriott International is the largest hotel company in the world by number of rooms, boasts 30 brands, but still has avoided creating or acquiring a brand in the economy space, a growing segment that resonates with investors due to its quicker-to-market development, strong cash flow and bulkier profit margins.
Speaking on a panel at the Annual Hotel Conference, Paul Thomas, VP of international development at Marriott, said that the company had no intention of entering the traditional economy space, but would rather focus on its Moxy and Fairfield by Marriott brands, both defined as upper-midscale products, particularly in Europe.
"We have been conspicuous for our absence in the sector," he said, but "we see value in it." Just don't expect a new flag to be planted there. Despite Moxy and Fairfield not defined as traditional economy product, its those two brands that will stand as proxy for economy development throughout Europe to "eat into the likes of Holiday Inn Express and Premier Inn," Thomas said.
There are around 1,200 Fairfields trading globally and Thomas said there is a concerted effort to grow the brand further in Europe through modular construction that will shorten opening times to nine to 10 months as opposed to two years. "With Fairfield, we are taking an already successful product, deconstructed it and building it back up again to address local market nuances," he said. The brand will be rolling out with a room model measuring 194 square feet with a "calm and warm" European style.
While Fairfield development will steer more toward secondary and tertiary markets, Moxy's mark will be key city-center locations. The brand, which launched in 2014, in Milan, now has 115 hotels in operation with a pipeline of 120.
The Economy Experience
All the panelists agreed on the positive operating performance of assets in the economy space, which intensified during the pandemic, as value-conscious customers who were traveling for leisure gravitated to these types of hotels, often situated outside key city centers. "It's a resilient business model," said Sean Lowe, CEO of Atlas Hotels, which is one of the largest Holiday Inn Express franchisees in the U.K. During the pandemic, he said the company was cash-flow positive on low-level occupancy. "We had to learn fast how to optimize price when we weren't full."
As Lowe told it, as the country began to reopen, full-service, pricier hotels were restricted from some offerings, including F&B outlets, which made for compression and customers trading down into lower segments.
"We paid our debt all the way through and convinced investors to continue investing," Lowe said. Atlas, which is a subsidiary of London & Regional Properties, acquired six hotels in Scotland over the course of the pandemic. "Our owners believe in this sector because we can maintain margins. Then, occupancy roared back and we blow through budgets. Anything vaguely leisure was full very quickly."
Over time, economy assets have evolved beyond just four walls and a bed. Yes, it remains a value play for guests, where price is extremely important and less elastic than potentially other chain scales, but that doesn't mean it's a bare-bones experience. "It's gotten sexier," said Luc Boschmans, managing director of Tristan Capital Partners, which acquired a majority stake in the budget chain Point A Hotels in April for around £420 million. It's big bet on economy is grounded in the notion that, overall, it's a more resilient business model. "Our thesis is that economy is more resistant to things like recession," he said. "We'd rather own budget than assets at the higher end."
"Only for Everyone" is the tagline for B&B Hotels, which, in fact, does not stand for bed and breakfast, said Kevin Murray, managing director, development, U.K. for B&B. Today, the brand has some 650 hotels, with the majority located in France. The company is now putting a development focus on the U.K., said Murray, who also took exception with the idea of economy brand hotels "sexing" up. "One trap hoteliers fall into is spending too much budget on the ground floor and forgetting the guestroom," he said. "The job is to sell sleep. That's what we do."
In order to maximize space, some hoteliers in the space are piloting windowless rooms, which, they say, some very budget-minded customers don't mind, especially if sleep is their biggest priority. "You have to use all space available—it's about space optimization," said Boschmans.
Even Marriott's Thomas wasn't turned off by the idea, especially in what he called "subterranean" city-center builds.
Lowe called the "windowless thing" interesting for revenue managers.
A version of this story ran on Hotel Management's sister site Hospitality Insights.