Top U.S. Hotel Chain Survey: Red Roof, Microtel Top Lower Segments

Increased demand and hearty profits in the hotel industry seeped down into the economy and budget sectors, as hoteliers looked to upgrade their properties with new amenities and services, while still maintaining a consistent price-value relationship.

This year, Red Roof Inns edged Super 8 Motels for the top position in the economy sector, with last year's winner Ramada Limited, Days Inn and Travelodge falling in behind. U.S. Franchise Systems' Microtel Inns dominated the budget class, beating out Motel 6 and Econo Lodge.

"There's always been demand for an economy product for business travelers who want to be provided with quality amenities," said Joe Wheeling, COO of Red Roof Inns and executive vice president of Accor North America. Red Roof Inns is in the midst of a massive renovation process that began in 2004 and will give the brand a more contemporary feel and look.

"One of the reasons travelers come to us is because they know what the are going to get. The same amenities in each room with the same continental breakfast in each property," said John Valetta, president of Cendant's Super 8 Motels. Super 8 will implement free high-speed Internet in all of its properties by August and new televisions with free cable, including such premium channels as HBO.

"We are keeping the economy product where it is, but improving our amenities like bedding and continental breakfast," said Mike Leven, CEO of U.S. Franchise Systems, adding that Microtel is the only economy chain to offer free local and long distance calling and free high-speed Internet. Microtel swept every category in the budget portion of the survey and scored extremely high in both the physical appearance of its properties and price-value relationship. "Our prices increased in 2005, maybe 6 or 7 percent," Leven said, "but in the budget tier that translates to only two or three dollars."

Travel buyers singled out Microtel as having the best commission payment system in the budget sector. "2005 was the first year that we essentially had the travel agent centralized pay commission program," said Leven. "That and our corporate rate program were a big deal."

"We have a state-of-the-art reservation system, which includes our Click 6 Internet rates, and a national salesforce," said Jim Amorosia, COO of Motel 6. "We go after corporate accounts, trucking firms and believe that we have a very good position for secondary and tertiary businesses." Super 8 also launched in 2005 what it calls its "refresh" program, which will infuse rooms with new designs. Amorosia said the entire system will be completed by year-end 2008.

Although economy and budget hotels are known to charge rates that can be 30 percent below midprice hotels, the sector amassed a RevPAR growth of 6.9 percent in 2005 over 2004, according to Smith Travel Research. The segment also had a modest increase in average daily room rate—3.5 percent over 2004—which translated into an ADR of $50.

"The industry is having a tremendous resurgence from what was the worst recession, from 2001 through the middle of 2003," said Amorosia. "But we didn't sit on our hands—we saw the opportunity to invest because we knew it would come back. It's very cyclical and the strong demand will remain and keep in line with supply."