Sw Air Lines - Homogeneous Competition in China's Budget Hotel Industry

Many problems previously swept under the carpet are now surfacing, as the industry becomes more mature. Almost a 1000% growth, the number of budget hotels in China had grown from 166 in 2004 to 1476 in October 2007, in less then 4 years. On the other hand it is the rapid expansion of international predators, it is the domestic giant Home Inn on an acquisition spree; on one hand. Has again come under the limelight, which has less than 10 years' history, china's budget hotel industry.

Cost challenge

Budget has become the biggest issue faced by budget hotels currently, but as the number of budget hotel surges in China. As well as the main reason for the industry's fast expansion, cheap rent is the major feature of budget hotels, compared to ordinary hotels.

Building and management are also going up, other costs such as personnel, meanwhile. Directly pushing up site acquisition costs, this intensifies the competition for high grade properties between hotel brands. Hu suggested that the concentration of location selection by budget hotels and their exponential growth in numbers have resulted in a reduction of potential sites. CEO of Shanghai Inntie Hotel Management Consulting, " said Mr Hu Shengyang. Costs associated with expansion activities have been the chief reason for cost increases in most budget hotel chains, apart from general cost inflation. "Cost increase is a dire problem for budget hotels.

Cheng thought that the current payback period of 3-5 years for budget hotels is more reasonable in a normal market, compared to a payback period of 1-2 years in the past. Vice-CEO of Hanting Hotel Management Group, " said Mr Cheng Jun. "The situation of cost increase can help the budget hotel industry become more rational.

In order to secure a first-mover position in the future, large budget hotel brands could accelerate their strategic progress, while some small chains may have to exit due to cost pressure. Mr Hu also agreed that cost increase should make the whole industry more concentrated.

The failure of Top Star should give the Chinese budget hotel industry a warning signal. At an unsustainable cost of 15% higher than the industry average, top Star were furiously expanding its hotel numbers, industry insiders commented that in order to quickly list the company on stock exchange. Has proved the point, now acquired by Home Inn, the withdrawal of Top Star Hotel.

Homogeneous competition



And occupancy rate also down from 89% to 82.4%, the average price per room had decreased from 328 yuan/day in 2005 to 208 yuan/day in 2006, according to a survey report in 2007. Budget hotels in China are also facing the problem of "decreasing income", not only costs are increasing.

Hotel operators thus have to reduce their prices to attract customers. Consumers can now have more choice, but as the industry saturates. This homogeneity problem could be covered by the strong market demand, when the industry was at an early stage. Therefore resulting in the problem of homogeneous competition across the budget hotel industry, other new comes would also the proven model. The same model would be duplicated in other cities by the company, once a pilot hotel was proved successful. He explained that the early type of budget hotels in China was simply a copy of the budget hotel models from Western countries. " said Mr Hu. Hence the inevitable price war between budget hotels, on the other hand these hotels share the same market positioning, "On one hand it is the increase in hotel numbers.

Such as tourism and business travel, which would be classified into 8-12 grades according to different customer demands, many multinational hotel chains have thousands of hotels. The meaning of "limited services" can be very different, based on differentiated demand from different target groups, in developed countries. He pointed out that budget hotels are also called "limited service hotels". Saying that the key reason for homogeneity is rather due to unsophistication of the industry, but Mr Cheng disagreed.

" Would need to be combined together to achieve a core competitiveness that cannot be replicated easily, business model and cost control, culture, such as branding, all aspects of a business, in this rivalry process. But on a collective basis, "The competition between budget hotels in the future will no longer be on a shop-to-shop basis. An integrated marketing expert, " said Mr Cui Tao. Hotel chains will inevitably become homogeneous, "As the market matures.

Management difficulty



While the advantage of hotel chains will be their scale and uniform quality, unique features, he reckoned that individualized hotels can survive on their uncopyable. " Mr Cheng forecast. "There will be only two types of hotels that can survive in China: individualized hotels and systemic hotel chains.

Who has a profound background in franchise business management, " said Mr Cui. The methods for standardised management would be quite different, "From managing a few hotels to managing scores of hotels. But a process of structural superiority, the standardisation of budget hotels is not only an issue of individual breakthrough, " In this sense. But the formation of a brand requires scale, "Larger scale may mean increasing brand risk, mr Cui thought that the there is a contradictory relationship between quality control and scale, however.

" It would be safer to control the number of franchisees, therefore before our management capability can be substantially improved. Mr Cheng admitted that "franchised hotels are more difficult to communicate when it comes to standardised management. Only 10% of Hanting's hotel chain are franchised hotels, at present. Hanting is also strictly controlling the number of franchisees, it is understood that apart from improving the management of standardised systems. Is showing more caution, a relatively new comer to the industry, hanting Hotel Group.

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