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SCMP Reporter

IN the face of tight competition in the luxury hotels sector, many of the top hotel chains are introducing cut-price brands to Asia.

 Shangri-La Hotels and Resorts is expanding its chain of Traders Hotels, launched on a trial basis in 1989, at a rate of one or two a year.

 In May, ITT Sheraton launched its Compass Hotels four-star brand in Asia and is planning to open 25 hotels by the end of 2000. Others, including Hilton International, are expected to follow suit.

 Faced with a squeeze in some sectors of the luxury market, many have decided the best opportunities for growth are in the mid-market sector.

 'It's very important in terms of future expansion,' Shangri-La Hotels and Resorts group director Joanne Watkins said.

 Over-building in several key cities in Asia, such as Bangkok and Jakarta, has created a glut of hotel rooms and made competition tough among the luxury hotels.

 Over the past few years, five-star hotels have opened in most of the major secondary cities in the region, in cities such as Chengdu in China and Bandung in Indonesia.

 The opportunities for further development of the luxury sector in these centres are poor.

 'There is a limit to how many five-star hotels a place can support,' Ritz-Carlton Hong Kong general manager Des Pugson said.

 The ITT Sheraton Group and Shangri-La Hotels and Resorts are now banking on growth coming from the mid-market sector.

 Travel within Asia is still growing at about 10 per cent a year but those travelling have changed, the hoteliers say. It is no longer the president of the company, but the lower level managers.

 'I see a second wave of businessmen coming in,' ITT Sheraton (Asia Pacific) president Ed Davie said.

 Unlike the presidents and vice-presidents, the business managers are not expected to stay in five-star luxury.

 The hoteliers are also predicting an increase in business from domestic travellers, as the growing middle class in Asia spends more money on its leisure time.

 The mid-market sector is still uncharted territory in many parts of Asia.

 Unlike Europe, where low-priced hotels led the development of the hotel industry, followed by the five-star hotels, Asia is developing the other way around. Mr Pugson said luxury hotels were the first to open in many Asia cities.

 'It started with five-star and it's moving down,' he said.

 For a global chain like ITT Sheraton, it made sense to develop the mid-range hotel brands, which had been operating successfully in the US and other parts of the world for several years.

 It was only a matter of choosing the right time to launch the Compass brand, known as Four Points in the US, in Asia.

 'It seemed a logical extension,' Mr Davie said.

 Few international chains have been active in the mid-market sector so far.

 Some companies, such as Dusit Thani in Thailand and New World Hotels International in China, have been successful in one particular country.

 How easily the luxury hotels can move downmarket remains to be seen. The Ritz-Carlton has so far stayed away from mid-market expansion to avoid weakening its image.

 'If you build your reputation as a five-star hotel, going to four-star is a credible move to new customers, but not to old customers,' Mr Pugson said.

 The Shangri-La has moved cautiously in developing its Traders Hotels. The first, in the China World Trade Centre in Beijing in 1989, was a way of testing the water.

 'There was a degree of experimentation,' Ms Watkins said.

 The line wasn't expanded until 1995, when Shangri-La opened its Traders Hotels in Singapore and Manila.

 Two more were added in 1996 in Shenyang, China and Rangoon, Burma. The company deliberately stayed away from using Shangri-La in the name to avoid confusion.

 ITT Sheraton, however, will be keeping the Sheraton logo on its Compass properties.

 Some industry analysts say visitors may still expect Sheraton levels of service - and leave the Compass hotels disappointed.

 Probably the only mid-range hotel chain to build a reputation across the region is the Holiday Inn.

 To differentiate its growing five-star chain of Crowne Plaza hotels, the company has begun removing the 'Holiday Inn' name from the hotels.

 The first to go was the Singapore property, now the Royal Crown Plaza, which lost the 'Holiday Inn' tag in June.

 A question mark also hangs over how well Sheraton can preserve consistent quality across the Compass line.

 The Compass hotels will be run as franchises, a tactic which Holiday Inn says it found unsuccessful in many parts of Asia, including India and Pakistan, because standards quickly fell without Holiday Inn's day-to-day control.

 JP Morgan hotels analyst Alexandra Mackesy said the Industrial base of many secondary cities in Asia, and particularly China, would give the mid-market chains good business. But the market still has a long way to go.

 'There is an element of business travel [within Asia], but not the travelling salesmen, not the conventions, and not the tourists just travelling around.' 



Luxury hotel chains explore their Asian options from top to bottom