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Demand in Asia-Pacific for international brands with established standards is growing, and their select-service properties may emerge as the big winner especially as the big brands enter tertiary cities in China and elsewhere.
Starwood Hotels and Resorts Worldwide Inc. will almost double the hotels it operates in China and India over the next four years to meet growing demand in Asia’s biggest emerging economies.
The owner of the St. Regis and W brands, which runs 133 hotels in China, has more than 120 planned or under construction in the world’s second-biggest economy, said Matthew Fry, senior vice-president of acquisitions and development for Asia. In India, where the Stamford, Connecticut-based company has opened 40 hotels since 1973, it will add more than 30, he said.
China’s rising incomes and growing middle class are offering companies like Starwood a bigger pool of potential customers. In India, investors are betting the biggest electoral mandate since 1984 will help Prime Minister Narendra Modi fix the nation whose infrastructure is ranked below that of Guatemala and Namibia by the World Economic Forum.
“China is our single-biggest and fastest-growing market in Asia,” Fry said in a telephone interview from Singapore. “India is second, and has a ways to go to catch up in terms of infrastructure, but it has huge amounts of potential.”
The Asia-Pacific region is seeing nearly double the hotel rooms being added compared with those in Europe, the Middle East and Africa, and about 30 percent more than the U.S., Fry said. That’s because many emerging markets have few globally branded hotels, and as these economies grow, demand for accommodation that meets international standards is climbing, he said.
In China, which Starwood entered in 1985, it has doubled the number of its luxury hotels over the past three years, and plans to increase that again by the same multiple by the end of 2015, according to the company. In newer markets, particularly second-and third-tier cities, it will establish more four-star hotels, Fry said.
“As we expand into secondary, tertiary markets in China, it makes more economic sense to build more select-service hotels,” he said.
Demand for budget hotels is growing following President Xi Jinping’s campaign to curb extravagant spending by government officials to clean up corruption, according to analysis by Bloomberg Industries. Profits may fall faster for five-star than mid-tier hotels as more operators open luxury hotels, pushing room rates down amid higher labor costs, the research shows.
Starwood also plans to add 12 new properties in Indonesia to the 14 it already manages, Fry said. There too, the company is seeking to expand outside of Jakarta and Bali, where growth has traditionally come from, he said.
The company, which wants to own fewer properties, is seeking to sell its Sheraton on the Park in Sydney, he said.
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