• The attractions at the bottom of the pyramid

A key part of the appeal of budget hotels is that their target market is much bigger than that of more upscale hotel properties.

While this clearly matters in developed economies, it offers massive opportunities in developing countries.

Economists at Citigroup, in a paper published this month called "The Pyramid of Consumption", used World Bank statistics to suggest that companies targeting consumers at the bottom end of the global income scale have most to gain in the years ahead by creating brand loyalty at what is described as "the entry level".

The World Bank numbers show that there are 600 million people with incomes of more than $20,000 a year which comprises the top of the pyramid. The mid-tier of 1.4 billion people is of those on $3,000 to $20,000. The people at the bottom number 4 billion on incomes less than $3,000.

Whilst it is unrealistic to propose that the bottom tier is likely to be staying in hotels any time soon, there are already hotel products that are clearly affordable for people on low incomes.

At the World Economy & Budget Hotels Congress, Malaysia's Tune Hotels detailed how it had rates starting at just US$3 per room per night and rising to only $25. Chief executive Mark Lankester said the company was emulating the low cost carrier model of AirAsia which was set-up by Tune co-founder Tony Fernandes. There are currently two hotels in operation and 28 under development. By the end of this year there will be 50 sites under development in South East Asia.

The rise of the middle classes in emerging economies has particular resonance for the world's two most populous nations, India and China.

Uttam Dave, head of development for Accor Hotels in south Asia and CEO of InterGlobe Hotels, said that by 2010 India would have 173 million people with household incomes exceeding US$23,000. There would be a further 400 million on between US$10,200 and US$23,000.

But in India there were only 110,000 hotel rooms. But Dave questioned whether there was a requirement for 160,000 new rooms by 2012 as some consultants had projected. And he predicted there was a "big correction" coming with real estate values in India.

US-based Terra Capital Partners is another firm convinced of the potential of budget hotels in emerging markets. Last week it announced a $200m investment fund to buy budget hotels in China in conjunction with its Asian affiliate Pacific Star Group.

According to Bruce Batkin, a co-founder of Terra, the hotels will be run by established hospitality operators. The target markets are the 25 or so metropolitan areas in China of over five million people.

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