beyondbrics

With western European governments looking to ‘rebalance’ their economies, there’s one area where some emerging markets offer plenty of good examples: tourism.

It’s been three days since Malaysia’s Tune Hotel group opened its first set of doors on Westminister Bridge Road, in the heart of central London (just don’t tell anyone it’s south of the river). But can this Asian investment help attract more people to the British capital?

For hotel traditionalists, there are some pressing questions: would you stay at a hotel that offered a shower but no towels? What about no breakfast, no internet access and no air conditioning?

Tony Fernandes, the serial entrepreneur behind AirAsia, Malaysia’s booming low-cost airline, thinks plenty of people would – and so far he’s been right.

Fernandes, who is also part-owner of the long-haul airline AirAsiaX and the privately held Tune group – a mini-conglomerate with interests ranging from mobile telecoms to financial services – has just taken a huge bet by extending the no-frills Tune Hotels franchise to Europe.

The idea has worked well in Asia, with seven hotels now up and running in Malaysia, and two in Indonesia – all in destinations served by fast-growing Kuala Lumpur-based AirAsia or its Indonesian affiliate. Now Tune is talking about setting up 15 hotels in the UK, which is served from KL by AirAsiaX.

In essence, the hotels apply the low cost airline business model to the hospitality industry. But Fernandes is not the first airline entrepreneur to alight on the idea: Sir Stelios Haji-Ioannou, founder of EasyJet, set up his EasyHotel brand in 2005.

Internet booking keeps down transaction costs, and customers are expected to trade a low-priced basic service – the hotel room – for the inconvenience of having to pay extra for almost everything else.

The target market is singles and families who might otherwise stay at a mid-range hotel, but probably wouldn’t look at one of the more traditional cheap hotels, which are typically located in older buildings and tend to have disadvantages such as dodgy bathrooms and noisy rooms.

As an example, Tune’s website quotes M$68 ($21.60) before taxes for a basic double room for one person on August 31 in its downtown Kuala Lumpur hotel (pictured). Add the charges for air conditioning (by the hour), breakfast, towels, and wifi access, and the price almost doubles to M$126 ($40).

But compare that with mid-range traditional full service hotel round the corner on Jalan Sultan Ismail – which wanted M$316 ($100) for the same night.

It’s a similar story in London, where Tune wanted £55 for a room on the same night at its hotel in Westminster Bridge Road, rising to £59.50 when a towel and wifi were included (no breakfast or aircon available, but neither is a real problem in central London). That was exactly half the price quoted by a major international budget hotel chain that has a building in the same area (although the chain’s price included taxes and breakfast).

Tune has been helped in Malaysia by a dramatic boom in inbound tourism which has pushed up visitor numbers from 5.5m in 1998 to 23.5m in 2009, with receipts rising from M$8.6bn to M$53.4bn, according to Tourism Malaysia. That’s a pretty hefty contribution to the government’s attempts to boost the services sector – now 56.9 per cent of the economy – to reduce reliance on external demand for exports.

The UK is also looking seriously at tourism, for the first time in many years, following the stumbles of its financial sector during the global crisis. David Cameron, the coalition prime minister, has given the industry top priority, saying it is “fundamental to the rebuilding and rebalancing of our economy”.

That won’t hurt Tune, although whether the group’s plans for 15 UK hotels are viable remains to be seen. It seems to be working in Westminster, though – according to the website booking engine, the hotel’s 75 rooms are already full for the rest of this week.

Related reading:
Brazil: boom-time for hotels, beyondbrics
Rice and beaches: Thailand plots its Asian future, beyondbrics
Indian tourism: forget visiting granny, we’re off to the beach, beyondbrics