Hilton launches new budget hotel aimed at young guests

Hilton is launching a new hotel brand, focusing on budget travelers looking to spend $90 to $100 a night. The new brand, named Tru, aims to compete with economy and midscale chains like Comfort Inn, Fairfield Inn and La Quinta. Hilton Worldwide which has more than 4,500 hotels globally already has "limited service" brands like Hilton Garden Inn, Hampton Inn, Homewood Suites and Home2 Suites. This would be a new market for the chain.

Hilton CEO Chris Nassetta notes that 40 percent of the demand for hotel rooms comes in this price segment, the largest of any market. He also says many of the economy and midscale chains offer an "inconsistent product and service delivery," giving Hilton the opportunity to build loyalty among younger travelers whose spending is limited right now, but could afford a more upscale location in the future.

"You go in a lot of the competition and it's like Russian roulette," Nassetta says. "There's really nobody doing it well at this price point." Many of the hotels in the segment were once part of more upscale brands but as their owners couldn't keep up with renovation costs, they downgraded to economy chains.

Tru properties won't have had a prior life as a hotel. They will be mostly new construction with the others being urban conversions of historic buildings banks, office buildings into the hotel. Hilton is launching the chain at a large conference for hotel investors The Americas Lodging and Investment Summit with 102 locations already signed and an addition 30 deals in various stages of negotiations and approval.

"That's bigger than entire hotel companies," Nassetta says. The time for Hilton to enter this market is good. While chain luxury and upscale hotels have the highest occupancy rates and average nightly room rates, their growth in the past year has trailed the lower end of the market. The high end hotels have seen less than one percent growth in occupancy and less than 5 percent growth in revenue per available room, according to research firm STR. Midscale and economy hotel chains however have seen roughly 2 percent growth in occupancy and more than 6 percent growth in revenue per available room. The hotels will be in a mix of markets including urban, airport and suburban. The areas include Atlanta, Dallas, Houston, Chicago, Denver, Portland, Oregon, Charlotte, North Carolina, San Antonio, Texas and Nashville, Tennessee. To ensure that owners are able to keep the hotels fresh, Hilton made sure they would be cheaper to build and maintain.

The typical hotel will have 98 rooms and sit on 1.5 acres of land. It will cost $84,000 a room to build, excluding land. Compare that to Hilton's Hampton Inn brand. Those typically have 130 rooms, sit on 2 acres and cost $110,000 a room to build.

Rooms themselves will be different. Don't expect a closet. Instead there will be an open space with hangers and hooks on the wall. And the traditional hotel desk is replaced with a chair that includes a spot for a tiny laptop or tablet. The platform bed doesn't have a box spring and there's a space-saving bench that rests over the heating and air conditioning unit. The brand is aimed at younger travelers on a budget. But Nassetta says it is also a great way to introduce them to Hilton.

"Get them loyal to our system," he says, "and trade up as they move on in their lives."