Best Western CEO sees economy crimping spending

By Chris Reiter

NEW YORK (Reuters) - Best Western International Inc, the world's largest hotel brand, expects a slowing U.S. economy to crimp hotel demand, which could benefit its midmarket hotels, its chief executive said on Wednesday.

"There's a deceleration going on. Rates are not growing as fast," said David Kong in an interview with Reuters.

"Not only is the economy softening, there's also more supply coming into the market. Those two things combined is usually what causes the hotel industry to have a downturn."

But Kong doesn't expect Best Western to be hurt as much as more upscale hotel operators such as Marriott International Inc (MAR.N: Quote, Profile, Research, Stock Buzz) and Hilton Hotels Corp HLT.N.

"As the economy softens and travelers want to be more responsible in their travel spending, I think there's going to be a shift from those deluxe upscale chains down to those midscale chains, which is Best Western," he said. "It's already happening."

He expects Best Western's North American revenue growth to slow to about 7.5 percent next year from 8 percent this year. Those expectations compare with an 11 percent growth rate in 2006.

But the slowing U.S. economy will likely put an end to higher rates, which helped fuel the lodging industry's robust growth in recent years.

"The growth is primarily going to come from occupancy, not rate," said Kong. "The rates that some of the top companies charge are just getting outrageous, so there's getting to be a sticker shock for a lot of people."