Hilton launches 'Tru,' a more affordable hotel brand

Hilton is getting in on the budget-travel game in order to compete with Airbnb and encourage brand loyalty among Millennial customers.

Hilton is getting in on the budget travel game.

The hotel giant primarily known for its upmarket offerings and boutique chains is seeking to diversify with Tru, a chain of hotels directly targeted at younger and more budget-conscious travelers.

“We are incredibly excited to be launching Tru by Hilton, which will serve the largest segment of the hotel market, but a segment where no brand is meeting guests’ current needs,” Christopher J. Nassetta, Hilton Worldwide’s president and CEO, said in a press release.

With room rates between $90 to $100 a night at Tru, Hilton seeks to fill a void in the mid-range hotel market - somewhere between cut-rate motels and the pricier lodgings synonymous with the Hilton brand. And the effort to appeal to a more youthful clientele goes beyond the price. Each hotel, for example, will have a space designated as a “Play Zone” where guests can play table games or watch TV.

Courting Millennial travelers is vital for the hotel industry, but it's an uncertain undertaking. A recent UN study found that 20 percent of all international travelers are young people, and those travelers generate more than $180 billion in annual tourist revenue. However, a rapidly increasing share of those backpack-clad Millennials crave experiences that will be unique and meaningful, rather than traditional vacations in chain hotels.

That shift is creating more diverse competition in the hospitality field. In 2015, Airbnb, a popular peer-to-peer vacation rental service, generated $1.15 billion in revenue for New York City alone. Airbnb is projected to soon overtake most major hotel chains in the number of rooms booked. It currently occupies 17.9 percent of room supply in New York City, and 11.9 percent in Paris.   

The Tru launch may be Hilton’s indirect attempt to gain back some of that revenue from Millennials who would otherwise be inclined to crash at an Airbnb listing. By first attracting young people with Wi-Fi, snacks, and fitness centers, the company also hopes to engender brand loyalty so that Tru customers will stick with Hilton as they graduate to more expensive offerings.

“[The Tru brand] addresses a gap in the marketplace by appealing to the youthful mindset demographic, pushing the industry to marry quality and value,” Hilton Worldwide’s executive VP of global brands Jim Holthouser told Business Traveller.

In addition to Airbnb, Hilton also seeks to compete with affordably-priced rivals like La Quinta. Hilton estimates that approximately 40 percent of all hotel bookings in the United States are made at this and other lower-priced chains.

Mr. Nassetta told CBSNews, "You go in a lot of the competition and it's like Russian roulette. There's really nobody doing it well at this price point."

Tru already has 102 locations signed for the concept, all of which will either be new or repurposed buildings. Thirty other locations are in the process of being signed, and Hilton plans to open its first Tru hotel by the end of 2016. The chain will initially be placed in cities including Nashville and Atlanta, with an aggressive eye at expansion elsewhere.

"We have a very large swath of demand that indexes very young, and we’re not serving it," Nassetta told USA Today. "There's an opportunity to build a new brand, if we do it right, that will drive huge demand."