Business transformation and product upgrades are key to the survival of budget hotels that are in decline. BTG Home Inns Hotels Group, whose first-quarter profit surged over 116 percent year-on-year to 75.39 million yuan (€9.93 million), is a perfect example of that.

Sun Jian, General Manager of BTG Home Inns, said the budget hotel operator renovated or refurbished 100 hotels since 2017. It also set up areas for tea breaks and buffets, and introduced more fashionable design, to make customers “feel at home”.

Other examples in Europe include the super-economical hotelF1 brand of the AccorHotels group, which recently unveils a new identity in order to integrate a more qualitative experience while maintaining very accessible prices. In addition, on the occasion of the renewal of the partnership between Foncière des Régions and B&B Hôtels, the hotel group announced a plan to modernise leased hotels for a total estimated amount of 100 million euros. This renovation plan, which began in January 2017, is expected to last three years.

"Budget hotels cannot sell [their products and services] for 10 years without any change," Sun Jian said.

According to the China Hospitality Association, there were 32,444 budget hotels operating in China as of January 1, 2018. In 2005, there were only 522. However, such hotels faltered when the emerging middle-income consumer group began to demand tailor-made services and better experiences. Increasing rental fees, aging facilities and competition from midscale to upscale hotels and bed-and-breakfast facilities also presented a challenge to this hotel segment.

Property management and human resources costs for budget hotels have risen sharply since 2007. Huazhu Hotels Group said it closed 10 budget hotels in the first quarter of 2018 to open 81 new midscale properties.

"Budget hotels will be eliminated from the market sooner or later, because their mission to solve the accommodation problem has been almost accomplished," said Zhang Tao, former General Manager of an upscale hotel in Chongqing in Southwest China. Indeed, a few upscale hotels can post 25 to 30 percent of total revenue as net profits, while budget hotels can barely make 8 to 10 percent.

As of January 1, 2018, BTG Homes Inns was ranked 8th worldwide with a total of 3,590 hotels or more than 377,773 keys according to Hospitality ON data.