Sticking to stripped-down service has made Choice Hotels the king of budget lodging. But now it's time to spend some real money on the brand.

When Charles Ledsinger Jr. became chief executive of Choice Hotels in 1998, the hotel industry was adding rooms by the thousands, and ever-fancier ones at that. But Ledsinger looked at his company--then a 3,039-unit franchisor of Quality Inns, Comfort Inns and other budget names--and decided to stay put. "I like to fish where the fish are--but I wasn't going to go out and spend millions creating a luxury chain," says Ledsinger, 52, onetime president at St. Joe Co. and chief financial officer of Harrah's Entertainment. "We have economy brands that may not be so sexy, but they're diamonds in the rough." He also nixed the idea of Nascar-themed hotels. Aside from the sheer tackiness of stock-car-shaped bathtubs and soap bars, Ledsinger didn't want to spend the $5 million for a prototype. Instead, he started cutting off the first of 600 underperforming properties.

Today, he looks pretty smart. With the kibosh on corporate travel outlays, the luxury segment is hurting most. "Choice is the best defensive play in a terrible lodging environment," says Harry C. Curtis, an analyst with Robertson Stephens. Its earnings per share increased 22% in the third quarter, compared with a drop of 9% at Marriott, which owns the Ritz-Carlton and Renaissance brands. And while revenue per available room, lodging's standard measure of income, sank 10% at Marriott to $89, Choice slipped by 2% to $45. The cheapo segment is looking mighty attractive to big customers like FedEx, which has invited Choice to bid on a corporate-travel account involving 300 hotels in the Pacific Northwest. Bechtel is weighing sending employees to 125 Choice properties in California.

http://www.forbes.com/forbes/2002/0107/140.html