AN ARTICLE IN YESTERDAY'S BUSINESS SECTION INCORRECTLY REPORTED THAT CHOICE HOTELS INTERNATIONAL INC. HAD AGREED TO GIVE FRANCHISEES THE RIGHT TO REJECT SAME-BRAND HOTELS PROPOSED WITHIN 15 MILES OF THE FRANCHISEES' HOTELS. CHOICE HAS AGREED TO GIVE FRANCHISEES THE RIGHT TO OBJECT IN SUCH CASES. (PUBLISHED 06/26/99)

In an attempt to foster better relations with its franchisees, Choice Hotels International Inc. announced new policies governing franchises yesterday, including an agreement to not open same-brand hotels within 15 miles of each other.

"What this does is make a very clear, unequivocal statement to the industry about what our code of conduct will be," said Charles A. Ledsinger Jr., president and chief executive of Silver Spring-based Choice.

Choice has had problems with discontented franchisees. Tensions arose in the past five years when franchisees complained that Choice management was siphoning profits from them by operating company-owned properties too close to theirs. Some franchisees sued the company.

Most of the issues were resolved last year when the company shed ownership of hotels by spinning off its real estate business, an effort that made the hotel franchiser more competitive in the mid-priced segment of the lodging industry. The strategy was for Choice to operate strictly as a franchiser, making money from the fees it charges franchisees that run the company's seven brands: Quality, Comfort, Clarion, Sleep Inn, EconoLodge, Rodeway and MainStay Suites.

Under the new policy, Choice will not build a same-brand hotel within 15 miles of an existing hotel.

Rocky Pintozzi, who owns and operates a Comfort Suites Inn in Aurora, Ill., said Choice's new policy is a "move in the right direction," but not the "end-all resolution."

"What I would like to see is cross-brand protection, where you won't be able to open another Choice hotel down the street from me," he said.

Pintozzi said he encountered problems when a Sleep Inn opened near his property, a move that cut into his revenue.

"We're still competing even though we're from the same company because two brands of the chain pull off the same reservation pool," he said. "People will say it's a different brand, but it's not really because it's from the same parent company."

Also under the pact are guidelines concerning how franchise agreements can be terminated, how marketing and reservations service funds are allocated and how customer database information will be shared.

Robert A. Lefleur, financial analyst with New York-based Bear, Stearns & Co., said the pact "may sell a handful more franchises, but will most likely just make the current franchisees happy and keep them satisfied." He said the pact is important since it "comes at a time where fewer hotels are being built and competition is getting more intense among those that already exist."