Executives at Whitbread PLC, owner of the Premier Inn brand, the largest hotel brand in the United Kingdom by room count, said total rooms revenue in the last two quarters of 2021 indicates a full recovery from the demand crisis triggered by the COVID-19 pandemic.
On the company's full-year 2021 earnings conference call, Whitbread CEO Alison Brittain said the firm's hotels have outperformed 2019 in revenue, as well as its competitors in the midscale and economy segments, due to "broad-ranging demand."
“With [revenue per available room], we’re confident we’re having a very good first quarter. We have strong pricing and demand, and all the demand drivers are coming back or have come back and are in strong growth," she said, adding that the last piece of the demand puzzle is from inbound international travel, for which bookings are up.
Brittain said it would be hard to argue that the industry has not already fully recovered from the pandemic.
“I refer to an environment where RevPAR has already recovered and is performing ahead of pre-pandemic levels. There is strong pricing and we’re assuming there will be strong demand," she said. “Like-for-like RevPAR has recovered, rather than something that will recover. We have a clear and long-term strategy to create value."
Brittain said she is confident the firm soon will return to pre-COVID-19 profit margins in the U.K., adding refurbished and new Premier Plus hotels are driving premium pricing and are proving as popular with leisure guests as they are for corporate ones.
A dividend of 34.7 pence (pounds sterling; $0.44) per share is to be paid on July 1, for a total dividend payout of 70 million pounds sterling ($87.9 million), which Brittain said is approximately 50% of what would be normal dividend levels.
There are challenges, she said — particularly inflation, which Whitbread predicts will be between 8% and 9% this year for the U.K., its highest level in approximately 30 years.
“The only caveat is that we do not have the visibility in the second half [of 2022]. Will the squeeze on the consumer either lead to them pulling in their horns as they do not have cash, or their confidence level is less and they are saving for a rainy day?” she said, adding Whitbread does not necessarily perform poorly in such a scenario.
Gusts, Not Storms
“The cost of international travel might keep people home, so we do expect another buoyant staycation year. There is pent-up demand for both,” Brittain said.
She said demand for leisure travel remains ahead of pre-pandemic levels, and the resumption of travel by “business tradespeople and office workers ... [is] helping London recovery."
Brittain said inflation pressure would be largely offset through efficiencies, estate growth and higher prices and average daily rate.
“Cost efficiencies have been extended and now total 140 million [pounds sterling] by the end of full-year 2025,” she said.
Hemant Patel, who has replaced Nicholas Cadbury as group finance director and formerly served as Whitbread’s United Kingdom finance director, said the firm expects to return to a self-funding, growth-led strategy with full-year 2023 spending of between 350 million and 400 million pounds sterling.
Whitbread managed to turn a profit for full-year 2021 of 58 million pounds sterling, despite pandemic restrictions in Germany only lifting earlier this month.
Brittain said she thought some restrictions remained in the German city of Hamburg but she anticipates non-restrictions trading in Germany for the first time in several years.
Premier Inn has 37 hotels open in Germany, only six of which were operating in March 2020, and 41 hotels in the pipeline.
Germany hotel occupancy was 66% in October before the onset of the omicron variant, while year to date through the first quarter, occupancy is 51%.
Patel said Whitbread expects to add 1,500 to 2,000 rooms annually in the U.K., and 2,000 to 5,000 rooms in Germany, where the loss before tax is expected to be between 60 million and 70 million pounds sterling for the upcoming 12 months.
Brittain said the firm has ambition to be the top hotel operator in Germany, with more than 900 million pounds sterling in capital invested and committed to date.
Patel said he expected the firm’s German portfolio to start showing profitability in 2024.
Room To Move
In the U.K., Premier Inn has approximately 82,000 rooms, with the foreseeable opportunity for up to 110,000 rooms, Brittain said. The next largest U.K. brand in the sector, Travelodge, has approximately 44,000 rooms.
Patel said currently Whitbread owns 56% of its hotel real estate, with the other 44% being leases.
“We keep an open mind in terms of property valuation. There have not been many sales [in general]. Our last valuation was in 2018, but it remains generally in line with yields we saw in 2019,” Patel said, adding valuation remained stable through the pandemic.
Premier Inn total accommodation sales growth was 14.8% ahead of the midscale and economy market for full year 2022 and 17.3% ahead across the last two quarters of that year.
In the last two quarters of 2021, Premier Inn’s total U.K. accommodation sales outperformed the same period in 2019 by 12.5%, and by 7.5% in comparable ADR, “despite the impact of the omicron COVID-19 variant” in the fourth quarter, Brittain added.
Across all of 2021, ADR came in at 11.7% below pre-pandemic levels and down 15.5% on a like-for-like basis.
As of press time, Whitbread’s stock was trading on the London Stock Exchange at 28.70 pounds sterling ($36.05) per share, a decline of 13.03% year to date.