Since the end of 2022, publicly traded hotel firms in the United Kingdom and Europe have been content to move beyond comparing their quarterly earnings numbers with 2019.
Whitbread PLC, owner of the United Kingdom’s largest hotel company by property number, Premier Inn, showed first-quarter revenue to June 1 up 19% year over year.
Whitbread's earnings report comes as the Bank of England raised interest rates to 5%, a level not seen since 2008. In May, the inflation rate in the U.K. was 8.7%, holding steady at the same rate as in April.
One aspect of this inflationary environment is the increased costs to consumers of serving mortgage debt.
Whitbread CEO Dominic Paul said hotel guests are seeing increased value in budget and economy hotels firms such as Premier Inn, which has helped its performance.
“We have again delivered a fantastic set of results, with revenue per available room [up 16%] versus last year and up 40% versus full-year 2020,” he said.
Paul added that the RevPAR level was a premium of 6% over that of the firm’s competitive set.
“Given the strength of our trading performance in the U.K. and Germany, and a healthy forward-booked position, we remain confident about our performance in the first half [of 2023] and the outlook for the full year,” he said.
Underlining the performance is the rebound in travel demand and the increased demand for midscale and economy hotels deriving from increased costs of living, Paul said.
Whitbread has reached the 10,000-room mark in Germany, where it has 56 hotels in operation, with a pipeline of 32 hotel projects and approximately 6,000 rooms.
Paul said he considered 18 of its German hotels had reached maturity, helping RevPAR for those hotels in the quarter increase to 63 euros ($69), up 43%. Across all of Germany, RevPAR increased over the same period to 55 euros, up 57%.
Whitbread added 348 rooms in the U.K. in the quarter, and the firm was on pace to open between 1,500 and 2,000 rooms by the end of the year.
Paul said the structural reduction in supply should continue for the next couple of years and would give Whitbread a significant tailwind “as we strengthen Premier Inn’s position in the U.K., unlock our position in Germany and maximize long-term returns for our shareholders.”
“The tight financial markets we are in at the moment, with rising interest rates, means that our competitors generally have very anemic pipelines and are struggling to rebuild those pipelines because it is actually quite hard to raise money at the moment. We are in a very privileged position,” Paul said.
He added Whitbread has the chance to look at every site that becomes available and is putting capital behind its existing hotels’ rooms extensions programs.
Hemant Patel, Whitbread's chief financial officer, said Germany is recovering, although according to the firm’s guidance across 2023, its German operations would see a loss of between 30 million euros and 40 million euros.
Patel said he expected occupancy in the next quarter to be at a similar level as it was in 2022.
“We expect to be full again, the difference being that rate is higher,” he said.
Paul said that helping U.K. business is “our mix between business and leisure, [which] gives us a strong and stable position.”
Inflationary Hedges
Food-and-beverage sales at Whitbread's hotels are up 10% year over year despite higher food costs across the U.K., executives said.
Whitbread is also continuing its strategy of buying back 300 million pounds sterling ($382.5 million) of shares. Paul said the company is about a third of the way through its plan with approximately 3.1 million shares purchased.
Paul said the firm is not really seeing trouble spots in the labor market, which he said had loosened up compared with 18 months ago.
“We remain between 7% to 8% full-year guidance. That has not changed,” Patel said. “We have obviously seen changes in the inflationary environment, but we are happy our range still makes sense.”
Patel said the firm has a 20% hedge against utility costs in 2024.
“If prices lessen, we will see some upside,” he said.
Whitbread is also in a strong position to grow its market share, Paul said, although he stressed that the firm always looks at new hotels through the lens of expected returns, not merely growth for growth’s sake.
Patel said the company’s existing 775 million pounds sterling revolving credit facility, which has not been drawn on, has been extended until May 2028 and backed by seven banks.
As of press time, Whitbread’s stock was trading on the London Stock Exchange at 33.46 pounds sterling ($42.66) per share, an increase of 47% year to date. The London Stock Exchange’s FTSE 100 index was up 5.4% over the same period.