Despite a new regulatory environment in its native United Kingdom, Whitbread PLC executives are confident in the resiliency of the Premier Inn brand both at home and abroad in Germany, its second market of scale.
This confidence comes amid a “favorable supply backdrop” in the hotel industry, according to Whitbread CEO Dominic Paul during a presentation of Whitbread's latest earnings results — which covers a 13-week period through Nov. 28, 2024.
Whitbread executives are optimistic despite some challenging macroeconomic hurdles, some stemming from the release of the U.K. government budget in October.
“We are confident we will become the U.K.’s leading hotel company [and] we are confident in our five-year plan,” Paul said.
“Resilient” is a word Paul continually used in the call to describe the firm and its trading.
Paul said there was no change to full-year 2025 guidance, and he expects the impact of inflation in the U.K. on Whitbread's earnings to be between 2% and 3% for the next year.
Overall, hotel demand in the U.K. in the last quarter was slightly soft, with year-over-year revenue in the U.K. down 4% but up 19% in Germany, Paul said.
“It is a more challenging environment, but trading actually improved as we went through the quarter, up 2% and still 51% above pre-pandemic levels. It is positive. We are making very sound progress on our commercial priorities,” he added. “Supply is to remain constrained. Yes, the macro will remain challenging, but we are well placed.”
Whitbread Chief Financial Officer Hemant Patel said the weekday timing of Christmas in 2024 had a favorable impact on Premier Inn's food-and-beverage business, and in the last week Whitbread started to see a pickup in customers booking business trips.
Paul said that any business plan needed to have built-in contingencies and an element of caution.
“Following the budget, there is impact to our business for the next year, but as an organization we are very good at mitigating cost increases. We’ve been around a long time, and we have a lot of levers to help us. Over the next five years, we will come up with more cost mitigations,” Paul said.
Whitbread is investing in automation to help ease the labor issues that have plagued the global hotel industry for years.
“We are accelerating automation work. Labor has become more expensive, and you will not see the benefit of [automation on the profit-and-loss statement] immediately,” Paul said. “We are very pleased with our efficiency program. We stepped it up. We have real granularity, and we have real confidence.”
Whitbread's goal is £250 million of efficiency savings over the current five-year plan, and Paul added the company is ahead of schedule on reaching that target.
“Labor costs have gone up more than we expected. Historically, the [U.K.] minimum wage increases around 10% annually,” Patel said.
Overall, Paul said the outlook is positive.
The U.K. "has been a more challenging environment … and an environment that definitely has more normalized levels of demand, but overall for us, it is a resilient market, and we’re outperforming. We have very strong brands and commercial-sector initiatives,” he said.
One focus, he said, is on how to drive hotel revenue per available room via initiatives such as early check-in and late check-out, for example.
“We’re feeling good about the plans we have and the levers we have. Our performance against the market is encouraging, and we will continue to drive that commercial plan," Paul said.
In response to a question from an analyst on the call following media reports the U.K. might be considering the introduction of a hotel tax, Paul said he did not think that would be put into law.
“We’ve looked into that, and we do not think the government is serious to put that in place against the backdrop of the budget. … If they did, there will be pushback from the industry,” he said.
In November, Whitbread completed a £100 million share buyback scheme. Patel said the company was on track to return £2 billion to shareholders.
Premier Inn's outlook in Germany
Whitbread expects its Premier Inn portfolio in Germany to make a profit by full-year 2026, Patel said. Its German hotels are showing strong momentum, with profits, margins and returns all set to help the overall firm’s performance metrics.
“Germany did well in what is always a competitive quarter. There is a progressive maturity of our estate, with [in year-on-year terms] total accommodation sales up 37%,” Paul said.
Overall, there's a path for Premier Inn to be a major player in Germany in the next few years, Paul said.
“At this earnings call last year, several questions were asked as to whether we could [make a profit in] Germany," Paul said. "We must start from the point that we are a guest-focused business.
"You have to get the product right, and we feel we have, but, as importantly, we need the commercial side of the business to be very well-run, and we have made tremendous progress there, too. Those two things increase our confidence we will reach profitability next year.”
He added that a second market reaching scale would be another engine of growth for Whitbread, and so far Premier Inn's guest-satisfaction scores are very high in Germany.
“Our CEO there, Erik Friemuth, has done a really good job cementing the brand in Germany, helping it stand out,” Paul said.
Whitbread is using online travel agencies more in Germany than it does in the U.K., but that was understandable in a newer market, Paul said.
Whitbread currently has more than 900 hotels across the U.K. and Germany, with more than 85,000 hotel rooms in the U.K. and more than 10,500 rooms in Germany.
As of press time, Whitbread PLC stock was trading at £28.77 a share, a decrease of 21.7% year over year. The London Stock Exchange’s FTSE 100 index was up 10.6% over the same period.