Executives at British hotel firm Whitbread PLC — parent company of the Premier Inn brand — are extremely positive about a sales recovery.
Whitbread executives forecast like-for-like revenue per available room has the potential to recover to pre-pandemic levels some time in 2022, not in 2023 as determined in previous guidance. But they warned that profit margins in the United Kingdom, the company's main market, might be tempered by ongoing issues of inflation and supply-chain pressures.
On a call with analysts to discuss the company's latest earnings report, CEO Alison Brittain said the rebound in accommodation revenue has been very significant, but less so in food and beverage.
“Discounting a couple of years ago was very important to all the markets, but that has largely been stopped, and we have stopped that in its entirety,” she said.
Whitbread was trading at more than 12 percentage points ahead of the midscale and economy market across the first six months of 2021 and almost 14% ahead over the previous quarter, according to the company's earnings report.
The firm reported losses before tax in the first six months of the year of 56.6 million pounds sterling ($78 million), compared to a loss of 367.4 million pounds sterling for the same period in 2020 and a gain of 235.6 million pounds sterling in the same period in 2019.
Brittain said the firm is confident of its current pricing strategy, with its centralized commercial model able to better manage times of volatility.
“It is very advantageous to have [such a model], and we are outperforming the market in [average daily] rate. Forward bookings remain short, but we have started to see recovery in peak periods of next year. Next summer likely will be very healthy in the leisure market, and there looks to be good recovery in the white-collar market, too," she said.
“We’re pretty positive about the future, and positive about using rate to boost recovery,” she added.
Brittain said that she still expects British guests to go on staycations through summer 2022.
“I still think there will be strong demand for people to stay [on vacation] in the U.K., [but] it would not surprise me if we see both a bounce back in international travel and a healthy staycation market,” she said.
She added she is confident that rates will continue to grow across the industry and at Whitbread properties.
“We are expecting higher RevPAR levels both on an occupancy and ADR bases. Only in 10% of our business do we see constraints,” she said.
Labor Pains
Challenges around labor continue to lead Whitbread's concerns, as a fair number of jobs remain vacant, Brittain said. To help fill those positions, wages are going up.
Nicholas Cadbury, group finance director, said labor costs are expected to increase by approximately 13 million pounds sterling through the end of the year, and another 10 million pounds sterling has been paid in retention bonuses and packages.
“There are pay increases with progression, certain skill levels and training and development. We have no barriers to entry,” Brittain said. “Within the industry, there’s a shortage of people who are available for work, particularly experienced people where the training load is less."
On Oct. 6, Whitbread announced that U.K.-based staff would receive pay raises, with the level of pay being above that of the U.K.’s national minimum wage and national living wage.
On Oct. 25, the government announced an increase in the national living wage for those eligible 23 years old and above. The increase is by 6.6%, more than twice the current rate of inflation, to 9.50 pounds sterling per hour, while the national living wage, for those younger than 23, will rise approximately 9% to 9.18 pounds sterling per hour.
Cadbury, who announced his resignation from the firm on Oct. 15, added the company sees good opportunities in acquiring leaseholds but that securing freeholds — where values are being maintained — is proving more difficult.
Brittain said Whitbread faces competition in developing properties in new locations.
“We have cash on the balance sheet, and we’re still in the market for filling in the gaps and to continue a runway of 201,000 rooms to add to the current 180,000. We are active in our conversations, as we always are,” she said.
German Gains
Whitbread continues to grow its portfolio in Germany, with 31 Premier Inn hotels open in the country and 42 in the pipeline.
Executives said they are starting a national brand-building campaign across the country and taking advantage of supply constraints for other brands and independents to further add assets both organically and via portfolios.
Brittain said a survey of the hotel industry has revealed that some independent hotels simply will not reopen again, which presents opportunities for Whitbread in segments and markets where the company has room to grow.
“Anecdotally, we’re seeing a contraction in supply, and a noticeable reduction in independent hotel supply,” she said. “The German market is one-third larger than that of the U.K., so there is runway in leisure. We still are of the belief that this is the right market for us. The fundamentals have not changed."
She said that while the German government has been very generous in propping up businesses, that support is dwindling, which will lead to some independent hotels not surviving.
As of press time, Whitbread’s stock was trading on the London Stock Exchange at 32.68 pounds sterling per share, an increase of 45.63% year to date. The London Stock Exchange was down 17.1% for the same period.