Staycations help book Premier Inn’s recovery
LOCKDOWNS saw Premier Inn’s guest numbers collapse last year – but owner Whitbread is seeing signs of a recovery.
Staycations meant UK sales were ahead of pre-pandemic levels over the summer holidays. Reassuringly, the chain’s results are also well ahead of the wider hotel market.
The recovery will come as a major relief, since the group’s cost base is relatively fixed. In particular, leases and interest on debt still need to be paid whether the rooms are in use or not.
Even at its current occupancy level, the group is struggling to cover its costs, although the reduction in rates by 50 per cent announced in the Budget last week should help. That’s unlikely to get any easier. Supply chain disruption and labour shortages are increasing costs across the economy, but particularly in the hospitality sector.
Some £100million in cost savings should offset that, and all being well management think Premier Inn will return to pre-pandemic profit margins over time.
However, bosses have ambitions beyond simply getting the group back to where it was in 2019.
The group is opening new hotels – and with smaller competitors more likely to have shut during the pandemic, it will hope that gives it further room to expand.
Meanwhile, German expansion is gathering pace – with planned hotels more than twice the number currently open. There’s work to do improving occupancy, currently running at just 32 per cent, and low levels of brand recognition on the Continent. But we think the group now has a platform from which to drive growth.
Longer term, its balance sheet is a source of strength. It has a net cash position following a £1billion share issue last year. Owning, rather than leasing, the majority of its hotels also gives it assets to borrow against.
Flexibility from lenders means dividends are off the menu for the next couple of years, but that does mean there’s plenty of firepower to fund further expansion.
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