DUNSTABLE, U.K.—Whitbread PLC is seeing an uptick in interest from developers who are skittish to invest with troubled competitor Travelodge, according to Whitbread’s CEO Andy Harrison.
“Travelodge is interesting,” he said Thursday during the company’s earnings call to discuss fiscal year results through 1 March. “We are seeing developers being naturally reluctant to continue growing with Travelodge and we’ve picked up a few sites, and we would expect that to continue.”
U.K.-based Travelodge is in the midst of a financial restructuring that will see transfer of ownership from Dubai International to two equity houses. On 20 April, Travelodge announced a change in chief executives, in which CEO Guy Parsons stepped down and was replaced by former CEO and Chairman Grant Hearn.
Travelodge provided the following statement in response:
"There are a small number of development opportunities that we have decided not to pursue because our feasibility study for these particular locations has identified that they are not a viable business option for us." Travelodge recently opened its 500th hotel near London's Olympic Stadium.
The sites Whitbread "picked up" are one of many factors propelling strong growth for the company’s budget Premier Inn brand. The group opened 4,440 rooms during the fiscal year ending March 2012. It plans to open an additional 4,200 rooms this fiscal year.
Whitbread had 48,725 rooms in its global portfolio as of March 2012, and a committed pipeline of 10,500 new rooms in the U.K. alone.
“(It) takes us a long way towards our 2016 target of 65,000 rooms,” Harrison said.
While the majority of Whitbread’s growth will take place in the U.K., the company also is making a concerted effort to gain footing internationally, particularly in the Middle East and India, he said.
Whitbread invested £4.4 million ($7.1 million) last fiscal year to continue developing a presence in those regions via its “capital-right” expansion model. It plans to spend an additional £10 million to £15 million ($16 million to $24 million) this year.
Future growth is expected to come through capital-light management contracts, Harrison said.
Dynamic pricing gains traction
Another major development for Whitbread was the initial implementation of a two-tiered pricing structure, featuring “Premier Saver” (slightly discounted, non-refundable rate that requires an advanced booking) and “Premier Flexible” (refundable rate with cancellation allowed until 1 p.m. the night of the booking).
“The new Premier Saver price makes us more competitive at a longer lead time, driving occupancy,” Harrison said. “The Premier Flexible price is set at a small premium, and we’ve found that many customers value this flexibility at all lead times.”
The program yielded an uplift in revenue per available room of a “couple of percentage points,” he said.
Premier Inn’s dynamic pricing model will be rolled out across the entire portfolio during the first half of the fiscal year.
The efforts are part of a larger campaign to drive more traffic through www.premierinn.com, Harrison said. The website saw 44 million visitors last year, up 27% from fiscal year 2010-2011. More than 75% of the company’s revenue was sold online.
Investing back in assets
Whitbread plans to invest £244 million ($395 million) in the fiscal year ahead to fund the maintenance and expansion in the company’s hotels and restaurants division. £70 million ($113 million) of that will be used to refurbish 13,000 rooms.
The capital expenditures represent an increase from the £169 million ($273 million) spent during the previous year.
The increase should not come as a surprise, Whitbread Chairman Anthony Habgood said. It is largely a function of the growing size of the portfolio, and he doesn’t expect it to decrease in the foreseeable future.
Company performance
Despite a tough operating climate during the fiscal year, Premier Inn reported a 1.8% RevPAR increase for the year, with an increase of 7.3% in London.
Read full earnings release.
“Throughout the year, London has been stronger than the U.K. regions, especially during the first half,” Harrison said.
He expected performance to increase during the year ahead, however, which includes key performance drivers such as the Olympic Games.
Premier Inn’s corporate accounts also are growing.
“We had quite a strong year,” said Patrick Dempsey, managing director of Whitbread Hotels & Restaurants. “We took revenues of just over £200 million ($324 million). It was up 12.7% year on year, with 18,500 accounts, (about 50% of which are active each month).”
Corporate accounts drove approximately 25% of the group’s revenue, he said.
