• Recessionary resilience

Resilience rather than recession proof has been the watchword of the budget and economy hotel segments during the current downturn.

Whitbread's numbers this week show that even a market leader is not immune to the price discounting currently taking place in the market.

On the morning of Whitbread's AGM this week, the company gave an interim management statement which revealed just how tough trading has been for the UK's biggest hotel brand Premier Inn.

During the 13 weeks to May 28, Premier Inn has seen like-for-like sales fall 7.9% and total sales just about flat with a drop of 0.2%. Revpar was down 9.6%, with rate holding up to fall by between 1% and 2% but occupancy plummeted just under nine percentage points from 76%/77% to 67%/68%.

Whitbread's chief executive Alan Parker said that the comparatives were strong and it will not be until the middle of the third quarter when the weaker comparatives kick-in.

The occupancy fall was driven partly by Whitbread's decision to more or less hold rate while rivals discounted. Now, however, Whitbread is hitting back against the discounters but introducing its own £29 a night offer.

This price slashing would have "marginal and controllable dilution" of Premier Inn's rate. The bookings must be made 21 days in advance, there are no refunds for cancellations and there must be a stay of at least two nights.

The last six weeks had seen more softness in trading than during March and April but the volatility of the earlier months had now given way to a more consistent trend, said Parker.

The current price promotion, which has seen 7,500 bookings in its first week, is currently being more extensively advertised. It is believed that the leisure market offers more opportunity in the near term than business customers.

Parker said that although Premier Inn was already the number one choice for business travellers in the UK, it had yet to achieve that status in the leisure market. "That's where we want to be," he said.

A new approach to revenue management with variable pricing has been successfully trialled in a part of London and is now going for a more extensive trial in the Bristol and Swindon areas.

The company is currently determining exactly when to introduce the approach across the Premier Inn estate. "It is a big change in the system and the way we present the product to the market," said Parker.

The new approach is expected to deliver an uplift of 2% to 3% in like-for-like sales. The main component is an element of demand forecasting in the pricing.

 

HA Perspective: It is quite an achievement by Whitbread to maintain flat sales at Premier Inn in the current economic conditions and it demonstrates resilience in the business model even if the resilience of the budget and economy segments per se has been overhyped.

The key to keep sales flat was the company's ability to keep growing. Its determination to maintain cash flow neutrality will make it tougher to maintain momentum with this growth, albeit a sensible precaution in the current environment.

It has indicated that for the right acquisitions, the cash flow neutrality will be abandoned. But it is difficult to see any talk of a move on Travelodge ever being resurrected or a move of such scale on any other rivals.

The main challenge afflicting Whitbread is that it is still seen as a pub retailer despite generating 70% of profits from hotels. The UK pub sector has taken a worse beating on the stock market than hotels and Whitbread's share price has lagged some of its hotel peers, probably because of this pub retailing confusion.

It remains disadvantaged compared to rivals which are perceived as purer hoteliers if it wants to use a share offer. Bolt-on acquisitions using its balance sheet are probably the limit of its near-term ambition.

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