• Whitbread remains asset focused

Premier Inn owner Whitbread said this week during its third quarter trading update that its full-year results will exceed the top-end of current market estimates.

But it was adamant that its current trial of a sale and leaseback deal did not presage a switch away from a freehold asset bases.

Finance director Chris Rogers said: "We are not putting up a for sale sign. This is just another source of funds for expansion." The current deal involving five hotels (see Issue 28 of HAPO) has yet to conclude.

In contrast, Travelodge, Premier Inn's main rival, is almost exclusively leasehold. Last week it announced it was backing the launch of a £100m fund to develop hotels. Christopher Stainforth is running the new investment group dubbed Twenty10 Fund Management.

The plan is to develop five hotels a year on leases between 25 and 35 years. The fund comprises £50m of equity and £50m of debt finance. It has a seven year life.

Meanwhile the spat between Whitbread and Travelodge over advertising looks to be subsiding. Travelodge had launched a campaign against Premier Inn's recent room promotion of £29.

Travelodge made a complaint to the UK's Advertising Standards Association and set-up an online petition calling on Premier Inn customers to ask for their money back if they had paid more than £29 for their room.

The problem was that the offer was most readily available via the specific link on the website. Travelodge alleged this was in effect duping customers because if a booking was made via the normal "Quick Book" then there was a less than 1% chance of finding the special offer. Premier Inn amended its website to make the offer more visible but otherwise robustly defended itself.

HA Perspective: Premier Inn is still only half-way through switching all of its hotels onto dynamic pricing, a job that should complete by February next year. To some extent, the confusion over the £29 offer reflects this partly finished work.

It appears the Travelodge campaign, which lasted about two days, seems more about a publicity stunt than a serious complaint. Some customers reacted badly to Travelodge's approach and began questioning its motives for launching the campaign against Whitbread.

Far more interesting is the distinction between Travelodge and Premier in terms of asset ownership. Whitbread is clearly wedding itself to asset ownership. A sensible move in a recovering market which is likely to see Whitbread's profit recovery much more pronounced than Travelodge's.

Trading at Premier Inn is improving rapidly – or at least declining much less. The third quarter saw the rate of decline halve. Like for like sales were down 3.1% against a 6.0% decline in the 39 weeks to November 26.

Revpar was down 5% in the third quarter against a 9.2% decline in the first half. Chris Rogers said that rate has gone backwards a little with the recovery driven entirely by occupancy (the £29 offer no doubt helped here).

Travelodge, by contrast, has grown rapidly by signing up to sometimes onerous fixed leases. As a private company its profit performance is not disclosed but many in the market believe that a significant number of leased properties will be, or close to being, under water.

Certainly, the leased nature of Travelodge's portfolio makes any link-up with Premier Inn a challenge and unlikely in the short-term.

More probable would be a move by Accor, a company that is effectively squeezed out of a leadership position in UK economy hotel market. This week Accor opened its 400th Etap but progress in the UK has to date been slow compared to either Whitbread or Travelodge.

Now that Accor has formally confirmed it will demerge its voucher and hotels businesses (following a board vote this week), a move on Travelodge would be a firm statement of intent to grow the economy hotels business.

Share →