Super budget hotel brand easyHotel has set its sights on building its presence in mainland European cities, as the company adjusts to a new senior team.
The change in strategy will see it deploy its own capital building the portfolio in key tier one cities, relying on franchisees to grab opportunities in secondary locations. New management has now been put in place, following last year’s shift in ownership which effectively saw easyHotel taken into private ownership.
Total system sales were up 27.5% year on year at GBP47.6m. Margins were compromised by increasing use of OTAs, which nevertheless helped drive topline revenue outperformance. Adjusted EBITDAR margin at 27.7% was down 1.9% from the 2018 figure. But an overspend on the development of a new hotel in Ipswich, UK, led to a GBP3m loss, combined with a further one-off charge of GBP1.4m covering the costs of the ownership changes – resulting in a combined GBP3.57m loss.
Like for like revpar was up 4.6% at owned hotels, but down 1.7% at franchised properties. Six hotels opened during the period, while a further 2,000 rooms are in the pipeline.
Meanwhile, news of a positive performance came from midmarket hotel group PPHE, in a year end trading update. Buoyed by continued investment in growing and refurbishing their owned estate, PPHE reported total revenues up 5.9% to GBP250m, with like for like revpar up 5.1%. Park Plazas in Amsterdam and Utrecht reopened, while the non-branded Holmes hotel in London started delivering after a relaunch in May. PPHE’s portfolio has a London bias, but the pipeline includes a new foray into New York.
Following the ownership change at easyHotel, there have been a number of executive changes too. CEO Guy Parsons, who successfully got the brand onto its current growth path, left in November and will be replaced by incoming ex-easyJet executive Francois Bacchetta. Jonathan Lane OBE also left the board in the autumn, after five years, and has been replaced by Harm Meijer as non-exec chairman. New to the board are Michael Neuman, representing investor Cadim Fonds, and Charles Persello, who is a director of ICAMAP.
“We are excited by the development pipeline and the potential for the brand in Europe,” said Scott Christie, interim CEO. “With strong supportive shareholders behind us, the significant investments we have made in the business will ensure we have the resources to continue to expand and enhance the business and deliver the board’s ambitious strategy for targeted growth.”
A weaker performance from franchised hotels was put down to softer demand in the UK regions, and a mixed European performance. The group says it has taken steps to drive more direct bookings, including a better customer booking experience.
Development will now look towards mainland European cities, starting with France and Spain.
“The success of our flagship hotel in Barcelona provides us with confidence in a strategy of expanding the easyHotel owned hotel network through investment in centrally located, high quality hotels in major European cities.”
In the UK, the group plans to focus its own development activities only in primary cities, with franchising for wider sites.
The group is also looking to grow a loyalty following, and until the end of March 2020 is offering new signups a 25% booking discount. Thereafter, members of Clubbedzzz will enjoy a 10% discount, plus free wifi during their stays.
HA Perspective [by Chris Bown]: Like a whirling spendthrift dervish, Guy Parsons set the becalmed easyHotel on a speeding course. Now, the new guard are going to be a little more finessed, in how they develop the brand.
A more disciplined approach is being taken to developing owned sites, with the hope that franchisees will be prepared to jump in and add hotels in second and third tier locations. Fair enough, as the direct developments have burned through GBP88m raised from shareholders in 2016 and 2018 equity raisings.
At the same time, selling an easyHotel franchise ought to be easier than a decade ago. The brand has visibility internationally, the model has been honed and is proving it works, and head office is working hard to sharpen its direct sales, both via a better online experience, and aggressive marketing of a loyalty programme.
The interest for observers, is in how well, and for how long, the company’s owners can rub along. While still listed – at the insistence of minority shareholder Sir Stelios – the company is 69% owned by the investors behind Citrus, which bid to take it private. The pair – and will doubtless now struggle over who should pony up the cash for future developments.
The group remains listed on London’s junior AIM market, at the insistence of 28% shareholder Stelios. But, with ICAMAP holding over 68% of the stock, the shares are not exactly actively traded, or widely held. This uncomfortable setup means that share issues, used in the past to help fund growth, will not be so easy, unless these two major parties agree. They have already clashed over ownership status, and over the value of the company and its brand.
The GBP3m loss as costs got out of control building the Ipswich hotel is another development misstep, comparable with the previous attempt to add rooms at Old Street, when the local authority subsequently refused consent after the work had been completed.
The focus on seeking a presence in major markets makes sense. While Parsons presided over a period of faster growth, it was at the cost of signing some pretty randomly located sites. The group will save its euros for key cities, hoping to persuade plucky franchisees to try their luck in secondary and tertiary locations.
Additional comment [by Andrew Sangster]: There is a big contrast between the mild hiccup at easyHotel and the meltdown that appears to be happening with OYO, the upstart that hails from India.
OYO has announced job cuts and is running a barrage of negative press comment. About a third of its people in the US are going and 2,000 have been laid off in its domestic market of India. Staff in the UK are understood to be in a consultation period.
The Financial Times this week said it has spoken to more than 15 independent hotel operators and each one had either made a complaint or ended their contract. The problems ranged from overdue or reduced payments to excessively discounting rates to meet sales targets.
The comparison with easyHotel, which is pitched at a similar market level to OYO, flatters easyHotel. If anything, it could be argued that Guy Parsons was not being radical enough – he should have signed more and spent more on marketing.
The billionaire behind easyHotel, Sir Stelios Haji-Ioannou, is obviously not willing to take the same approach as the billionaire backer of OYO, Masayoshi Son of Softbank.