The wave of independent hotel closures since the pandemic has tipped the scales of supply and demand in favour of Premier Inn with its owner reporting double-digit percentage increases in sales and profits for the first half of the year.
Whitbread, which also owns food brands such as the Beefeater chain of restaurants, said there are fewer hotel rooms on the market to meet demand which remains high despite the cost-of-living crisis. Premier Inn increased its share of its key UK market to almost 9% in the first half, while also reporting further progress in Germany where its presence has grown to 57 hotels.
The management team believe it will be at least five years before UK supply returns to pre-pandemic levels, leaving Premier Inn to reap the rewards with its relatively cheap hotel rooms.
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"Given the structural shift in hotel supply and by continuing to invest in our assets, our brand and our teams, we remain confident that we can both extend our market-leading position in the UK and replicate that success in Germany," chief executive Dominic Paul said.
Whitbread reported a 14% increase in accommodation sales with demand particularly strong in London, accompanied by a 10% rise in food and beverage sales led by restaurants integrated within a hotel. Group sales were up 17% at £1.57 billion in the first half, with pre-tax profits 29% higher at £395 million.
In a further sign of confidence, the group has raised its proposed interim dividend by 40% to 34.1p per share and is launching a £300m share buyback programme.
"While this buyback programme is a strong indicator of Whitbread’s success and future aspirations, share buybacks seem to be in vogue now within big hospitality chains, with Accor already having one in place and InterContinental Hotel Group expected to announce one on Friday, marking a new era for hospitality,” noted Neil Shah, director of research at Edison Group.
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Mamta Valechha, equity research analyst at Quilter Cheviot, said Whitbread looks well-placed to take advantage of the ongoing contraction of independent hotels in the UK.
“Encouragingly, Premier Inn UK sustained it outperformance against the broader midscale and economy sector, reflecting the group’s scale and strong brand, allowing it to weather the cost-of-living crisis better than others," she added.
Revenue per available room for Premier Inn UK – an important measure for hotels of sales performance – was £71.02, up from £62.39 per room last year. This was a £7 premium to the wider market.
Although down slightly on the same period a year earlier, the occupancy rate of 84.4% remained high.
Whitbread said it is seeking opportunities to grow its pipeline towards its long-term potential of 125,000 hotel rooms in the UK and Ireland. It currently has around 91,000 rooms open.
The group, which has more than 800 Premier Inn hotels in the UK, added that it has improved its pricing strategy to reduce the number of rooms sold at £80 or less.
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In Germany Premier Inn is continuing its expansion into that country's highly fragmented market, where it aims to become the biggest hotel chain. Losses at the German operation narrowed to £14m in the first half as revenue climbed 81% to £95m, with management expecting to hit break-even next year.
Most recent trading remained strong in the UK, with total accommodation sales up 13% for the last six weeks and booked volumes stable year-on-year. Whitbread said it has also been able to pass on price increases without dampening demand.
"The group is in excellent shape, trading well and has significant growth potential, both in the UK and Germany," Mr Paul added.
"Based on our strong performance to date and an encouraging forward booked position, we remain optimistic about the full year outlook and look forward with confidence as reflected by our increased interim dividend and further planned share buy-back."
Shares in Whitbread closed yesterday's trading 43p higher at 3,366, and increase of nearly 1.3%.
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