Whitbread rocked by rude awakening at Premier Inn

Simon English
16 Jun 2009

Sales have slumped at Premier Inn in the midst of the worst trading conditions in the hotel sector for 30 years.

Premier Inn, owned by Whitbread, has been one of the winners from the recession as travelling salesmen and stay-cationers took advantage of its cheap rooms.

But like-for-like sales in the 13 weeks to the end of May fell 7.9%, suggesting that the budget hotel boom is over.

Whitbread has reacted to the slump by slashing prices. It now has 100,000 rooms across Britain available for £29, in an attempt to expand its share of the leisure market.

Chief executive Alan Parker insists Premier is still well ahead of the competition.

"We are trading well in a tough market. Overall I am quite optimistic. I think this is our time. Clearly it is going to be quite choppy while we go through the present economic situation."

Parker predicts that the economy will improve by the end of the year. "It is tough, but we are bumping along the bottom," he said.

A report just out from PricewaterhouseCoopers shows room rates are plummeting across the hotel industry.

PwC says that some hotel groups will go bust as corporate hospitality budgets are cut. Robert Milburn at PwC said: "The climate is worse than in the period after 9/11. Our forecast is that there is worse to come."

Revenues per room fell by 9.6% at Premier, which shows that customers are spending less on extras such as room service.

Whitbread recently fell out of the FTSE following a decline in its shares.

Today the stock moved down 9p to 8411⁄2p, off from a peak of more than 1900p two years ago.

Away from hotels, the rest of the business is still growing.

The pub restaurants arm, which includes Beefeater, is up 2%, benefiting from a spruce-up of the properties.

And the coffee arm Costa is still expanding rapidly. Total sales at Costa are up 18.5% with like-for-likes up 2.6%.

Whitbread opened 49 Costa stores in the last quarter, with Parker insisting that saturation point has not been reached.

Mark Brumby at Blue Oar Securities said: "Whitbread is relatively well placed to deliver but Premier Inn is coming under real pressure. But Whitbread remains a quality player with a balance sheet and asset base to die for. We are retaining our buy recommendation."

Deutsche Bank also says the shares are a buy. Analyst Geof Collyer said: "We will not get carried away, but the trend seems to be pointing to better-than-expected numbers than in our forecasts."

Rumours resurfaced in recent weeks that Travelodge, owned by Dubai Investment Capital, is up for sale again. Whitbread refused to buy the business 15 months ago for £900 million and the company is seen as being worth nothing like that much now.

The tough trading conditions for budget inns mean DIC would be lucky to get half of the £625 million it paid for the chain in 2006. Whitbread declined to comment on whether it was interested in bidding again.