Premier Inn owner warns of price rises

·3 min read
A signage of the Premier Inn Hotel is seen outside the Durham North branch after the chain announced job cuts nationwide, in County Durham, Britain September 22, 2020. REUTERS/Lee Smith
A signage of the Premier Inn Hotel is seen outside the Durham North branch. Photo: Reuters

Premier Inn owner Whitbread (WTB.L) warned that inflation could hit 8% in 2022, forcing it to raise prices as the pandemic continues to take a toll on the hospitality industry.

“Our latest view of the expected sector inflation rate in financial year 2023 is of an average rate of circa 7% to 8% that could impact approximately £1.4bn ($2bn) of our cost base,” it said.

This could be "above historic average levels,” it said, adding that “the group expects to be able to largely offset these higher levels of inflation through cost efficiencies, estate growth and higher price”.

CEO Alison Brittain said Whitbread is in a strong position to offset inflationary headwinds and return to pre COVID-19 margins due to factors such as the competitive advantages of having a large network of hotels and broad customer reach.

Matt Britzman, equity analyst at Hargreaves Lansdown, said “inflation across the wider sector is expected to pick up into 2022, which will provide a challenge for many businesses and Whitbread won’t be immune.”

“The company is hoping to be able to offset the majority of this with cost savings and pricing, and that’s where having a strong brand helps.”

Positive UK accommodation performance was more than offset by an overall decline in food & beverage sales, while Germany reported declines across the board as the country saw new lockdown restrictions.

In the six weeks to 6 January 2022, the presence of Omicron ''dampened demand''. UK accommodation sales were 5.1% ahead of pre-pandemic levels, with occupancy levels at 65.7%, but total sales in the UK were down 4.4% due to a decline in food and beverage sales.

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"While the impact of the Omicron COVID-19 variant has resulted in a softening of hotel bookings in recent weeks, it remains too early to assess what the impact on sales will be for the rest of this financial year,” the company said in a statement.

“It’ll come as welcome news to investors that Omicron doesn’t look to be having a major impact on demand for hotel rooms in the UK,” said Britzman, adding: “Fresh testing requirements for overseas travel is likely to have helped here, with would be travellers forced to find a break closer to home.”

The company's stock was up about 0.8% on Wednesday morning.

In Germany, lockdown restrictions are acting as a headwind, with occupancy levels reducing to 36% in the six-week period.

The company said that whilst the current German government COVID-19 restrictions are a significant drag on market demand, the opportunity for the group to create value in Germany “remains compelling.”

The company was operating cashflow positive in the period to the end of December, and retains a strong balance sheet and liquidity position, with net cash of £120.5m, which is enabling investment in its "comprehensive growth strategy."

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