Premier Inn is one of the first brands to talk openly about how inflation is impacting its bottom line. Expect to hear soon from other hotel brands acknowledging cost pressures, too.
Premier Inn’s owner Whitbread cautioned on Thursday that global inflation would reach between 8 and 9 percent, at least one percentage point higher than forecast six months ago. Yet company executives didn’t expect inflation pressures to derail the budget hotel brand’s profitability, which bounced back in the first quarter as pandemic disruptions eased.
“Well-publicized sector cost inflation is anticipated to be significantly above historical levels,” said CEO Alison Brittain. “However, we are well-positioned to offset the majority of the inflationary cost pressure that we’re currently experiencing in the market through our long-standing efficiency program, our estate growth, and higher pricing levels.”
The inflation is driven by the aftershocks of the Russian invasion of Ukraine, mainly affecting energy and food costs because of supply threats and disruptions. The inflation is currently adding an annualized ($18.7 million) £15 million in costs.
In the financial year to March 3, Whitbread reported its first profit since the pandemic began. It generated a profit before tax of about $72.3 million (£58.2 million), compared to a loss of $1.24 billion (£1.007 billion) a year earlier. The company has yet to surpass the annualized profit of before the pandemic.
Taking one step to cope with inflation, the company has sped up and expanded a planned cost-savings program. The four-year program will save about $170 million (£140 million), with about $50 million (£40 million) already saved in the last financial year, the company said.
Whitbread executives said its Premier Inn brand would withstand inflationary pressures better than its rivals for a few reasons. They expect independent hotels to be more willing to franchise with it as they seek shelter from unfavorable market conditions for independents.
Premier Inn’s scale enables more efficient operations than independents have, such as its ability to use its size to haggle for volume deals for supplies. Its marketing savvy helps give its brand more pricing power than less well-marketed competitors, executives claimed.
The brand is refurbishing many properties, and it is adding 1,000 plusher rooms. Those tactics may enable it to boost its rates higher than the average in many scenarios.
Whitbread remains optimistic about 2022 results. Executives pointed to visits to the Premier Inn website for stays April through August being ahead of levels in the year before the pandemic began for both business- and leisure-led destinations.
“The higher pricing levels both in the market and for Premier Inn are going to help offset inflationary pressures,” Brittain said.
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