Premier Inn is one of the first brands to speak openly about the impact of inflation on its bottom line. Expect to hear other hotel brands soon recognize the cost pressures as well.
Premier Inn owner Whitbread On Thursday warned that global inflation would reach between 8 and 9%, at least a percentage point higher than expected six months ago. Still, company executives did not expect inflationary pressures to derail profitability for the budget hotel brand, which rebounded in the first quarter as pandemic-related disruptions eased.
“Well-publicized industry cost inflation is expected to be significantly above historical levels,” CEO Alison Brittain said. “However, we are well positioned to offset the majority of the cost inflationary pressure we are currently experiencing in the market through our longstanding efficiency program, growing portfolio and higher price points. “
Inflation is fueled by aftershocks from the Russian invasion of Ukraine, primarily affecting energy and food costs due to threats and supply disruptions. Inflation currently adds £15 million in annualized costs ($18.7 million).
In the financial year ended March 3, Whitbread posted its first profit since the pandemic began. It generated a pre-tax profit of around $72.3m (£58.2m), compared with a loss of $1.24bn (£1.007bn) a year earlier. The company is yet to surpass pre-pandemic annualized profit.
As a measure to deal with inflation, the company accelerated and expanded a planned cost reduction program. The four-year program will save around $170m (£140m), with around $50m (£40m) already saved in the last financial year, the company said.
Whitbread executives said its Premier Inn brand would resist inflationary pressures better than rivals for several reasons. They expect independent hotels to be more willing to franchise with them as they seek shelter from unfavorable market conditions for independents.
Premier Inn’s scale allows for more efficient operations than independents, such as its ability to use its size to haggle volume deals for supplies. His marketing acumen helps give his brand more pricing power than its less well-marketed rivals, executives said.
The brand is renovating many properties and adding 1,000 plush rooms. These tactics can allow him to increase his rates above the average in many scenarios.
Whitbread remains optimistic about 2022 results. Executives pointed to Premier Inn website visits for April-August stays ahead of levels in the year before the pandemic began for destinations business and leisure.
“Higher pricing levels both in the market and for Premier Inn will help offset inflationary pressures,” Brittain said.