Premier Inn owner hit by falling demand for UK budget hotels

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Premier Inn owner Whitbread was hit by lower demand for its budget hotel rooms over the summer, with fresh industry data suggesting that travellers are trading up to more expensive options as cost of living pressures ease.

The FTSE 100 group reported a 13 per cent decline in adjusted pre-tax profit to £340mn for the six months to August 29, which it blamed on “a slightly softer UK demand environment”.

Although revenue remained unchanged at £1.6bn given growth from new rooms, like-for-like accommodation sales in the UK dropped 2 per cent.

In its London hotels, occupancy fell from 84 per cent in the same period in 2023 to 81.5 per cent, while the revenue per available room was down 4 per cent, a bigger drop than the overall 2 per cent decline for the UK.

“Last year was a little bit of a catch-up year, and this year, we’ve seen the patterns go back more to pre-pandemic [times], which actually [is] normalisation,” chief executive Dominic Paul told the Financial Times, adding that there was a larger dip in business travel over the summer than the previous year.

Industry data suggests that consumers are opting for more expensive hotel stays as inflation and the cost of living pressures moderate — to the detriment of budget chains.

Accountancy firm RSM UK said this week that while the occupancy of luxury and mid-market UK hotels increased in August, that of less expensive rivals declined from 83 per cent in 2023 to 80 per cent. In London, budget hotels experienced an even bigger drop of 7 percentage points to 79 per cent.

“Last year, we saw more people opting for budget hotels in order to cut costs, leading the middle market to feel the biggest squeeze, but there are clear signs that trend has now reversed,” said Chris Tate, head of hotels and accommodation at RSM UK. Meanwhile, UK inflation fell to 1.7 per cent in September.

Premier Inn is the largest budget brand in the UK, with 855 hotels, but Paul shrugged off the concern for the low-cost accommodation sector. “Even if customers are feeling like they have a bit more money in their pocket, we are a great option, because customers know they’re going to get a good experience,” he said, adding that the group’s Premier Plus offer, which gives added perks in rooms, is for “customers who want to trade up”.

“Overall outlook [for the segment] is very positive . . . we see this as a once-in-a-decade opportunity for our business,” he added, arguing that many independent hotels left the UK market following the pandemic, which means there is room for growth for Whitbread.

Whitbread said the UK was improving “after a soft start to September”.

The group, which also owns dining chains including Beefeater, plans to grow adjusted pre-tax profit by at least £300mn in the next five years by adding more rooms and closing loss-making restaurants.

The company said it would generate more than £2bn in shareholder returns by 2029 as it increased its interim dividend and announced £100mn in share buybacks.

Its shares were up 5 per cent on Wednesday morning.