Proof that a "Leave" Brexit vote will trigger unease in UK's hospitality industry

Whitbread, Premier Inns showing angst over Thursday's Brexit vote.

Later this week the world will know if Britian will remain or depart the EU. If a "Remain" vote wins, then business should be as usual throughout the UK. If a "Leave" vote has the day, it's impact will have a rippling effect on global markets and the UK's hospitality industry.

Heretofore, talk has been speculative at best with regard to the aftermath of the vote. But now, one UK-based company has come forward to give anecdotal evidence on the impact a "Leave" vote will have on UK's hotel industry.

According to Whitbread, the UK’s largest hotel, restaurant and coffee shop operator, with brands that include Premier Inn and Costa Coffee, there is worry over the London hotel market about a Brexit, exacerbated by heightened fears over terrorism. 

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Whitbread's London hotels, which are predominantly occupied by British business and leisure travelers, posted a precipitous 6-percent drop in revenue per available room in the first quarter. Across the whole hotel chain, RevPAR slipped 0.5 percent.

The Premier Inn Southwark, London
The Premier Inn Southwark, London

As told by London's Telegraph, Whitbread CEO Alison Brittain blamed the slide on concerns about terrorism and skittishness in the run-up to the Brexit vote.

RevPAR at Premier Inns, which offers moderately priced hotels throughout the UK, turned negative in London following the November Paris terrorist attacks. Since then, companies and consumers have been more cautious about travel spend, compounded by Thursday's EU referendum.

"There has been a marked slowdown in people’s spending," Brittain, who joined the company in December, following a stint at Lloyds Banking, said. "People are being cautious about their capital plans and have been reining-back on their expenditure."

Should Britain leave the EU, Whitbread could rein in spending. "We have capital, which we would like to spend this year, but which we don’t have to, and we have a cost program, which can be turned up and down," Brittain said. "But we would like to continue to grow this business and our primary objective is to deploy our capital to meet those growth targets in the long term."

Whitbread's growth plans include an aim to have 85,000 UK Premier Inn rooms by 2020, up from 64,928 currently. There are currently around 700 Premier Inns across the UK.

"In the last downturn, in 2008-2009, the company reined back on its capital program at that stage and regretted it later and wished that they’d traded through that particular cycle. But we would be very careful about the choices that we make," Brittain continued.

Analyst Take

Meanwhile, the Telegraph also spoke to Canaccord Genuity analyst Nigel Parson, who said that "the UK's economy has slowed in the run-in to this week's Brexit vote."

Financial services company Hargreaves Lansdown remained bullish on Whitbread, in particular, its hotel offering. Here's what it said in a recent note: "Premier Inn is a great product; a clean comfortable room, in a good location at a sensible price. With over 60,000 rooms in the estate, it is the clear market leader in the UK branded budget hotel sector.

"Even though business has expanded recently, Premier Inn still has less than 10-percent market share. This should mean that there is still plenty of room to grow, and the group is planning to further increase the estates of both of these businesses in the coming years.

"With expansion fully underway, investors will be looking to ascertain if the 'softening' of the UK's hotel market is a temporary blip or if there is any sign of a more structural decline. For the time being, given the general uncertainty within the UK over recent months, we are happy to give Whitbread the benefit of the doubt."

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