As Brexit looms, budget brands reach beyond borders for growth

The UK is preparing for its third national poll in the space of two years, with the country’s exit from Europe leading the debate. 

While the country turns inward, for budget hotel brands that have focused on the domestic market, maintaining and growing business increasingly means targeting international travellers and, in the case of one brand, EasyHotel, where rates are as low as £19 per night, signing a franchise agreement in Nepal.

Whitbread's Premier Inn brand is the largest in the UK with more than 59,000 rooms open and plans to reach 85,000 by 2020. In the past two years it has opened 65 hotels, compared to 48 for Travelodge, Holiday Inn Express and Ibis combined. 

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The company has shifted its ambitions in India and South East Asia to focus international growth in the Middle East and Germany. At its earnings call last week, Whitbread announced that it had a committed pipeline of five hotels well as a large number under negotiation in target cities, with plans to spend £60 million to £100 million per annum to accelerate growth both organically and through acquisition. 

Looking at the domestic market, Alison Brittain, Whitbread’s CEO, said: “Inbound tourism looks like it's on the rise as people are looking to enjoy London—that largely starts with four- and five-star hotels filling up and lags down into the midscale sector.

“We have a small proportion of international travellers and we will be doing things to encourage more of that by upgrading our websites and looking how we reach those customers more appropriately on a direct basis outside of our business, because, of course, we would like to improve in that area.”

Britain Boost

The comments were made as VisitBritain showed that there were 5.2 million overseas visits for the first two months of the year, up 6 percent on 2016, with a record spend of £2.7 million, up 11 percent on the previous year.

“Britain is offering great value for overseas visitors and we can see the success of our promotions in international markets," said Patricia Yates, director of VisitBritain. "We must continue to build on our message of welcome and value in our high-spending markets such as China, the U.S. and the valuable European market.”

While the value of sterling remains low, the domestic market is expected to holiday within the British isles, with Whitbread looking to a possible rise in so-called "staycations." Both consumers and businesses are, however, under pressure from rising costs. 

At the end of April, the Office for National Statistics reported that the UK economy grew by just 0.3 percent in the first quarter, due mainly to the service sector, which sank to 0.3-percent growth against 0.8 percent at the end of 2016. 

Premier Inn rival Travelodge reported a 2016 total revenue of £597.8 million, a 6.8-percent increase on the year, and while CEO Peter Gowers was confident of opening an average of 20 hotels each year over the next three years, he added, “Clearly, the macroeconomic picture remains uncertain and there are increased cost pressures from the national living wage, business rates and other regulated cost increases.” 

EasyHotel has joined those looking over the borders, signing a master development partnership with IGC Group to develop hotels in Nepal. The agreement, for 300 rooms to be opened within the next three years, with the first hotel in Kathmandu, would, EasyHotel CEO Guy Parsons said, give the group “the opportunity to extend our network into this attractive market without direct capital investment.”

In the budget sector, budgeting under Brexit is ever-more pressured.

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.

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