Strong recovery in 2021 and Travelodge is well positioned to benefit in the expected recovery

Headlines (quarter ended 31 December 2021, comparison vs 2019)

• Total underlying revenue up 1.8% to £185.1m – trending ahead of pre-Covid levels (2019: £181.8m, 2020: £53.5m)

• RevPAR([1]) up 5.9% to £43.24 (2019: £40.82, 2020: £12.78)

• RevPAR performance 10.3pts ahead of the competitive segment([2]) vs 2019 

• Occupancy(1) down 4.5pts to 76.3% (2019: 80.8%, 2020: 38.1%)

• Average room rate(1) up 12.3% at £56.71 (2019: £50.52, 2020: £33.51) 

• EBITDA (adjusted)([3]) profit of £37.4m (2019: profit of £26.9m, 2020: loss of £25.8m)

Headlines (year ended 31 December 2021, comparison vs 2019)

• Total underlying revenue down 23.1% to £559.8m (2019: £727.9m, 2020: £284.4m)

• RevPAR(1) down 21.5% to £33.05 (2019: £42.09, 2020: £16.61)

• RevPAR performance 10.8pts ahead of the competitive segment(2) vs 2019

• Occupancy(1) down 18.0pts to 62.6% (2019: 80.6%, 2020: 40.8%)

• Average room rate(1) up 1.1% at £52.77 (2019: £52.20, 2020: £40.70) 

• EBITDA (adjusted)(3) profit of £81.1m (2019: profit of £129.1m, 2020: loss of £74.0m)

• Cash of £142.8m at 31 December 2021 

• 17 new hotels opened in the year

• Total network now 592 hotels and 44,984 rooms as at 31 December 2021

2022 Highlights to date 

• Improvement in current trading following the lifting of the work from home guidance on 26 January, with strong leisure trading expected to continue, driven by staycation demand

• The MSE segment continues to recover ahead of the UK market, and is now ahead of 2019 levels

• Investment to evolve core brand – new premium look and feel budget-luxe design introduced with next generation Travelodge rooms. This year, 60 Travelodge hotels are being upgraded to the new budget-luxe design.

[1] Revenue per available room, Average room rate and Occupancy on a UK like-for-like basis for the management accounting period 30 Sep 2021 to 29 Dec 2021 and 3 Oct 2019 to 25 Dec 2019 for the quarter. Revenue per available room, Average room rate and Occupancy on a UK like-for-like basis for the management accounting period 31 Dec 2020 to 29 Dec 21 and 3 Jan 2019 to 25 Dec 2019 for the year.
[2] Our competitive segment is the Midscale and Economy Sector of the UK hotel market as reported by Smith Travel Research (STR), an independent hotel research provider, providing aggregate benchmarking information on the UK and other hotel market performance
[3] EBITDA (adjusted) = Earnings before interest, tax, depreciation and amortisation, and before rent adjustment and non-underlying items, and in line with historic accounting principles (before IFRS 16). This measure reflects the cash benefit of rent reductions following the CVA which completed on 17 June 2020. Non-underlying items have been removed as they relate to non-recurring, one-off items.

Martin Robinson, Travelodge Chairman commented:

“Travelodge reinforced its position as a resilient business with a powerful brand throughout a challenging 2021. I would like to thank all of our colleagues, it was the whole team’s hard work, dedication and flexibility that got us through the year. The business continued to out-perform the market for the seventh year in a row and enjoyed a record-breaking summer and in line with our growth plans, we opened a further 17 new hotels.”

“Trading so far in 2022 has been extremely encouraging, despite a slow start amidst the Omicron restrictions in January, and we are excited to launch our new budget-luxe hotel design, which offers a more premium look and feel whilst maintaining our great value price proposition. This is our most radical brand transformation to date and has been created in response to Britain becoming a nation of budget travellers, with more of us choosing to stay in budget hotels.”

“The budget hotel segment, whilst not immune from the broader economic uncertainty, has proven resilient and continues to recover ahead of the rest of the UK hotel market; and we believe that the opportunities to grow our business have never been more exciting. With our large, diversified network of hotels, strong brand, value proposition, and focus on domestic budget travel, we are well positioned to benefit in the anticipated recovery.”

Performance Overview

2021 was significantly impacted by Covid-19 with restrictions in place for most of the first half of the year. We started the year with around 300 hotels open for essential business travel, with a gradual re-opening of the estate in line with demand over the following months, before restrictions on leisure travel were partially lifted on 17 May 2021. Since then and following the lifting of all Covid-19 restrictions on 19 July we saw increasing demand, with high leisure demand in the summer period and strong recovery in “blue collar” demand offsetting the slower recover in “white collar” demand, until Omicron started to impact performance at the end of December.

The UK budget hotel market remains resilient, with revenue as a percentage of 2019 levels ahead of the total UK hotel market, driven by these strong levels of domestic leisure demand and a strong recovery in ‘blue collar’ business demand.

Overall UK like-for-like RevPAR for the fourth quarter was up 5.9% on 2019 levels, approximately 10.3pts ahead of the Smith Travel Research (STR) MSE benchmark competitive segment.

UK like-for-like RevPAR for the year ended 31 December was down 21.5% on 2019 levels, impacted by the restrictions in the first half, with the second half up 9.3%. Travelodge continued to outperform during the whole year, with like-for-like RevPAR approximately 10.8pts ahead of the STR MSE benchmark competitive segment.

Total underlying revenues for the fourth quarter were up 1.8% on 2019 levels driven mainly by extended leisure demand, particularly over the October half-term, offsetting the slower recovery in “white collar” demand and the impact of Omicron and the introduction of work from home measures from mid-December. Total underlying revenues for the year ended 31 December were down 23.1% on 2019 levels.

Costs remained well controlled and whilst Travelodge is not immune to the supply chain pressures affecting the wider hospitality industry, these were well managed, supported by our in-sourced housekeeping model and strong supplier relationships. We also benefited from the temporary reductions in rent under the terms of the CVA and from the government support available (mainly in the first half).

EBITDA (adjusted) for the fourth quarter was a profit of £37.4m (2019: profit of £26.9m, 2020: loss of £25.8m) and EBITDA (adjusted) for the year ended 31 December was a profit of £81.1m (2019: profit of £129.1m, 2020: loss of £74.0m).

We ended the year with cash of £142.8m (2020: £136.2m).

Recent Trading

The first weeks of 2022 were impacted by the Omicron variant including the related work from home guidance, particularly during mid-week and in Central London, with revenues in January overall down around 10% on 2019 levels.  

Following the lifting of the work from home guidance on 26 January, demand improved and by early February accommodation revenue was almost immediately ahead of 2019 levels, supported by strong leisure trading, particularly over the half-term weeks, and the continued recovery in “blue collar” demand. We also continued to benefit from the reduced 12.5% VAT rate, which is in place until 1 April 2022. Revenue for the period from 1 January to 23 March 2022 was up approximately 3% on 2019 levels, with trading approximately 14% ahead of 2019 levels in the weeks following the lifting of the work from home guidance.  

The MSE segment continues to recover ahead of the UK market, trading ahead of 2019 levels in recent weeks, with recovery vs 2019 levels around 20% points higher than the total hotel market, driven mainly by domestic leisure demand. There are also early indications that rate increases are being realised, in response to the current inflationary environment, although it’s still early days.

We have continued to outperform the STR MSE benchmark segment with UK like-for-like RevPAR approximately 7pts([1]) ahead of the competitive segment in the first 11 weeks of 2022, with London and the Regions both outperforming. 

The cash position remains strong. 

[4] 30 Dec 2021 to 17 Mar 2022

Travelodge is evolving and launching a new budget-luxe hotel design

We took the opportunity in 2021 to conduct a strategic review of the business and as a result of this work we are evolving our core brand product to a new budget-luxe premium look and feel design – whilst maintaining our great value price proposition.

This new design has been created on the success of our budget chic hotel format, TravelodgePLUS and with feedback from the company’s largest consumer study – which surveyed around 5,000 UK business and leisure travellers to find the psychographics of the modern budget traveller. Key findings revealed that modern travellers crave style, choice and little homely touches to make it easier to work, rest and relax both inside and outside of the room.

In response to this consumer insight, we have remodelled our core product with a new budget-luxe design that includes all the key essentials you would expect from Travelodge but with the added benefit of thoughtful, stylish design and homely touches throughout its interiors.
The Travelodge budget-luxe design includes a number of sustainable initiatives. This includes the new carpet being made from recycled fishing nets which are part of a project supporting clean ocean initiatives, tackling over 640k tonnes of discarded fishing nets currently impacting marine life. The carpet backing is also made of old plastic bottles. Every ten of these bottles which are recycled rather than being sent to landfill saves enough energy to power a laptop for 25 hours. The other features include low energy lighting, motion sensing controls and aerated showers and taps.

We intend to roll out the new budget-luxe design across our UK estate and have kick-started this programme with a multi-million pound investment to upgrade 60 hotels in 2022 in popular business and staycation destinations across the UK.

2022 Outlook

Forecasting remains a challenge and we expect the pace of the recovery will depend on several factors including the continued effectiveness of the vaccines, consumer and business behaviour and more broadly the general economic and political environment.

The MSE segment continues to recover fastest, benefiting from its domestic focus, business/leisure mix and value proposition, and this trend is expected to continue through 2022. We expect 2022 to benefit from sustained ‘blue-collar’ business demand, and strong leisure demand, offsetting a more gradual recovery in ‘white collar’ corporate demand. We do however face a number of cost headwinds, including the significant inflationary pressures facing the wider UK economy.
The Government has announced a 6.6% increase in the National Living Wage from 1 April 2022 and a 1.25% increase in employer National Insurance Contributions.

Operating costs, including rent, will also be impacted by general inflationary increases, as well as energy prices (although the majority of our forecast 2022 energy volumes are hedged) and some specific supplier price increases.

The situation in Ukraine may increase the impact of these cost pressures in the short-term and will depend on the duration of the crisis. The overwhelming majority of Travelodge’s customers are domestic, so the business has little exposure in terms of demand.

We expect to open six new UK leased hotels and one Irish franchise in 2022, with two opened so far. This is lower than our long run averages, as new deals were impacted by the pandemic, and we expect to return to more normal levels thereafter.

Whilst the macro-economic environment remains uncertain, the budget hotel segment has proven resilience and continues to recover ahead of the rest of the UK hotel market. With our large diversified network of hotels, strong brand, direct distribution model, value proposition, customer mix and domestic travel focus, Travelodge is well positioned to benefit from any recovery as demand builds and we are confident in the long-term prospects for budget hotels.