The budget hotel chain boss who says that bigger is certainly better
NO wonder Guy Parsons, Travelodge’s boss, was feeling so chipper about life when we met earlier this month. He had just announced that very same day a £300m investment to build a further 35 hotels this year, which will expand his empire to 495 hotels with 35,841 rooms by next Christmas.
Also, the key part of his empire, the London hotels which he describes as “the engine” of the firm, emerged from recession in the third quarter of last year and are motoring ahead. Parsons says London accounts for “around one third of sales” and “over one third” of profits.
Despite the downturn and uncertainty, the hotel boss still thinks his firm can grow to 70,000 rooms and 1,000 hotels by 2020. Last year the chain became the biggest operator in Edinburgh with 11 hotels. The business is set to add another five to its 38 hotels in London to offer the most rooms in the capital by the middle of this year.
“During the recession we increased the size of our development team,” says Parsons, a youthful looking 46-year-old, who joined the firm in 2004 after stints at Accor, Cadbury Schweppes and Whitbread and stepped up to the top job last summer. He replaced Grant Hearn, who moved up to become executive chairman. “We thought this would be a time to seize opportunities,” says the new chief.
A relaxed Parsons is sitting in a suit and an open-necked shirt in the firm’s second-floor London base on High Holborn.
Last year the business, part of the state-owned private equity group Dubai International Capital (DIC) – it bought the firm at the height of the market in 2006 for £675m – may have opened 70 hotels. But it is true to say that the group has continued to expand throughout the recession and into the current fragile recovery.
The chain, which employs 5,500, has undoubtedly been affected by the recession. In 2009, the group posted underlying profits 20 per cent down at £45.7m.
When the downturn hit the hotel industry in 2009, Parson says: “Budget hotels were affected more than we thought they would be. During the last recession, in the early 2000s, we were not really affected. Also, the speed at which the whole of the hotel industry, from five star downwards, started to offer discounts took us by surprise.”
The firm will release its 2010 results next month, but Parsons is encouraged.
He says: “Last year was one of recovery. But we managed to outperform the rest of the hotel market in every month in 2010. London has performed strongly. In December the snow had an impact on us, in common with a lot of other businesses.”
Parsons continues: “This year has started well. Though I think the second half of the year will be stronger for us.”
The hotel boss says occupancy rates in his London business are already back to their 2008 peaks, with York, Edinburgh, Bath and Bristol also doing well. Other key cities, however, such as Manchester, Birmingham and Leeds are underperforming. Parsons still forecasts that by the middle of this year the overall group will be back to its 2008 peak occupancy levels.
High occupancy rates of around 80 per cent are a key figure for Parsons. Once a hotel consistently hits this level it allows him to push up rates at that particular venue and to look at plans to build another in a neighbouring catchment area.
The Travelodge boss adds he is under no illusions why people stay at his no frills hotels. He says: “People don’t stay with us for the experience. They use us because they want to do something else, like celebrate a family event or have a night on the town.”
Parsons adds: “When the day of the Royal wedding was announced we had a massive spike in bookings. The same thing happened when Take That released their UK tour dates last October.”
But he does rail at the notion that budget hotels attract a downmarket clientele. They are in actual fact the middle class on the lookout for a bargain, he says.
The hotel chief adds: “Around 65 per cent of our guests are on leisure trips. Their average salary is £45,000. They are used to staying in hotels. They buy wine online, they ski, and they read what we used to call the broadsheets.”
The chain operates an airline-style booking system: the further out you pay for a room, the cheaper it is. In a sale period, you can pay as little as £9, but if you turn up on the day at one of its central London hotels you would have to fork out over £100 for a clean, small functional room.
To keep his moving prices competitive, his sales teams check web prices three times a day, not just against its larger budget rival Whitbread-owned Premier Inn, but against local three and four star hotels.
The chain was started by the old Trusthouse Forte in 1985, as a roadside hotel beside a Little Chef on the A38, near Lichfield. But since 2004 the business has focused on more lucrative city centre sites, and now only 20 per cent of their portfolio can now be described as roadside businesses.
The group was taken over by Granada and then by UK buyout firm Permira, before being bought by DIC five years ago. In the normal course of events DIC would have looked to either float or sell on the firm to another trade buyer by now.
But the credit crunch has put those plans back by at least a year or two. DIC last month sealed a deal to restructure $2.5bn (£1.6bn) in debts. When does Parsons expect the business to be sold?
“I genuinely don’t know,” he says. “My focus is on driving the business forward. There is no pressing need to sell the business. There will not be a firesale. DIC has put its finances in order.”
However, Parsons adds that the hotel business generally runs on nine-year cycles from peak to trough. We are nearing the end of a trough, he adds, and will enter three to four years of strong growth. It would make sense to sell in that period, Parsons point out.
Whitbread is often mentioned as a suitor for Travelodge since the pair held aborted £900m takeover talks in 2008.
But Parsons is fairly confident the larger group will not renew its interest.
He says: “Personally, I thought the last set of talks were a complete non-starter. Lawyers on both sides soon found there would be competition issues. We would be able to set prices for a large part of the industry.”
He adds: “I think that deal has gone away. I talked to Alan Parker [Whitbread’s previous chief executive] when he was leaving the company and we came to agree that a deal would not be possible. I do not know what Andy Harrison [Whitbread’s current chief executive] thinks, but I have met him a few times and he has not mentioned it.”
So it seems that Parsons’ strategy is to keep on expanding the chain until the good times return and DIC decides the business is ready for another change of ownership. In the meantime, expect Britain’s branded budget hotel market to become even more competitive.
CV | GUY PARSONS
Work: 1990-1997: various roles, rising to director of sales, marketing and operations, Accor; 1997-2000: marketing director, Travel Inn; 2000-2003: sales and marketing director, Whitbread Hotels; 2003-2004: managing director, TGI Friday’s; 2004-onwards: various roles, rising to chief executive in 2010, Travelodge.
Education: Leeds University, read history
Family: Married with five children.
Hobbies: Swims three times a week, scuba dives, is learning the piano (currently at Grade Six), a cinema buff.