UK’s Travelodge Had a Tough 2013, Has Better Plans for 2013

The low-cost hotelier plans to put an ‘annus horribilis’ behind it after staving off administration

Budget hotel chain Travelodge is preparing to usher out the old and bring in the new in 2014 with a £10m brand relaunch.

The hotelier, which started 2013 with pre-tax losses of more than £71.1m following an “annus horribilis” in 2012, will unveil a fresh image in the spring – the latest part of its recovery plan under new owners GoldenTree Asset Management, Avenue Capital and Goldman Sachs.

The relaunch will be accompanied by a £10m TV advertising campaign, the hotelier’s first since it staved off administration by reducing rents and offloading sites through a company voluntary arrangement (CVA) with landlords in the autumn of 2012.

The CVA accompanied a rescue deal which saw the new owners seize control from Dubai International Capital (DIC) after Travelodge struggled to keep up with interest payments on its debt.

In an interview with The Sunday Telegraph, Brian Wallace, who this month celebrates his first anniversary as chairman of Travelodge, said the chain has come “back to life in a big way” since its painful restructuring, which was agreed in August 2012.

Over the past 12 months, the group has refurbished more than 16,000 of its 35,000 rooms in the UK as part of a £95m investment put up by the new owners.

Mr Wallace, a leisure industry veteran who spent 12 years at the former Hilton Group, where he was deputy chief executive and finance director, said Travelodge is once again reclaiming market share after a tough 18 months during which its chief rival, Premier Inn – owned by Whitbread –experienced enviable growth.

In the week to December 22, Travelodge was seeing revenue gains of around 15pc on a like-for-like basis, Mr Wallace said, well ahead of the wider marketplace.

“Our trading, really since the summer, has been consistently strong,” Mr Wallace said. “Wounded animals come back to life and we are back to life in a big way.”

Mr Wallace was previously finance director of Ladbrokes, the bookmaker that was part of the Hilton Group before the hotel division was sold to US cousin Hilton Hotel Corporation. He said Travelodge was a classic victim of the over-leveraged buy-out deals in vogue before the financial crisis.

Dubai’s DIC bought Travelodge for £675m in 2006 in a debt-fuelled deal. Cash generated from the business was directed at meeting interest payments on £635m of bank debt and a £482m bond, while its hotels suffered from a lack of investment.

Despite its recent problems, Mr Wallace said Travelodge remains a brand with a footprint in the UK that would be difficult to replicate by any new entrant to the market.

“It was classic – it was bought by the previous owners, they paid a lot of money at the top of the cycle, put a lot of debt into it and unfortunately all of the cash flow that came off the business all went off to service the debt,” said Mr Wallace.

“One thing we do know is if you don’t keep the product up to where it needs to be in the hotel business, it’s difficult. It’s nothing to do with the lack of desire, it’s the physical product. It didn’t get the right amount of money put in.”

Travelodge expects to have refurbished all 35,000 of its rooms by 2015. A key selling point is a Sleepeezee bed, which Travelodge claims is the same model used in luxury five-star hotel chains.

“Travelodge happened to go through an unfortunate ownership period, but the truth is it’s a great brand – everyone has heard of it,” Mr Wallace said.

“Across the whole of the UK we have got an enormous footprint which cannot be replicated. Clearly Premier Inn [had a strong footprint] but nobody is going to come into the UK and say: ‘Let’s compete with Travelodge and let’s open 500 hotels’.”

The brand relaunch will be one of the first major projects unveiled by Travelodge’s new chief executive, Peter Gowers, the former boss of Safestore, who previously spent 12 years in the leisure industry, including working for the world’s biggest hotelier, InterContinental Hotels Group (IHG).

Mr Gowers took over in November from Grant Hearn, who decided to step down after securing the group’s future through the debt refinancing.

Even through the change in ownership, Travelodge has continued to expand, albeit at a slower pace, and it will open 14 hotels this year. The hotelier, already the biggest in London, believes there is still strong demand for low-cost branded hotels in the capital’s suburbs and boroughs.

Travelodge is also popular with businesses and won a significant contract with the Government at the end of 2012, which is now its biggest corporate customer.

Mr Wallace said he felt confident that low-cost hoteliers weren’t simply austerity businesses that will struggle as corporate spending increases and family incomes improve.

He compared the low-cost hotel sector to airlines such as easyJet, which are continuing to see robust growth. “I think there has been a behavioural shift,” he said. “If I go back 10 years, if I had said to the people I worked with in the UK at that time ‘Go off on a business trip to Edinburgh’, they would have said ‘OK, I’ll stay at the Hilton’.

“If I had said ‘No, go and stay at the Travelodge or the Premier Inn’, they would have turned their noses up. They would have done it, but they wouldn’t have been keen, whereas now it’s completely acceptable, especially with the product we are offering and they service we give –it’s a very good product.”

The Travelodge chairmanship is one of three roles Mr Wallace, a former international table tennis player, has taken up since he left Ladbrokes in September 2011. After a short break, which included a trip around Antarctica in a “dinghy”, Mr Wallace also joined the board of FirstGroup, the troubled rail and bus operator recently under attack from the New York-based activist investor, Sandell Asset Management.

Last month, Sandell wrote to FirstGroup’s board calling for a break-up involving a sale of its US long-distance coach business, Greyhound, and a flotation of its American school bus and transit divisions.

Mr Wallace stressed FirstGroup’s board looked at “every possible configuration” before announcing an unpopular and deeply discounted £615m rights issue last May, but concluded the fund-raising would be the best option for the group, which is investing £1.6bn over four years to turn it around.

“For me it’s very clear: FirstGroup needs to get on with its operational plans,” said Mr Wallace. “It’s not about some clever financial footwork.”