While UK consumers grapple with the rising cost of living, the one thing we’re betting they won’t want to give up this year is their summer holiday, even if it means settling for a cheap staycation.

As the UK’s largest hospitality business with over 90,000 rooms, and a rapidly expanding presence in Germany where it already has 14,000 rooms, Premier Inn owner Whitbread (WTB) is in a prime position to benefit from the desire to get away.

After an historic £1 billion loss last year, the ‘most challenging’ in its 279-year history, the firm swung back to a profit of £58 million in the year to 3 March as sales almost trebled.

That impressive recovery in revenues continued in March and April with UK accommodation sales now around 30% above pre-Covid levels thanks to occupancy rates of over 80% and a 10% hike in room rates.

Meanwhile, the ‘value’ pub and restaurant sector is still playing catch-up, but sales are improving rapidly with takings in March and April less than 5% below pre-Covid levels.

The picture in Germany is less rosy, with hotel occupancy still only just above 50% of pre-Covid levels due to lingering government restrictions, and the situation is unlikely to improve with Whitbread’s German operations set to lose money for another year.

Another thorny issue is inflation, principally higher labour costs, although there are suggestions wage increases are slowing in the UK at least.

However, reflecting the significant improvement in trading last year and Whitbread’s confidence in the coming year, the board agreed to resume the payment of dividends from July, albeit a nominal sum.

Reports from other UK leisure firms are positive, with holiday park operator Parkdean Resorts saying it expects a strong May half-term after bookings for its 66 parks ‘sky-rocketed’ by over 200% since the start of April.

We also find it significant that property investment company LXI REIT (LXI) has just announced the acquisition of rival Secure Income REIT (SIR), whose biggest source of rental income is Merlin Entertainments, the owner of four big UK visitor attractions including Alton Towers and Thorpe Park. 

Secure Income’s third biggest source of income is a portfolio of 123 UK Travelodge hotels, followed by Manchester Arena, the nation’s biggest indoor venue by capacity.

While we may not be able to rely on the weather, we still think 2022 could turn out to be a bumper summer for UK hospitality, which means now is a great time to buy shares in Whitbread as its services could be in strong demand.

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