Premier Inn’s owner Whitbread said on Wednesday that a shrinking supply of budget hotels in the UK will strengthen its pricing power for years to come.

Premier Inn, with 84,000 rooms, is the budget hotel leader in the UK. It said in a financial update that Britain’s independent budget hotel sector shrunk 10% between 2019 and 2022. A majority of these won’t reopen as hotels, executives forecasted.

“We now think that the number of U.K. hotel rooms won’t return to pre-pandemic levels for at least 5 years,” said Dominic Paul, director and CEO. “This presents us with a fantastic opportunity for growth.”

Paul cited a challenging financing environment for new deals and inflationary costs, arguing that Premier Inn’s size enables it to get more favorable terms for debt and volume buying on supplies.

Premier Inn Presses Its Advantage

Between March and August, revenue per available room for Premier Inn UK was about $86 (£71). It said that average revenue per available room was £6.73 more than rival hoteliers were charging for comparable rooms.

Driving more guests to book directly was one tactic, something Premier Inn claims it does better than most other branded hotel chains.

“Approximately 86% of all bookings made in the first half were by guests that have stayed with us before,” Paul said.

In comparison, major hotel groups like Marriott have struggled to keep direct bookings over roughly half of all bookings, and independent hotels, especially in Europe, get a majority of their bookings through online travel agencies and other intermediaries charging them high commissions.

Executives believe they have room for sustained price increases to at least keep pace with inflation — and probably outpace inflation — for some time to come.

“In real terms, our average room rates are still behind where they were in 2009,” Paul said. “And the gap between our room rates and those charged by the upscale and luxury segment has increased versus fiscal year 2020.”

The company partly credits its investment in brand marketing, which it began doing on a more frequent and consistent cadence across online and offline channels. It said that YouGov’s BrandIndex found Premier Inn outranked all hotel and leisure brands in the UK across the past year.

Profit Rise

Parent company Whitbread runs hundreds of pubs and restaurants in the UK and several dozen hotels in Germany. It didn’t break out results for its hotels division.

In the half-year through August 31, the parent company’s UK business saw its total revenue grow 17% year-over-year to about $1.8 billion (£1.48 billion). Its adjusted profit before tax grew 28% year-over-year to about $484 million (£407 million).