Travelodge tackles debts as it bids for business turnaround

By Loulla-Mae Eleftheriou-Smith, marketingmagazine.co.uk, Wednesday, 19 September 2012 08:30AM

The budget hotel chain is restructuring.

Travelodge: restructuring

Travelodge: restructuring

From its financial restructure to its chief executive checking out, Travelodge has appeared far from turning its dreams of success into a financial reality in recent months.

The debt-laden chain is the second-biggest player in the budget hotel sector, behind Whitbread's Premier Inn, and last year posted a 20% increase in profits to £55m.

In April, however, Travelodge announced that two US hedge funds and Goldman Sachs would be taking over its ownership from Dubai International Capital. This came alongside news that chief executive Guy Parsons had been replaced by executive chairman Grant Hearn, following a £10m emergency loan in February.

The financial restructuring and new ownership means that £709m of Travelodge's debt will be written off and that the business is saved from administration.

It has also asked creditors to approve a company voluntary agreement (CVA) that will allow it to offload one in every 10 of its 500 hotels in the UK, Ireland and Spain to other operators.

There may be grounds for cautious optimism, however, as the creditors have also freed up £75m of new equity to plough into the business, with £55m of that being spent on refreshing 175 of its older hotels.

Beyond administering a long overdue lick of paint to some of its premises, however, what measures can Travelodge implement to ensure that it keeps its business competitive in the price-led hotel market, while dealing with its debt burden?

We asked Andy Peppiatt, who used to oversee British Airways' digital account while at Being and is now global brand leader at creative agency TBWA\London, which handles the Four Seasons account, and Alistair Buckle, the head of marketing at Southern Railway and Gatwick Express, and a former Travelodge, easyJet and Heathrow marketer.

TRAVELODGE STATS

Revenues increased 16% last year to £370m

Profits rose 20% to about £55m

The business is now offloading 1 in 10 of its 500 hotels

Source: Travelodge

 

ANDY PEPPIATT - Global Brand Leader, TBWA\London (works on the Four Seasons account and formerly worked on British Airways)

This isn't a case of oversupplying a declining demand. As Premier Inn has demonstrated, there are huge profits to be made in this market.

Unfortunately for Travelodge, its brand has fallen behind in this race, having been too quick to offset comfort in pursuit of value. Many of its guests have to endure rather than enjoy their stay - a far cry from its rival's 'Good night guarantee'.

The basics can't be neglected. A quick glance at review sites brings up adjectives such as 'dirty', 'disgusting' and 'noisy' linked to the Travelodge experience, with warnings to 'avoid if possible'. In the age of transparency, this spells danger for any brand.

REMEDY

- Hygiene and comfort are first on the agenda, and the planned investment for a 'sprucing up' should first concentrate on locations with most potential. Aim to enhance the entire offering and channel investment to make the brand experience into a stress-free and frictionless one.

- Then start work on rebuilding trust and belief. Monitor review sites and invite the 'never agains' to enjoy the new Travelodge experience.

ALISTAIR BUCKLE - Head of marketing, Southern Railway and Gatwick Express (ex-Travelodge, easyJet and Heathrow marketer)

If ever a brand was fit for purpose in hard times, it's Travelodge. So why is it struggling? Well, it has focused on expansion to new locations at the expense of its brand, while rival Premier Inn has expanded rapidly and invested in great marketing to differentiate itself and create a more emotional connection with its consumer.

A direct sales model can take you only so far, especially if people are searching in places the brand isn't present. Travelodge could learn from the low-cost airlines, which have altered their models to achieve consistent, rapid growth.

REMEDY

- Get back to being the first website people check for a UK hotel. Build a loyal fan base and community via social media - people who will champion the brand to their peers.

- Continue to invest in intelligent marketing that strengthens the emotional connection with customers.

- As a service business, look to the likes of Amazon, Ocado or even our beloved London 2012 Games Makers for lessons in passionate delivery and consistent embodiment of a brand promise.

This article was first published on marketingmagazine.co.uk

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