Weak British hotel demand hurts Whitbread after Costa sale

By Sangameswaran S

(Reuters) - Premier Inn owner Whitbread Plc, which has sold off its Costa coffee chain, on Tuesday flagged lower demand for hotel rooms in Britain, hit by Brexit uncertainty and the effects of growing competition.

Whitbread, which has its origins as a brewer, has focused on its hotel business after Coca-Cola Co bought Costa for 3.9 billion pounds in a cash deal completed in early January.

Whitbread said it expects weak room revenue growth in Britain for the financial year to next February as demand dips. It is also looking to expand in Germany in particular where it opened its second Premier Inn two months ago.

The company faces increased competition from Airbnb and budget hotel groups such as OYO Hotels as a subdued economic climate and political turmoil force Britons to rein in spending on business and leisure travel.

Shares of the FTSE 100 company were 3.2 percent lower at 4,603 pence at 0900 GMT.

Whitbread noted weaker domestic hotel demand towards the end of the last financial year.

"This weakness has increased into March and April particularly in the regional business market, coinciding with an acute period of political and economic uncertainty in the UK," Whitbread said.

Political uncertainty remains with the terms of Britain's exit from the European Union still to be clarified.

"Costs are also rising across the hotel industry, which leaves Premier Inn facing an uphill battle at the moment," Hargreaves Lansdown senior analyst Laith Khalaf said.

Whitbread reported a 1.2 percent rise in annual underlying pretax profit to 438 million pounds ($567 million), missing Barclays analysts' forecast by 1.5 percent.

In Britain, where it has over 76,000 rooms currently, room revenue dipped 1.7 percent with occupancy falling 140 basis points to 78 percent.

Whitbread has been looking to expand into other geographies to offset the lack of growth. It also has been reining in costs as it expands in Germany where it plans to grow Premier Inn to 38 hotels via acquisitions and openings of new properties.

"Shorn of Costa, there's less of a caffeine buzz about Whitbread, but the German venture promises to add a fair share of growth potential to the mix," Khalaf said.

(This story fixes wording in headline.)

(Reporting by Sangameswaran S and writing by Noor Zainab Hussain in Bengaluru; Editing by Shounak Dasgupta/Keith Weir)