Travelodge chief executive Guy Parsons believes the Olympics provides the perfect opportunity to advertise the UK to the rest of the world. He tells James Stagg why VAT must be cut if hospitality is to be competitive and realise the potential for economic growth
What have been the effects of the rise in VAT? The British consumer has been facing rises in fuel, food and clothing costs. The rise in VAT went on top of that. Given that staying away from home in a hotel is something that a lot of the population don't do, I think for many people it made that decision even harder to take.
Until the Royal Wedding demand was quite weak, but after that trading improved. Our trading for the summer was good with total sales up 15%. I think the consumer decided they would stay in hotels when they went away.
So the staycation was up this year? It was, but without doubt we're still not on a level playing field with the rest of Europe. Our VAT rate is higher than France, Germany and Ireland. One of the things we know is that consumers are looking for a good deal - not just from hospitality but across everything. If the tourism industry in the UK remains uncompetitive, people will look elsewhere.
Yet you still offer very competitive rates. How hard is that to do given the economic limitations? We've managed to offer low rates by re-engineering many of the processes in the business.
However, all the evidence suggests that reducing the rate to 5% would create 200,000 new jobs. If the economy is going to grow out of recession - and if we can't rely on exporting to our near neighbours because their economy is in an equally perilous state - we must create growth in the UK.
The hospitality sector is one of the largest sectors in the UK and it has the potential to grow the economy by £150m a year.
Why should hospitality be made a special case? Because there is evidence across Europe that shows that cutting VAT creates jobs and will grow business and encourage more people to use hotels and restaurants. There's direct evidence for levelling the playing field across Europe.
Why do you think it should be 5%? 5% as a rate is something that would make us as competitive as other countries. France, for example has reduced VAT in restaurants to 5.5%. It's a rate that is recognised and all the work has shown that that particular rate will have the maximum benefit.
So you think it really will affect consumer behaviour? Although 65% of the UK population stay away from home in the UK, only 38% stay in a hotel. When asked why, they say they can't find a hotel where they want one, the quality isn't as they'd like and most importantly it's too expensive.
If you think about the number of people that use budget airlines, staying in a hotel in a UK is still a minority. That has to be an opportunity for us.
Isn't your pricing structure changing the market though? To some extent we are. Pre-recession people were staying with us for the first time. When the recession started, those people dropped out very quickly.
We've started to see them come back but the effect of the recession has convinced them to brand-switch. So we are stealing share from other branded hotels and particularly the independent sector.
I don't think we're particularly growing the market.
Has VAT had a direct impact on Travelodge? I think it has but it's one of a number of things that took place at the beginning of the year that make life difficult for the British consumer. If you're trying to decide where to cut back, staying in a hotel can be one of those things.
What has trading been like so far this year? Summer trading growth has been 15%. London has grown more quickly than the provinces. We've had 14% growth in the provinces but 19% in London and our brand occupancy for the summer period. Provincial Britain is still growing but not as quickly as London.
If we can persuade the Government to reduce VAT in time for the Olympics it would be an opportunity for us to really create a legacy and encourage people to come into London and go on to visit the rest of the UK.
With the Olympics in mind Travelodge has set its rates for next year and they're largely the normal pricing structure. Are you wary of putting people off? Our pricing model is always to offer great value and we're not going to charge unrealistic rates for the Olympics. London remains a top tourist destination. The arms fair has just opened in ExCel and in Covent Garden last night we were selling rooms for £250. The maximum rates that we're charging for the Olympics will be at that level.
What has the response been so far for rooms over the Olympic period? It's slow but steady. I think possibly the reason for that is that not enough Brits have enough tickets yet. More people I know don't have tickets than have them.
Do you think the Olympics will affect business outside London or be mainly restricted to the capital? There will be an impact outside London because a number of events are taking place outside London. I think there will be interest in the torch relay, too. Having said all of that, the really big opportunity is trying to persuade people to visit the rest of the UK when they come over.
One of the things about other Olympic cities is that they haven't necessarily managed to get tourists to visit beyond the Olympic destination. That's got to be our goal. If we don't do that, we've missed the opportunity?
How can we do that? We have to make sure that Britain is competitively priced. Having a reduction in VAT, bringing down the prices and making sure people are aware of that when they start to book.
If the perception outside the UK prevails that Britain is an expensive place to visit, then that's not good for us.
GUY PARSONS ON APPRENTICES
Guys Parsons says he has been "blown away" by the quality of applicants for Travelodge's new Junior Management Programme (JuMP), designed to offer A-level students an alternative to going to university.
"We had 1,000 applicants, all of which were good," he says. "We have people with easily good enough grades for university - A-grade A levels. They've decided not to go to university and are worried about the levels of debt so want a job. We're able to offer them a two-year scheme at the end of which they will be running their own hotel and they'll have earned £30,000 over two years in the process."
Parsons believes that the rising cost of University education means their will be plenty of quality candidates to choose from in the coming years, and is urging other hospitality businesses to look at similar schemes.
"A number of people have graduate schemes, and we have those as well, but I think 18-year-olds are going to be taking different decisions," he adds.
"The target that I've set is that by 2014 I'd like 45% of our managers to have come through the scheme. We're currently opening a hotel every 8 to 10 days so we will need that pipeline. It fits our growth model to get people in."
Travelodge asks that applicants have a certain number of UCAS points, before giving them an aptitude test to find out whether they are the type of people that would fit the business, before the formal interview stage.
"The interesting thing is that we thought this year people were actively deciding not to go to university, rather than not getting the grades. For the brightest they're capable of being a multi site manager in their mid-20s."