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Newly public EasyHotel plans ownership gains

 LONDON—Hotel company EasyHotel went public in June and now plans a careful expansion program of wholly-owned freehold hotels.
The number of freehold hotels under its umbrella stands at two amid a portfolio of 20 properties.
The chain is a standalone company but allied to Sir Stelios Haji-Ioannou’s EasyGroup Holdings, best known for its low-cost air carrier EasyJet.
EasyHotel’s two wholly-owned freehold hotels are in London and (as of January) Glasgow, Scotland. (The chain also has one long leasehold development.) All properties are in Europe and in cities to which EasyJet flies. The airline, which went public 14 years ago, is run as a separate enterprise. EasyHotel was created in 2004.

Joining in June 2013 was CEO Simon Champion. His first role was to instigate an initial public offering on the London Stock Exchange. Previously he was managing director, equity research, at Deutsche Bank, specializing in hotels.
Champion—along with CFO Darren Mee who came from TUI Travel in April—also has established a fresh business model, with the top priorities being a 15% return on capital and giving customers the best brand agreement in town, according to Champion.
“The attitude was that EasyHotel largely was a franchise business, but (Haji-Ioannou) and I desired a shift to ownership, as returns were good. We also like the scrutiny coming from being public,” Champion said.
“To EasyGroup, we pay 0.75% of revenue, for 50 years with worldwide rights for the brand association. Last time around that cost £130K ($222,000), which is great value,” Champion added.
Haji-Ioannou, who Champion reports to, retains a 56% investment in EasyHotel.
Careful steps
“The (initial public offering) market when we launched was tough, with some investors ruling themselves out of any IPOs. We’re on record saying we wished to raise £60 million ($102 million), but the IPO raised 150% of our market (capitalization) and our shares have since risen 25%. We invested £600,000 ($1 million) of our own money into the IPO, too, so all that is plenty to be getting on with,” Champion said.
The IPO raised £30 million ($51 million).
Returns on EasyHotel’s wholly owned hotels Champion considers fantastic, mostly emanating from 100% direct booking.
“We allow franchises to use online travel agencies depending on location, but owned properties perform significantly better for us and at lower rates. Of our customers, 36% are repeats, and even before the IPO, I recognized EasyHotel’s niche, competing with unbranded groups and lesser-known brands.
Champion added the plan isn’t to roll out a certain number of hotels per year.
Freehold future
Owning bricks makes sense to Champion, a belief buoyed by European recognition of the Easy brand name. Champion said 25% of his customers derive from the United Kingdom, 50% from mainland Europe and 25% from elsewhere, while 27% of its U.K. hotel’s customers come from Spain, Italy and France, where it has no hotels.
“We’re pro-Europe, where exists great scope to focus on owning hotels in gateway cities that attract international visitors and have expensive hotel stock that will allow us increased share. For example, a £25 ($43) rate in Glasgow will satisfy our 15% return, and it’s not just leisure travelers who this appeals to. In our owned Old Street (London) property, 45% of guests are corporate,” Champion said.
Two EasyHotel properties are outside of Europe (Dubai, United Arab Emirates; and Johannesburg), but franchises are possible in the Middle East and eastern United States, according to Champion, where guests would be 75% European.
London focus
London is the center of EasyHotel’s vision, the goal being to optimize space in converted office blocks and retail establishments in good, slightly off-center locations with excellent transport links and low conversion and operating costs.
Champion pointed to Croydon, a South London suburb where an EasyHotel is in construction, as an excellent example.
“It has great links to Gatwick Airport and Central London, and while it might have a perception issue with U.K. consumers, it does not with others. Westfield (a mall) is coming, and it’s significantly cheaper than London.”
Champion, who said that more than half the chain’s owned pipeline would be in London, is also interested in Oxford, Manchester and Aberdeen, but that it would be a little more risk-averse in such destinations. Another goal is for more than one hotel in each chosen destination.
“We also are concentrating on another country, probably in southern Europe. We are ambitious, but our focus remains on returns,” Champion added.
“There’s good demand for Europe, but we cannot just be another brand for the OTAs. Some brands will be forced to offer low rates when the market tells them they are not as strong as they believed they were. Differentiation is key,” he said.
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