With a turnaround artist at its helm, EasyHotel is finally poised for its long-awaited expansion. Recent investment in the company is a wager that affordability will matter more to some travelers than whether a hotel is Instagram-ready.
EasyHotel has always been the success story of tomorrow. That’s been true since EasyJet founder Stelios Haji-Ioannou invented the budget hotel chain in 2004.
The latest CEO, Karim Malak, believes the hotel operator can fulfill its potential — at long last — thanks to a changed ownership and a retooled strategy.
EasyHotel launched with the idea of being as successful as EasyJet, even though the two companies have no ties other than similar marketing.
- EasyJet grew from a tiny carrier to serving 96 million passengers in 2019 (before the pandemic hit).
- But EasyHotel, which planned to expand to hundreds of hotels, has struggled.
- In 2018, its UK properties — the biggest chunk of its portfolio — only eked out a profit before tax of about $1.1 million (£872,162) on revenue of about $15 million (£11.3 million).
Investors ICAMAP and Ivanhoé Cambridge acquired a large stake shor5tly before the pandemic began.
- The deal valued the company at about $170 million — an optimistic valuation, given the company’s earnings and revenue.
- The real estate firms own an 80% stake today.
- Their takeover sidelined Haji-Ioannou. The company unified behind a revamped strategy.
The investors’ turnaround stumbled.
- In late 2021, EasyHotel received a commitment of about $60 million (£42.66 million) from its top investors.
- At the time, it had 42 owned and leased hotels.
- It said it planned to triple its portfolio by 2026.
- It now tells Skift its plan is to “double” its portfolio by 2026.
- The company faced leadership changes. François Bacchetta was appointed CEO in 2020 but passed away suddenly in 2021. Malak was then named CEO in late 2021.
- The pandemic proved harder to recover from than planned, especially with surprise inflation, and distressed assets were harder to find than expected.
- Many of the brand’s properties needed to improve their operations and freshen up their looks. A half-dozen renovations out of 26 owned properties are taking place this year.
CEO Malak claims the company has now hit its stride.
- “The brand’s potential in internationalizing hadn’t been tapped,” Malak said of the company’s early history.
- EasyHotels acquired eight hotels in Belgium and the Netherlands a year ago for about $155 million (€145 million).
- Malak would like to have about 20 hotels in France and about the same each in Germany and Spain.
- He aims to get re-flaggings from hotels flying the flags of major global groups such as Accor, IHG, and Choice.
- Why would these properties give up the major brands’ scale advantages and loyalty programs?
- “Many owners of hotel portfolios feel that they are too exposed to any given of the giant players and have mandates for diversification,” Malak said. “To pick an example at random, if you’re in a city that already has, say, six Ibises, you can’t practically add a seventh.”
- He said his development team is getting faster, as shown by six-month turnarounds on recent projects in France.
- “We’ll make adjustments by market, of course,” Malak said. “In Spain, for instance, they require, and the market demands, slightly larger rooms, and we’ll accommodate.”
- But if developers haven’t been big on the budget sector before, why would they like it now?
- “Everyone wants a piece of the budget segment now,” Malak said. “It performed better than other segments during the pandemic, and they ramped up much more quickly post-pandemic. We were getting 2019 numbers by April 2022, basically. That has opened eyes among investors.”
EasyHotel is pursuing a streamlined marketing strategy under Malak.
- “In every major European destination, there’s a need for affordable, good quality, low carbon hotels,” Malak said.
- The brand is running against the current theme in hotels of making the properties “experiential.”
- The bare-bones EasyHotel instead has the motto: “You haven’t come all this way to explore your hotel.”
- It’s also leaning into the brand halo with EasyJet. “That essentially hadn’t been done before 2021,” Malak said.
- For years, the companies didn’t co-market. But now EasyJet is marketing holiday packages to its customers that include stays at a couple of EasyHotels.
- “The reason why was that there hadn’t been enough focus on the quality of operations at EasyHotel,” Malak said. “We’ve improved that dramatically.”
- Given that young and senior Europeans are its main target group. Many of these travelers are climate-conscious, so EasyHotel aims to tout its relatively reduced carbon emissions compared to other brands.
- It recently announced it would spend about $6 million (£4.5 million) in reducing the carbon footprint of 10 of its older UK properties. A big chunk of that is adopting energy-efficient heat pumps. Plastic room keys are being replaced with wooden ones. Construction processes are being greened.
Malak has a few key metrics for success.
- “To simplify a lot, I care about EBITDA per square meter,” Malak said. “If you take total area including corridors, etc., it works out to less than 20 square meters per room, on average. We’re essentially packing in 20% to 30% more revenue-generating guests per square meter than our competitors.”
- “Another ratio I care about is the return on investment for the hotel owner,” Malak said.
- How can a budget hotel compete on return on investment with a higher-end property that can charge higher rates?
- “Yes, in some instances, there’ll be less revenue,” Malak said. “But on the other hand, the model may be simpler, whether we’re talking about the number of people to operate or the costs [for cleaning, furnishings, supplies, maintenance, and renovations]. With a high 60% gross operating profits, you manage to get the same level of every dollar, roughly, than you would get in other with other brands. Sometimes, you might earn more.”
- Malak expects many owners running more complex hotel operations will be intrigued about switching. “No breakfast to serve and no room service,” Malak said. “You need a good water fountain, a good coffee machine, and some nice place to sit down and to work mainly.”
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