Travelodge Hotel Limited (Essay Sample)
The analysis of Travelodge Hotel Limited that runs a chain of hotels in the United Kingdom, Ireland, and Spain. It provides services such as rooms for hire, cafes and restaurant rooms. The analysis is based on the impacts of economic aspects on the hotel such as the fiscal and monetary policies and the EU policies impacts.source..
Travelodge Hotel Limited runs a chain of hotels in the United Kingdom, Ireland, and Spain. It provides services such as rooms for hire, cafes and restaurant rooms. It has partnered with a number of other restaurant companies, supermarkets and retailers. Travelodge Hotels Limited was initially known as Travelrest Services Limited. Travelodge opened its first hotel business at BartonuderNeedwood in 1985 and has since grown from a roadside business into a popular hotel brand in the United Kingdom. It is, apparently, the largest hotel business in both Edinburgh and London (STREEVER 2007).
The impact of Economic Change and the Role of Government Spending on Travelodge
Travelodge Company has about 34 hotels in the Greater city of London in UK that provides more than 5,200 bedrooms for its customers. Travelodge is a vibrant business because of its ambitious goals. For instance, it had targeted, that by 2012, when the Olympic Games would be kicking on in London, it would have opened 18 more hotels in the city, and, this could have resulted to over 7,000 rooms. This would, in turn, make it the biggest hotel brand in London. The government of England is a major supporter of tourism since this is a major source of income to London capital city. Moreover, it is a source of jobs for the London residents as per to the Capital’s Employer Accord (STREEVER 2007).
With its 18 new openings in London by 2010, Travelodge has continued to employ its entry level employees in regard of the London’s Employer Accord. According to reliable sources, over 90% of Travelodge staff has been employed of its new business openings. Before the 2012 Olympic Games, the UK government chose to invest heavily in Travelodge to ensure that it is the biggest hotel business in London city. This was geared towards trapping of many tourists visitors expected to attend the Olympic Games. This was in line with the government policy of expanding tourism since it plays an important role in the development of London economy. Initially, Guy Parsons, the then Chief Executive of Travelodge said they had plans of opening about 52 hotels across the capital during the Olympic Games to ensure that the city visitors obtained high quality, low-cost accommodation. In London, tourism is a vital industry that provides over 250,000 jobs. Increased opening of new hotels mean that more jobs are created and the economy, thus, experience growth (ADAMS, & WEST, 1995).
Travelodge Company continues to be on the lead in the UK for the next few decades and has plans of adding over 40,000 extra rooms by the year 2020.
In the year 2012, when Olympics Games were held is thought as a successful year for UK hotels since they experienced improved sales and increased profits during the occasion. Besides that, we have other factors that directly affect the travel and hotel demand apart from Olympic visitor levels.
In 2010, the UK suffered a GDP contraction of about 0.6 % and much of this effect was from adverse weather. It is possible that UK economy may have experienced severe difficulties on growth due to rising government taxes and spending cuts that impacted on the consumer spending. The spending cuts imposed by the UK government has resulted to reduced customer spending as people would only want to spend if they knew they could earn more on a future date. The spending cuts and increased taxation has stifled the rapid growth of hotel since consumers have reduced in number due to their income cut and regulation (ADAMS, & WEST, 1995).
The UK government is planning an acute fiscal squeeze which will sum to about 113 billion pounds per year (equivalent to 6.3% of GDP of 2014/2015 financial year). 77 % of these will be achieved through spending cuts and the remaining 23% will be achieved through tax rise. With travel and hotel spending under severe pressure, public servants will travel less and others will resort to an alternative means of communication such as video and teleconferencing. This will make hotels less busy and, thus, reduce their sales and profits. As high levels of unemployment and inflation continues to bite as from 2010, this will pin down the consumer spending growth in next few years. This will impact on hotel operators as their sales will go down because few customers will spend (STREEVER 2007).
Travelodge rent reduction rescue deal could force the company to throw away about 50 hotels and this could potentially put to risk about 350 jobs. The hotel operator suffered financial strain as a result of repaying debts of 1.1 billion pounds when it had been taken over by a debt prone company namely Dubai International Capital (DIC) in 2006. Since then, Travelodge has been seized by Goldman Sachs, Golden Asset management two American funding Avenue. To restore the business back to its track, the business has been using the Company Voluntary Arrangement (CVA) which is legal way of the company writing off its debts. The economic down turn of Travelodge business is due to expensive lease arrangements and heavy burden of debts. But with the support of shareholders, landlords and lenders, the business is expected to regain its initial operational shape and structure. Landlords have been asked to reduce the monthly rents to about 25 percent. As part of the wider financial restructuring, 235 million pounds of debt is being written off and 71 million pounds paid in order to reduce the business borrowings to 329 million pounds. Additionally, more time has been granted for Travelodge to repay its remaining debts at low interests. The new stakeholders of the business have accepted to invest over 75 million pounds of the cash into the business. The financial restructuring which includes CVA strategy will ensure Travelodge gets back to a stronger platform of progressing with its business and will too ensure a sustainable future for the company (ADAMS, & WEST, 1995).
Fiscal and Monetary Policy on Travelodge Hotel Limited
Fiscal policy is defined as the way the government manages its budget. The government collects revenue through taxation and spends the same on various activities that have been scheduled. Fiscal policy helps to create a healthy economic growth and increase public goods for long term use by all.
Taxation is one of the tools of fiscal policy. Taxation can be on investments’ capital gain, sales or property. The government generates revenue during taxation. The second tool is spending. The government usually provides transfer payments and subsidies and contracts to perform all kinds of public works. A government utilizes expansionary fiscal policy to stimulate the economic and create more growth. The government can either cut taxes or spend more in expansion fiscal policy.
Tourism industry is a major source of income to UK economy according to Deloitte research and its contribution is around 52 billion pounds of direct contribution. This can be translated to 4% of the GDP. 63 billion pounds is obtained in indirect contribution which is about 4.9% of the GDP. The industry has been creating jobs. About 33% of new jobs were created by this industry between 2009 and 2011. Hotels fall under the umbrella of tourism sector since tourists form major consumers of this industry. Travelodge, for instance, has provided employment to entry level and lower skilled jobs in London. Tourism is the sixth largest foreign exchange earner in UK, generating 20 billion pounds from overseas yearly (STREEVER 2007).
Tourism, however, is one of the export industries subject to VAT in UK. If the UK government reduces VAT to about 5 percent, this may increase domestic holidays and tourist visitors as well. This, may, in turn, reduce the imbalance experienced in the UK tourism payments which currently lies at 13.5 billion pounds. In 2010, the domestic tours with holiday journeys in particular recorded a decline of about 7% as illustrated by the chart below.
This, consequently, led to a general decline in spending as shown by the chart below according to the Greta Britain Tourism Survey 2010.
As a result of this, the UK’s tourism balance of payments deteriorated from early 1990s and, eventually, showed improvements in 2008. The improvement was due to the spending reduction by UK citizens owing to the income squeeze and financial constraints they faced.
It, therefore, requires that the government of UK should agree unanimously to cut VAT levies on attractions and visitor accommodations (Keane 2011).
VAT reduction can boost economic growth at high rate unlike the reduction of corporate tax. The impact of reducing VAT from 20% to 5% will result to reduced VAT yields. On the other hand, lower tax rates will result to lower prices. This will trigger high demand for goods and services and, thus, increase the revenue base on which VAT is charged. A successful VAT cut by the UK government on attractions and accommodations will result to more job creation and further stimulate long-term sustainable economic grow...
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