The owner of Premier Inn has said profits have surpassed pre-pandemic levels as the UK’s biggest budget hotel chain benefits from a surge in demand from cost-conscious holidaymakers. Whitbread, which runs almost 900 hotels in the UK and Germany as well as restaurant chains including Beefeater, Bar & Block and Brewers Fayre, said it would benefit from the scale of its business as small operators succumb to a combination of labour shortages and cost inflation. The company beat analysts’ expectations, reporting £375m in pretax profits for the year to 3 March, up from £58m in 2022 and 34% more than the year ending February 2020. Investors cheered the results, which were driven by a 544% increase in adjusted annual profits at Premier Inn UK, sending Whitbread’s share price up 5% and making the company the biggest riser in the FTSE 100. “The recovery in market demand in conjunction with a structural decline in the independent sector has provided a helpful backdrop,” said the Whitbread chief executive, Dominic Paul, who took over from Alison Brittain last month. “We believe that operational challenges created by labour shortages and cost inflation may put further pressures on the independent sector, creating structural growth opportunities for Premier Inn across the UK. The budget branded hotel sector has consistently delivered attractive rates of room growth and has also proven its resilience during economic downturns, as guests trade down to lower cost alternatives.” Whitbread, which also announced a £300m share buyback and raised its final dividend, said that demand continues to be strong; UK sales were up 17% year on year in the first seven weeks of the company’s new financial year. Premier Inn UK reported a 50% increase in total revenues to £2.5bn, fuelled by increased occupancy, an expansion of the business and a 54% increase in average revenue for each room, from £38.69 to £59.45 year on year. In January, Whitbread said it intended to raise room prices to help offset cost increases of £60m because of soaring inflation in its last financial year. Total costs rose from £1.24bn to £1.6bn year on year. The company said higher levels of occupancy helped drive a 40% year-on-year increase in food and beverage sales, but spend remains 4% below pre-pandemic levels. “Despite an increase in spend per head, customer volumes at our branded restaurants, that are focused at the value-end of the market, remained below pre-pandemic levels,” the company said. “The return to economic normality post pandemic with the removal of travel restrictions and the release of pent-up demand boosted demand for hotel rooms at Whitbread and provided a tailwind to its bottom line,” said Victoria Scholar, the head of investment at Interactive Investor. “The cost of living crisis and the squeeze on household budgets have also driven more customers towards its budget low price point offering.”