But Travelodge is struggling to pay the rent. This is because they have £500 million in debt. This is 10x their profit levels! Interest payments are £100 million which is 27% of revenue. Why does Travelodge have so much debt? It is because the business was bought on tick by DIC. In 2006 they paid £675 million, of which 478 million pounds was borrowed. This is precise the problem of cheap credit available to speculators. As a result of high interest payments they have delayed refurbishments - which is serious for a hotel. In fact late last year Travelodge breached the conditions of those loans. (Reuters)
They also committed to paying high rents during the boom. And of course high rents was one of the man outcomes of the debt fuelled boom in property prices.
As such Travelodge are looking to renegotiate rents as part of a broad restructuring program. But they're also looking to renegotiate their debts via a company voluntary arrangement, which is a formal way of letting creditors know that a business needs help or it will go bust.
To me Travelodge seems to embody the problems faced by the private sector. They are over-burdened with debt taken on during the boom they believed would never end, because economists created this fantasy that ignored the build up of private sector debt.
It will be interesting to see how long it takes for Travelodge to turn around, or indeed if they manage to.
Update 18 Aug 2012: Travelodge Goes to Creditors
* I read the FT at my local public library. As I don't have a subscription I can't link to them online because of their paywall.