IHG's Q3 shows focus on pipeline growth

Holiday Inn Express Munich

InterContinental Hotels Group was one of the first of the large global hotel companies to release its third-quarter earnings.

IHG's global comparable RevPAR was up 1.3 percent, and up 1.8 percent year-to-date. A total 7,000 rooms opened in the quarter, which boosted the net system size 3.8 percent year-over-year to more than 750,000 rooms. Another 19,000 rooms were signed in the quarter—its highest Q3 since the halcyon pre-recession days of 2008—including the company’s best ever Q3 performance for Greater China. The company’s pipeline now has 230,000 rooms, which represents a 14-percent share of the global industry pipeline, more than three times the company’s existing supply share. “This sets us up well for continued organic market share gains,” said CFO Paul Edgecliff-Johnson. 

Those numbers are solid—but with industry RevPAR growth slowing, oil prices and terrorism keeping travelers away from once-popular destinations and acquisitions creating mega-companies with 30 brands, a hotel company has to have strong pipelines and solid brand differentiation. 

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Brand growth

With that in mind, IHG CEO Richard Solomons said that the company would focus on its luxury business. Twelve luxury hotels have been signed this year, including the first InterContinental hotel in the Maldives, signed less than a month ago

IHG signed deals to open 13,000 new rooms under the Holiday Inn brand family, meanwhile, the best third-quarter performance since 2007. This, Solomons said, could be credited to the H4 design system announced for Holiday Inn at least year’s IHG Americas Owners Conference, and the Formula Blue for HolidayInn Express hotels in the Americas. 

In the boutique lifestyle segment, IHG said it signed the most Hotel Indigo rooms since Q3 2007, including the first Hotel Indigo in Poland. And, “We continue to expand our Kimpton portfolio with the Gray Hotel in Chicago, the fifth opening for the brand this year,” Solomons said.

The company’s extended-stay segment got more than 7,000 new rooms signed so far this year—again, the best numbers in eight years. The extended-stay pipeline now has more than 24,000 rooms—“some 40 percent of our exiting rooms in this segment,” Edgecliff-Johnson said.

In the Americas, the Even hotel brand has five hotels open (including its first franchise property) and six in the pipeline. Most recently, IHG has signed a deal with its long-term partner Pro-invest to develop a portfolio of Even Hotels in Australia and New Zealand.

Up next

With these pipelines set to grow, what,then, is the outlook for development in some key regions? “With a pipeline the size of ours, there are always some contracts that move faster than others,” Edgecliff-Johnson said. “Our fastest rooms through the pipeline [will] be the conversions, but in terms of new-builds, our fastest will be our Holiday Inn Express in the U.S. market. That moves through pretty quickly. And then our larger boxes in Middle East and Africa and Greater China—that’s bigger real estate, so they take longer to build.

“In some markets in the Middle East, people are being more cautious. It's at the margin. It's not something that I would say is a particular drag on where our net system-sized growth is going. And we have seen some really strong signing coming through in other markets, which have been going well in South-East Asia—in Vietnam, Thailand and India and Australia, where we are seeing good growth coming to that. So I think that will sort of balance each other out.”

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