China sweetens IHG’s bitter year

InterContinental Shanghai Pudong Airport and Holiday Inn Shanghai Pudong Airport
InterContinental Shanghai Pudong Airport and Holiday Inn Shanghai Pudong Airport are expected to open in 2024. Photo credit: IHG

Trading strength in Greater China brought good news to an otherwise dreary set of financial results at IHG Hotels & Resorts, the company that counts Holiday Inn and Crowne Plaza among its brands.

Fourth quarter revenue per available room in Greater China retreated by a relatively modest 18 percent. Moreover, recent RevPAR figures from Greater China are much better than its year-long average fall of 41 percent.

Companywide, IHG revenue per available room fell 53 percent in the fourth quarter and was down roughly the same for the year as a whole.

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Related: InterContinental Hotels Group rebrands as IHG Hotels & Resorts

The biggest slumps in annual groupwide gross revenue came among the more expensive brands. InterContinental and Kimpton dropped 60 percent and 71 percent respectively while Holiday Inn Express fell 42 percent and Candlewood Suites only 22 percent. Revenues at Crowne Plaza took a 57 percent hit.

The pattern of IHG’s groupwide month-by-month RevPAR in 2020 was similar to that which rivals have been reporting in recent days. A sharp drop in March and April was followed by a recovery that ran out of steam in the fourth quarter.

As the year progressed, however, Europe lagged behind the worldwide average. Trading was a little better in the U.S. RevPAR in continental Europe in the last three months of the year crashed 86 percent. Fourth quarter RevPAR in the U.K. fell 74 percent. RevPAR in the Americas fell 50 percent in the fourth quarter. Comparable numbers for the U.S. were a little better.

CEO Keith Barr said that the COVID-19 pandemic was the “biggest challenge ever” for the hotel industry. “Demand,” he said, “fell to the lowest levels ever seen.”

He said that 2021 has started with many challenges still in place and suggested “more meaningful progress” was “unlikely until later in the year and dependent on global vaccine rollouts, lifting of restrictions and an acceleration in economic activity.” 

He said the company has reacted to the crisis by reducing costs, preserving cash and conserving balance sheet strength.

Net debt was $2.5 billion at the end of 2020, slightly lower than the $2.7 billion figure at the end of 2019. IHG loan covenants include stipulations about interest cover and leverage. The unrevised covenants say that IHG interest payments should be covered at least 3.5 times by earnings before interest, tax, depreciation and amortization. Net debt is meant to be no more than 3.5 times EBITDA.

These conditions were waived for 2021 and reset for 2022 at greater than 1.5 times for interest cover and less than 7.5 times leverage. In 2023, the numbers are greater than 2 times interest cover and less than 6.5 times leverage.

The company said: “The group is in compliance with all of the applicable financial covenants in its loan documents, none of which are expected to present a material restriction on funding in the near future.”

Barr added that while the impact of the pandemic was severe, “our industry has recovered strongly from previous cyclical and exogenous events, and the long-term attractiveness of our industry and future growth potential remains unchanged.” Normalization, however, is still some way off, he said, adding that 2021 and 2022 would be “transition” years.

Total revenue for 2020 fell 48 percent to $2.4 billion from $4.6 billion. The loss for the year was $260 million against a profit in 2019 of $386 million.

There is no dividend. No mention was made of mergers and acquisition rumors that circulated last summer linking IHG with Accor, its French counterpart.

A version of this story originally appeared on Hotel Management's sister site Hospitality Insights.