Growth slows for IHG in Q1; weak oil markets, timing of Easter culprits

Holiday Inn

Weak global oil prices, an earlier timing of Easter and other economic and political headwinds were cited as cause for InterContinental Hotels Group's lukewarm first quarter.

Revenue per available room was up a slight 1.5 percent compared to the same period last year, dogged by oil markets down some 10 percent, according to IHG CFO Paul Edgecliffe-Johnson.

In the quarter, IHG opened 5,000 rooms, increasing its net system 2.7 percent year-over-year to 742,000 rooms. In the quarter, IHG signed some 15,000 rooms, with 45 percent under construction.

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"We drove good performance despite industry headwinds, and signed our most rooms since 2008," said Edgecliffe-Johnson. "Current trading trends and our strong brands give us confidence for the rest of the year."

IHG wasn't the only European company showing sluggish growth, as external forces like U.S. job growth impacted European stocks.

Better Times Ahead

In a prepared statement, IHG CEO Richard Solomons said: "We have made a good start to the year, driving RevPAR up against the background of weak oil markets and the earlier timing of Easter, which affected several of our markets. The shift in timing of Easter into Q1 had an adverse impact across the industry, especially in the Americas and Europe, which we expect to reverse in Q2.

"We continued our focus on building and leveraging scale where it matters, signing rooms into our pipeline at the fastest rate since 2008. We also strengthened our position in the rapidly growing boutique segment, signing the first Kimpton Hotels & Restaurants property outside the Americas, in Amsterdam, and opening and signing a record number of rooms for our Hotel Indigo brand."

Following the lead of other hotel companies, IHG recently came out with an enhancement to its IHG Rewards Club, incentivizing members who book direct with preferential rates. "This new benefit further strengthens our loyalty offer by helping us build deeper relationships with our most loyal guests, while driving more direct bookings to our hotels," Solomons said.

IHG's biggest gain was in the Middle East, where RevPAR was up 5 percent. Greater China showed good growth, too, with RevPAR up 2.2 percent. Growth of 6.2 percent in mainland China was led by tier-one cities, where RevPAR was up 8.3 percent, IHG said.

France, meanwhile, was down 2.3 percent, dragged down by Paris, where the November terror attacks hurt most hotel companies, which have reported Q1 this year.

Brand Bonanza

IHG continues to prime its brands and deliver growth and expansion on a global scale. None more important than its Holiday Inn brand family, which Edgecliffe-Johnson called IHG's "biggest growth engine." Holiday Inn and Holiday Inn Express accounted for two-thirds of IHG's overall openings and signings in Q1. In total, there were over 10,000 room signings, IHG's best in the first quarter in eight years.

On the luxury side, the InterContinental New York Barclay re-opened at the end of April following a $180-million refurbishment and repositioning. "We signed five InterContinental Hotels & Resorts properties globally, the highest first quarter number for eight years," IHG said, including the Chongqing Raffles City hotel in China, which took IHG's pipeline for the InterContinental brand in the Greater China region to 24 hotels.

In extended stay, IHG said it delivered its best first quarter signings performance since 2008. There are now more than 100 Candlewood Suites and more than 100 Staybridge Suites properties in the pipeline.

After acquiring Kimpton, IHG is now primed to grow the brand globally, already announcing a hotel to open in Amsterdam by next year. While Kimpton will not have the growth of a Holiday Inn Express, Edgecliffe-Johnson, it will see further and more rapid global growth. "There are a number of prime cities that we are in discussion with owners about," he said. "We want to get them into really good real estate locations."

As for further M&A, like most, IHG looks at all opportunities, but only pulls the trigger, Edgecliffe-Johnson, when it makes financial sense. "We don't overpay," he said. "It has to pencil out. We have a lot of organic growth and if there is a chance to add via M&A, we will."

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