IHG's Q3 results show improvement, strong signings

Holiday Inn Columbia-East
The Holiday Inn brand benefited from domestic mainstream travel during the third quarter of 2020. Photo credit: IHG

IHG’s third-quarter results show improved numbers in several categories, including revenue per available room and occupancy, although uncertainty around the industry’s recovery remains.

“Trading improved in the third quarter, although progress continues to vary by region,” said Keith Barr, CEO of InterContinental Hotels Group PLC. “RevPAR declined 53 percent, compared to a 75 percent decline in the prior quarter, while occupancy was 44 percent, up from 25 percent in Q2.”

Domestic mainstream travel remains the most resilient, according to Barr, and the company’s Holiday Inn brand positions it well to meet that demand as it slowly returns, he said.

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Another area of strength, according to the company, is new signings.

“This is recognition of consumer preference for our brands and strong owner relationships, and also the long-term attractiveness of the markets we operate in and the relative resilience of our business model,” Barr said. “We signed 82 hotels in the quarter, taking us to 263 year to date, more than a quarter of which are conversions. As we continue to invest in growth initiatives, we do so with a strict focus on cost reduction and an unwavering commitment to act responsibly for our people, guests, owners and local communities.”

Barr said a full industry recovery will take time.

“Uncertainty remains regarding the potential for further improvement in the short term, but we take confidence from the steps taken to protect and support our owners and drive demand back to our hotels as guests feel safe to travel,” he said. “Our actions have resulted in ongoing industry outperformance in our key markets, and we remain focused on leveraging the strength of our brands, scale and market positioning to recover strongly and drive future growth.”

Regional Numbers

Americas RevPAR was down 49.8 percent in Q3. Occupancy was 46 percent, compared to 28 percent in Q2. U.S. RevPAR was down 47.3 percent, with performance continuing to be ahead of the industry. The U.S. franchised estate, which benefits from a weighting toward domestic demand-driven mainstream hotels, declined 43 percent in the third quarter, while the U.S. managed estate declined 71 percent due to its weighting to luxury and upscale hotels in urban locations. There was sequential improvement in each month in the quarter, though the pace of improvement slowed. In early September, road trip “staycation” demand saw occupancy on the Saturday of Labor Day weekend reach 69 percent.

The company had 98 percent of its properties open at the end of September across the Americas. Of the 92 hotels that remain temporarily closed, the proportion of upscale and luxury hotels and those in the managed estate continues to result in an adverse mix impact.

IHG opened 6,000 rooms (57 hotels) and removed 2,900 rooms (17 hotels) in the quarter, with net system size growing 1.7 percent year over year. Development activity saw ground broken on 30 hotels and 2,500 rooms (27 hotels) signed, including nine across the Holiday Inn brand family, three avid hotels and two Atwell Suites. Momentum continues to build for the voco brand, with three conversions already signed, according to the company.

Europe, Middle East, Asia & Africa

Q3 RevPAR declined 70.4 percent, with Europe down 72 percent, Australia 66 percent and the Middle East 65 percent. Occupancy was 31 percent for the quarter overall. As government-mandated closures and travel restrictions partially eased, leisure-related demand led to the rate of RevPAR decline improving in July and August, before weakening in September. Performance continued to be more challenging in the managed estate and particularly in the portfolio of 18 owned, leased and managed lease hotels in the region, with eight reopened over the course of the quarter but six still remained closed. In total, 105 hotels or 9 percent of the EMEAA estate remained temporarily closed at the end of September.

There were 2,700 rooms (15 hotels) opened and 1,400 rooms (four hotels) removed in the quarter, resulting in net system size growth of 2.6 percent YoY. The company signed 3,000 rooms (18 hotels) in the region.

Greater China

RevPAR dropped 23 percent in Q3. Occupancy improved to 57 percent, having been 32 percent in Q2 and less than 10 percent in February. In Mainland China, RevPAR was down 32 percent in Tier 1 cities, while Tier 2-4 cities, which are more weighted to domestic and leisure demand, performed better with a decline of 12 percent. Over 20 percent of the portfolio achieved positive RevPAR growth for the quarter, which included resort destinations that benefited from staycation demand over the summer months.

IHG opened 2,200 new rooms (10 hotels) in the quarter, with net rooms growth of 8.1 percent YoY. Signings totaled 8,100 rooms (37 hotels), representing an increase in development activity on the same quarter last year. Additions to the pipeline included 24 franchise signings across the Holiday Inn Express, Holiday Inn and Crowne Plaza brands, and 13 signings of management contracts including those across other brands.

Overall, positive cash flow in Q3 has led to total available liquidity at end of September increasing to $2.1 billion. In addition, after issuance of new bonds and partial repayment of 2022 bonds in early October, on a pro forma basis, liquidity increased further to $2.9 billion.

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