IHG shows continued resilience in Q3 2017 results

IHG's RevPAR was up 2.3 percent worldwide.

In regular quarterly reports, large corporations buoy their estimations of future performance with a standard statement that their expectations should hold true “barring any unforeseen events.” It wasn’t until halfway into InterContinental Hotels Group’s Q3 2017 earnings call that Paul Edgecliff-Johnson, CFO for IHG, brought up the myriad natural disasters that battered major markets throughout the past quarter, and while he admitted they created chaos for affected hotels, he also said that nearby properties have benefited from displaced residents and from recovery efforts.

This ability to weather the storm, so to speak, was the main takeaway from IHG’s recent earnings call—despite some bumps in the road, the company has sustained growth worldwide. During this past quarter, IHG signed 137 hotels worldwide, adding more than 20,000 rooms to its portfolio—the largest number of Q3 signings for the company since 2008. The largest area of growth for IHG was located in Greater China, which added 11,000 rooms across 70 hotels.

Edgecliff-Johnson said the company also remains focused on removing underperforming hotels from its portfolio. Last quarter, IHG dropped the equivalent of 3,000 rooms in the Americas region, and he also said the company moved U.S. hotel contracts from a 20-year to 10-year timeframe, and signings pace continues to ramp up.

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“There are going to be rapid openings between 2018 and 2019, but there is going to be a timing lag due to development,” he said. “It takes three years to ramp up a new development, and longer for a luxury property.”

As for performance, IHG’s hotels are at record occupancy levels and continue to see increases in revenue per available room. While Canada and Europe’s RevPAR was up roughly 7 percent, Mexico remained flat due to the effect of the earthquake that struck the country in mid-September. RevPAR grew 2.3 percent globally for the company, though RevPAR rose only 0.4 percent in the U.S. in Q3, and 0.6 percent Q3 YTD due to hurricanes Harvey and Irma, though the summer’s solar eclipse gave a small boost to bookings.

“Despite macroeconomic and geopolitical uncertainties around the world, we remain confident in the outlook for the remainder of the year," Keith Barr, CEO of IHG, said during an earlier earnings call broadcast to the UK.

Meet Avid, IHG's newest face in the midscale segment.

A New Face

The call also touched on the launch of IHG’s newest brand, Avid, which is being used to fill the company’s midscale void. In comparing Avid to IHG’s Even hotel brand, which experienced a slow start in the U.S., Edgecliff-Johnson said Avid is located at a lower price point than Even and sits apart from Holiday Inn Express in IHG’s toolbox. He called the competing hotels in Avid’s segment “quite old,” making the new brand attractive to guests and giving it an initial boost.

“Even will be a success for us [in the U.S.] in due course, but it’s more of a niche positioning,” he said. “Even is not going to be a product on the same scale as Avid, which already has written expressions of interest since its launch and over 50 applications within the first week of franchise sales.”

IHG also expanded Kimpton to Greater China and the Europe, Middle East and Africa region with two new hotels, as well as two additional openings and three new signings for the brand in the U.S. Hotel Indigo also opened two new hotels and signed a further 10 more, bringing the brand to 163 properties open and in its development pipeline. Currently, IHG has 235,000 rooms in its pipeline, 45 percent of which are currently under construction.

The Rollout

This week, IHG also revealed that it will be assuming the Kimpton Karma program into IHG Rewards. The loyalty programs will merge in early 2018, and all members will be consolidated under a single rewards system. Susanna Freer Epstein, SVP of customer loyalty marketing at IHG, said Kimpton Karma members will slot into IHG rewards tiers, aside from the Spire Elite tier. Existing members of this tier will be grandfathered in, but for 2019 members will have to reach Spire Elite and then be invited into the Inner Circle to receive benefits.

“By welcoming Kimpton brand loyalists to IHG Rewards, we are offering more of what matters the most to them,” Epstein said. “Kimpton Karma members will gain access to more than 5,300 IHG hotels, while IHG members will be able to redeem rewards at more than 60 Kimpton properties. The underlying drive for us is to bring the best of both worlds together.”

Lastly, Edgecliff-Johnson discussed the brand’s rollout of a new cloud-based guest reservation system, which will begin by the end of 2017 and is expected to be finished by late 2018 or Q1 2019. As of September, the IHG app reached $1 billion in gross room revenues booked through the platform, a fourfold increase over the past three years. The app has also been downloaded more than 9 million times.

“Right now we are replacing a platform that has been in place for 25 years,” Edgecliff-Johnson said. “There are a few different advantages here, one of which will be a revenue uptick as we learn to do more with the system.”