IHG anticipates guests will flock to brands

IHG opened the Hotel Indigo Madrid Princesa, its second Hotel Indigo in the Spanish capital, in March. Photo credit: IHG (Hotel Indigo Madrid Princesa)

IHG CEO Keith Barr said that guests “are going to want to stay in the biggest branded hotels” when they are able to travel again.

The group’s CFO, Paul Edgecliffe-Johnson, added that, in a zero-occupancy environment, its $2 billion liquidity would provide “18 months of headroom.”

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Speaking on a call for the group’s trading update, Barr said: “Customers are going to want to stay in the biggest branded hotels—this will put headwinds on home-sharing. We will also see weaker brands and independent hotels convert over to the big brands.

“We are still signing hotels in April and still breaking ground. The pipeline will still open, but over a longer timeframe. Lending will come back to the biggest and best pipelines.”

InterContinental Hotels Group said that its strong domestic business and comparative lack of exposure to meetings and events meant that it was “well positioned,” describing the health of its owners as “generally good.”

“We are an asset-light business, with our revenues tied to revenues, not profit,” Barr said. “We are skewed to transient demand, not group bookings. Our broad geography is skewed towards domestic demand in non-urban markets. We have a market-leading position in the upper-midscale segment, which has historically been stronger coming out of downturns.”

The group said that the majority of owners had paid fees on time in April, although some had asked for deferrals. Edgecliffe-Johnson said that “it is early in the process. We are in business with owners for 20 years so we will consider deferrals. We have seen good levels of payments, with the business net cashflow positive in April, but owners entering a more challenging environment.”

Barr added: “It’s important to remember that many of them run small business and face challenges. We are standing beside them to help them get through this, hosting webinars on how to stay open. We have given them the chance to pause renovation work, offering fee reductions and payment flexibility. Whether at the White House or at Number 10, we are working with key partners globally to help protect owners and jobs.

“The health of our owners is generally good, the majority of our portfolio is in the mainstream and we’ve been able to lobby governments for support. Breakeven for the mainstream segment is around 30 percent and we’re running at the mid 20s. Clearly there will be some owners that run into significant issues and we will work with them. The conversations that we’ve had with the owners’ groups is that they’re in a good position over the next few months. Most of our owners are seeing through this reduction and seeing that long-term it is a good asset class.”

Commenting on the fee reduction, the CFO said: “It is a temporary reduction which was well received and shows the spirit that we are entering into in this crisis.”

Looking ahead, Barr said: “My crystal ball is a bit cloudy about the future of travel. I don’t believe this is the end of business travel. People are enjoying using Zoom and Teams but business travel will return and leisure travel will continue to grow.”

When asked whether he anticipated a change in distribution as a result of the crisis, favoring the online travel agencies, Barr said: “The industry is in a different place today than it was after 9/11 and the financial crisis. The agreements we have today are more complex and we have much more control over what we do. I wouldn’t expect to see a radical change in the distribution arrangements between hotels and the OTAs. People are going to continue to want to book direct with hotels.”

The company reported that group comparable revenue per available room was down 24.9 percent; March down 55 percent; April expected to be down around 80 percent. Occupancy levels in comparable open hotels were in the low-to-mid 20 percent range. The company reported that it had seen 4.6 percent year-on-year net system size growth to 882,000 rooms, with 6,000 rooms opened, including 1,000 in March. IHG signed 14,000 rooms in the quarter, including 4,000 in March, taking the pipeline to 288,000 rooms.

In the Americas, at the end of April, the group had around 90 percent of its real estate open, with luxury and upscale seeing the greatest impact. In Europe, Middle East, Asia & Africa, around 50 percent of the portfolio was closed, with only 10 hotels remaining closed in Greater China, described as “big, urban hotels.”

This story first appeared on Hospitality Insights. To subscribe, please visit: https://www.hospitalityinsights.com/hi-newsletters.