InterContinental this week said virtually every market was in negative territory during January with that former bastion of hope China the weakest performer.
But while sharing some pain, IHG looks set to be among the winners coming through the other side of this recession. Not least because it has taken a measured approach to cost cutting.
Global revpar at IHG was down 12.2% in January with forward bookings indicating no short-term improvement. EMEA was down 11.8%, Americas down 11.7% and Asia Pacific down 14.8%.
CEO Andy Cosslett said that what had been a gradual slowing became a material shift negative about the same time as the Lehmans collapse.
Most worryingly, rate has now begun to give ground. In the final quarter, revpar fell due to dropping occupancy. In January rate also headed south, although by just 1% in the US.
The worsening climate, however, is, relatively, benefiting IHG as its brands increasingly outperform the market, claimed Cosslett. This outperformance was three percentage points in January, he said.
During the final quarter of 2008 the outperformance in the US was more than two percentage points compared to less than one percentage point during the first nine months.
"In a downturn customers want value, not necessarily the cheapest," argued Cosslett during a conference call with analysts. IHG's focus on quality will win it increased business he forecast.
Five years ago the company axed its quality teams working out in the field for its brands. Two years ago these were reinstated in the US and they will be coming back in both EMEA and Asia Pacific this year.
The aim is to further improve guest satisfaction scores which IHG believes feeds directly into improved revpar. During the past two years these scores – called OSAT – improved by almost 2% which Cosslett says was the "dramatic effect" of the quality teams.
The flip side of improving quality is the removal of poor hotels from the system and IHG bullet pointed its "ongoing commitment to removals" in its presentation. It is expecting to keep removals from Holiday Inn core brand at the same level as the past few years of between 23,000 and 27,000 rooms.
The relaunch of Holiday Inn has seen 350 hotels converted so far with a further 220 scheduled by the end of the first quarter. The revpar uplift for the 11 hotels that have been trading for nine months in the pilot scheme is 5%.
To make the investment in shifting to the new look Holiday Inn worthwhile for owners a revpar increase of between 3% and 7% is being targeted. In some cases this means the investment is paid back within a year, claimed Cosslett.
Alongside quality, a number of other levers are being pulled to increase market share. Chief among these is scale. Cosslett described scale as "a great weapon, particularly in a downturn".
Bookings through direct channels controlled by IHG now accounts for 48% of sales compared to just 41% in 2005. And members of the loyalty scheme, Priority Club Rewards, now account for 37% of revenue compared to 32% four years ago.
The loyalty scheme particularly matters during a downturn. In the last quarter, despite occupancy dropping by five percentage points the volume of room nights booked by PCR members was up 5%.
The size of the IHG system – the largest by room count in the world – delivers $1bn of system funds to drive sales. And this money is not going to be cut by IHG as it comes overwhelmingly from the franchisees.
Scale is also appealing to a key customer segment, large corporate accounts. These are currently consolidating their supplier base and are "most receptive to hotels in the midscale segment".
Some corporates are also being wooed by a new climate change initiative Green Engage. This can deliver a reduction in energy costs of up to 25%. The programme will be available to all IHG hotels by the end of this year.
Owners also obviously benefit from this cost saving with up to $50,000 a year shaved off the energy cost for the average Express.
Another cost saving available to owners via scale is procurement. High definition TVs has been a big item recently and so too has been the 30% to 70% discounts on phone and internet charges made available to US owners.
The big push in terms of advertising remains online. IHG said it has the highest return on its investment via keyword placements on search engines such as Google.
Where IHG is unlikely to be investing heavily is in buying hotels. CFO Richard Solomons said that "only in exceptional circumstances" would IHG use its own capital to add hotels to its system.
In fact, it remains keen to divest property and currently has five hotels held for sale including InterContinentals in Atlanta and San Fancisco.
It is not hard to see why it prefers its fee business currently. Although owned hotels delivered $134m of EBIT in 2008 compared to the $498m from franchising, a 1% decline in revpar wipes out $4m of profit from owned hotels and $5m from franchising. The owned estate is clearly much more highly leveraged to the cycle.
One area of fees remains susceptible, however, with managed properties delivering $173m of EBIT but falling by $7m with every 1% decline in revpar, according to Solomons.
Franchising helps to flatten the cycle is through the addition of new hotels to the system. Nearly all (98%) of the increase in revenue on the franchising side in 2008 came through the addition of more rooms.
Cosslett admits that it is unrealistic not to expect the pipeline of new hotels to see some attrition, he does not expect much from the 85,000 rooms currently under construction of which 50,000 will open this year.
So far, there have been few withdrawals from the pipeline but this is partly because IHG is being more flexible with franchisees about when the project can open. A more rapid rate of attrition will be certain, however, if lending remains closed.
HA Perspective: Andy Cosslett made clear that IHG's cost cutting is different from some of its rivals who are taking, in his words, a "slash and burn" approach.
In particular, he is keen not to cut overheads that are crucial in the forthcoming opening of the 400 plus hotels in its pipeline.
The differences to its rivals are substantial. Marriott, which has a similar business profile, if slightly heavier on the more cost intensive management side, has taken out about $100m of admin costs. Starwood too has cut savagely.
Hilton, which still has a significant owned estate, is rumoured to be taking out as much as $250m of costs. Big job culls are expected through the move from Beverly Hills to Fairfax County in Virginia. Watford in the UK, which currently runs much of the international operation, is also thought likely to be hit hard.
IHG by comparison has cut just $30m. Even this is still a painful exercise. About 120 jobs have gone at the corporate level, saving around $10m, salaries have been frozen, discretionary costs such as travel, entertainment, conference attendance and so forth have been trimmed by another $10m or so, and tighter procurement has also helped.
There are two interpretations of this: IHG is not facing up to reality and will be left trying to catch up with its rivals or that it will be much better placed to ride the upturn.
Nobody really knows at this stage who has guessed right but it is a pretty significant bet by the respective management teams.
If you accept the argument that it is during downturns where brands have real competitive advantage, it is those brand owners which have people in place to exploit the opportunities who will be winners.
This is of course provided the brand owner has managed its cost base sufficiently well to still be around.