• Sharp trading downturn in October

October has brought a sharp deterioration in trading for hotel operators with both InterContinental and Millennium & Copthorne reporting negative revpars in the month.

IHG said that global revpar in October was down 4.5% and down 5.7% in the US. M&C said revpar was down 3.0%.

Andy Cosslett, CEO of IHG, said: "Throughout 2008 we have been controlling costs and capital spending tightly and we are taking the necessary step to manage both to be below this year's levels in 2009."

In the third quarter, IHG's numbers were mostly positive although starting turning negative in September with the US, the UK and France recording a negative figure.

Only the Middle East was a bright spot with a rise in the third quarter of 24.0% and an even bigger rise of 31.1% in September.

While these most recent revpar numbers were troubling, so, too, were figures for new signings. In the Americas, signings were down 42% although this was counterbalanced by a degree with increases in EMEA and Asia Pacific.

IHG said it was confident of maintaining a strong rate of room openings as it has 90,000 rooms currently under construction of which half are set to open next year.

The overall pipeline now stands at 243,509 rooms. But, as with IHG's peers, it is likely this number will represent a peak as the tougher economic conditions make new signings harder to come by. Cosslett admitted in a conference call with analysts that signings were taking longer to finalise.

Moreover, a significant portion of this pipeline may well fail to materialise. Exits from the pipeline historically average 10% but this rate more than doubles during times of economic stress.

That all said, IHG looks set to enjoy reasonable rooms growth for the next couple of years and this should help to offset some of the impact from declining revpar. Were IHG to slow down enforced exits from its system for failing to meet brand standards, management would have even more fee income to offset revpar declines.

The last few years has seen a high level of exits as the Holiday Inn core brand in the US is cleaned up (7,183 rooms exited in the US during Q3 alone). Given the trading challenges for franchisees, the roll-out of the new look Holiday Inn and the corresponding enforced exits could well be delayed.

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