InterContinental Hotels Group used its first-quarter results to continue to resist calls for consolidation, with CEO Richard Solomons maintaining that the group had sufficient scale.
The results came alongside the news that Solomons was retiring after 25 years at the company, to be replaced by COO Keith Barr.
Solomons told analysts: “Greater scale adds value, but it doesn’t need to be the thing to do. We have scale when we need scale” adding that the company had “sufficient presence with our portfolio to drive awareness and preference”.
He added that the company was “very much focussed on organic growth, where we think there’s the most value.”
Commenting on its global rivals, he described Hilton as being “controlled by the Chinese effectively with a 25% stake. Marriott and Starwood obviously is a mega-merger with 31 brands, clearly they’ve gone for scale above all else, they have done a lot of other acquisitions as well and as I understand it has bid on many others they haven’t been successful with. And Accor is taking a very diverse route in terms of many investments right across the hospitality and digital spectrum.”
Solomons retirement after six years as CEO was announced as the company completed its transition to asset-light, marked by the announcement at its year-end results of a USD400m special dividend, which would be funded, not by a disposal, but by underlying operations and leverage.
Commenting on Barr’s promotion, Solomons said: “Keith’s been a senior executive here, sat on the executive committee with [CFO Paul Edgecliffe-Johnson] and I for many years, has been an integral part of the decisions, has driven a lot of what we’ve done, particularly in the digital and technology sphere.
“He’ll pick up the reins and he will run the business extremely well. He will react to the changing environment, as I would have done if I was here.”
Barr has held senior positions in IHG’s America’s, Asia, Middle East, and Africa and Greater China regions including leading Greater China for four years and, most recently, has led the development device chief commercial strategy and, the outgoing CEO said: “been a driving force behind the investment in our new guest reservation system”.
Further details of the system, being created with Amadeus, which will replace Holidex, were not forthcoming. It is expected to launch later this year.
Chris Mumford, managing director, Aethos Consulting, told Hotel Analyst: “IHG’s appointment of an internal successor to Richard Solomons may well indicate a continuation of their strategy down the asset-light route with a focus on returning cash to shareholders. It certainly does not envision any great seismic change or transformation such as when Accor put Bazin in charge.
“If this is indeed the case then Keith Barr seems like a sensible choice with his global experience, in particular his intimacy with the all-important Chinese market, as well as his grasp of things digital and technological. Time will tell however how long this ‘stick to your knitting’ approach benefits IHG as M&A activity in the sector surges around it. That said, having a China savvy CEO in the hot seat could of course sweeten the attractiveness of the group as a possible target for Chinese investors.”
IHG reported net system size growth of 3.4% year-on-year in the first quarter and and revpar growth 2.7%, with rate up 0.8% and occupancy up 1.2% points, benefitting from the later timing of Easter and “some early signs” of stabilisation in U.S. oil producing market. The company strengthened its portfolio in France, adding more than 14,000 rooms or 112 hotels into the pipeline, reporting its highest hotel signing pace for the first quarter in nine years, taking the total pipeline to 232,000 rooms.
The group continued to lean on the Holiday Inn brand family, signing 80 hotels, its best first quarter signings rate since 2008.
Solomons said: “Our share of the active label industry pipeline is three times our share of open rooms, which means we are set up well for future organic growth. We opened 7000 rooms in the first quarter, which is typically our smallest quarter for opening.
“These included 2,300 rooms in Greater China, taking our number of open hotels in that region to 300. At the same time, we remain focused on removing underperforming hotels from our system. We exited 7,000 rooms, 6,000 of which were in the Americas.”
The company declined to give specific forecasts, instead saying that, despite the “continued economic and political uncertainty in some parts of the world, we remain confident in the outlook for the remainder of 2017”.
Morgan Stanley estimates full-year revenues of USD1.78bn, Ebit of USD743m, assuming 1.5% revpar growth, 3.9% net system growth, and a 50bps fee margin increase.
HA Perspective [by Katherine Doggrell]: Richard Solomons’ retirement was announced in the same week as Prince Philip’s and, given the 40-year age gap, it’s likely this isn’t the IHG CEO’s last hurrah. Maybe he’d like to turn his hand to writing, as, celebrating the return of, Frits van Paasschen to the sector via a place on the Citizen M board, Hotel Analyst is currently reading his ‘The Last of the Disruptors’.
But, while van Paasschen has made much of Starwood Hotels & Resorts’ drive to innovate digitally through keyless entry, bypassing reception and all those other innovations which introduced the sector to the changing face of service, it’s hard to know what Solomons’ message would be, with the Amadeus project yet to reach fruition.
Bought in as a pair of steady hands after Andy ‘acoustic guitar’ Cosslett’s departure, Solomons has indeed maintained sober growth at IHG, which in recent years has meant a fairly vehement insistence that the company would not be participating in the consolidation round, a theme he stuck to at the Q1 results.
Whether the promotion of – as Mumford points out – China-expert Barr means that IHG will be joining Carlson, Rezidor and Hilton as the latest target for the country’s investors remains to be seen.