InterContinental Hotels Group said that it expected to see unit growth accelerate into next year, despite concerns over performance.
The company continued to lean on the Holiday Inn brand family, but said that it was starting to see an increase in signings from its new and acquired flags.
The group reported 5.7% net system growth in the first half of the year, its best performance in a decade, with the Greater China leading openings, with 18% growth. EMEAA followed with 6.5% net rooms growth, while the Americas saw 2.7% growth.
The company added 30,000 new rooms to the system, while 10,000 rooms exited, as, CEO Keith Barr commented: “We continued to focus on the long-term health of our established brands”.
Across the group, the company saw revpar up 0.1%. Barr told analysts that it, “as anticipated reflected a strong comparable from last year and a slower revpar growth environment where our hotels maintained near-record occupancies and rate”.
In the Americas, where first half revpar grew 0.1%, as rate growth offset occupancy declines, IHG opened 11,000 rooms during the first half of the year, more than two-thirds of which were in the Holiday Inn Brand Family. The company signed a further 14,000 rooms into our pipeline, down on the prior year when it signed 20,000 rooms, with the group attributing the drop to comparisons following the boost of signings following the launch of Avid. Of the 20,238 rooms hotels signed in the same period last year, 7,630 rooms were under the Avid flag. Avid signings in the Americas in the first half of this year were 2,402 rooms.
The CEO commented on the “challenging” developing environment which Marriott International commented on in its results, telling those on the call: “It is a more challenging build environment, but we’re not seeing any material impacts on our pace of openings, paces of ground breaks. And we are continuing to accelerate growth in the US and also in Greater China.
“It is a challenging signings environment. We are increasing our share of signings as we’ve done this year and last year because of the stronger development organisation and the increase in brands.
As the new brands begin to come online, you will continue to see us accelerating into that 5% to 6% range. We’re not going to give specific guidance on the exact number for 2020. But it’s logical to assume that you’re going to see our net system size numbers continue to grow.
“And we will continue to look at white spaces where we think we could launch a brand that we can use our consumer insights that we can scale. But we’ve addressed the key areas that we highlighted 18 months ago.”
Barr drew attention to the new prototype for Holiday Inn across the Americas, which he said: “will bring fresh and modern designs to our hotels across the Americas. The concept brings us successful Open Lobby public space and guest room designs together in a more efficient and flexible way with a 15% reduction in building size to create better returns for our owners”.
In Greater China, where revpar was down by 0.3%, impacted, Barr said, by a number of properties in ramp up and openings in less developed cities, the group signed totalled 90 hotels, its highest ever for the region, and included 5,000 rooms from the InterContinental Alliance Resorts partnership with Sands.
Looking at the new brands, Avid had 200 hotels signed since the launch, with 10 properties expected to be open by the end of 2019. Voco hotels had six hotels open across the UK, Australia and the Middle East since launching a year ago, with the company “confident” in reaching around 30 hotels signed by the end of this year. At Six Senses, which the company acquired earlier this year, the group signed five new resorts, with more than 50 deals under active discussion.
The most-recent launch, Atwell Suites, fell, Barr said, “between traditional extended stay and select service hotels”, which an average stay of between four and six nights. He said that the company had seen “positive owner reaction with over 50 written expressions of owner interest”, with the first hotels expected to break ground in 2020 and open in 2021.
The company continued to extend its Concerto technology platform, with plans to pilot ways to book rooms with specific attributes by the end of the year.
Barr said that the group’s strategic initiatives, outlined 18 months ago, were all being funded by a group-wide efficiency programme, which, he said, remained on track to deliver USD125m of savings by 2020.
Bart was confident looking forward, adding: “As long as there’s GDP growth in the US, you’re going to see the revpar growth”.
HA Perspective [by Katherine Doggrell]: Where others have held back on the whooping and the cheering this results season, with the most hopeful comments being a light hope that sense will prevail between China and the US, Barr was divergently cheery in his outlook.
And one finds oneself questioning, just a bit, given that not all in the garden is rosy. IHG has, despite its spending constraints, added a few more brands, maybe not as many as others and is looking to them to help it through any dark times. The results show some enthusiasm, although not enough for Avid to take over just yet from Holiday Inn, as was the hope in the saturated US at the time of launch.
So far the evidence is that owners are seeking sanctuary in the familiar and this may be what is giving Barr such a spring in his step. Despite fears that there were quite enough Holiday Inns to be going along with, it continues to drive growth and look! The new one is 15% smaller. Perfect in constrained times. I’ll have two.
Additional comment [by Andrew Sangster]: IHG is suggesting that it is now putting away its cheque book for acquisitions. CEO Barr was keen to point out that the “white space” he identified when taking up the job has now been filled.
Even when mentioning the possibility of new white space opening up, Barr talked only about launching a brand rather than acquiring one.
This leaves the ambition of IHG to be delivering industry-leading net system size growth. The first-half growth of 5.7% puts it ahead of Marriott but behind Hilton. Not bad, but not there yet.
As Morgan Stanley pointed out, IHG’s new brand Avid had signed just 13 properties in Q2, a third below that achieved by Hilton with its Tru brand at a similar stage of launch.
IHG has plans to tap into extended stays in what it calls the mainstream space (this is economy and midscale combined). Atwell Suites is targeting average stays of four to six nights and is described as “falling between traditional extended stay and select-service hotels”.
With acquisitions all but ruled out, IHG has to deliver on its organic growth promise. It argues that its relaunched structure is now suited to the task. There will be no hiding place over the next few years