The return to normalcy

Senior executives at IHG, Hilton and Wyndham have declared themselves united in the belief that business travel will be back as before.  

All three international companies have been encouraged by the return of Chinese and US leisure business. And they have no truck with those who believe the pandemic drove a fundamental longterm shift in business travel patterns.  

Reporting on first quarter figures understandably down on 2020 and 2019 comparables, all reported a strengthening performance through the quarter that has continued to accelerate into April and May.  

“We can see the light at the end of the tunnel,” reported Hilton CEO Chris Nassetta, with average occupancy up to 55% by the end of the quarter. Similarly, IHG’s finance director Paul Edgecliffe-Johnson put quarter end occupancy at nearly 50%.  

“If you march through the year, my expectation is you’re going to have an incredibly robust leisure-driven summer,” said Nassetta. “So we’re going to continue to see good progress. We believe the summer will be meaningfully over 2019 peak levels of leisure demand.” But he warned that won’t necessarily lead to bumper profits: “We think room nights in leisure will be at ’19 levels. We don’t think rate will be back to ’19 levels. We think the slope of the recovery has steepened since the last time we talked and thus, our reason for optimism that things are on a good path.” 

Edgecliffe-Johnson said forward bookings were strong: “In the US, the volume of rooms booked for the balance of the year, we’re ahead of where we were in the same point in 2019, but not necessarily at the same price. But that’s an indication of just how much demand there is out there, and I expect that to continue. I think it will be a very busy summer season for hotels, particularly leisure destinations in the US.” 

And at Wyndham, which has had a relatively good pandemic with economy hotels performing relatively less badly, CFO Michele Allen reported: “Our economy brands are leading the recovery with 2021 revpar now surpassing 2019 levels, and our mid-scale brands are fast followers with 2021 revpar now within about 10% of 2019 levels.” 

Nassetta said group bookings were returning. “To get both room nights and rate and the compression we need requires, certainly in the US, the bigger groups to be back. And while I think they’re coming back and certainly, they want to be back, the planning and all of that is on a lag. So I think that takes some time next year.” 

IHG’s Edgecliffe-Johnson dismissed ideas of a new normal: “We don’t believe that there’s a fundamental and structural, meaningful change in the demand that’s going to come into our hotels. So might you see a somewhat of a reduction in international demand? Possibly. If we saw that, then we’re confident that there’s enough other demand that would soak up any reductions there, so that there wouldn’t be a reduction in demand into our hotels. And my own experience is that structural change doesn’t happen with the same frequency as people may believe. So I think we will go back to pretty much what we saw pre-pandemic, over time.” 

With most brand groups reporting strong net unit growth, IHG was the standout poor performer, actually shrinking its global portfolio. Hilton added 105 hotels, growing the portfolio by 5.8%, a figure bettered by Hyatt.   

IHG’s Edgecliffe-Johnson reported: “During the quarter, we opened 7,000 rooms. Our focus on quality and consistency meant that at the same time, we removed 9,000 rooms. This includes an elevated level of exits in our Holiday Inn and Crowne Plaza estates in the Americas and EMEA at over 6,000 rooms.” 

One aspect of the pandemic has been how hotel groups have worked on their systems to improve profitability in the following years. At Wyndham, a new customer app introduced in the last few months is already having a significant impact, reported Ballotti. 

“The mobile booking app has been just huge for us. Its bookings year-to-date versus 2019 are up 50%. And then I think the biggest thing for us longer term is what we’ve been doing on the business side. And our business travellers, is a segment that has been giving our franchisees and owners a lot more share. And that’s everything that we’ve been working on from a direct billing solution. It is now benefiting all of our negotiated accounts and franchisees and our ability to attract new accounts and gain more traction from each account.” 

IHG is also working to sharpen up its systems around spikes in demand: “We’re building in further capabilities around surge pricing so we can understand if something is happening in a particular market. Because for an individual hotel owner, it’s really important to get the maximum revenue out of their property – they don’t want to undersell early, and they have to believe that demand will come back at a high price.” 

HA Perspective [by Chris Bown]: While the Europeans might be wringing their hands about a new normal, those hotel executives with a foot strongly in the US, clearly see things differently. Their forward booking stats there reinforce the view that we at Hotel Analyst hold – business travel will, substantially, go back to previous levels. And, with their systems improved during the pandemic, many hotel groups will be able to claw back that lose 5-10%, with efficiency and operational improvements that brighten the bottom line.  

So far, so good – but one big standout is the growth story. Hyatt, Hilton and others are storming ahead in growing their portfolios. Others, such as Wyndham, used pandemic downtime to have a clearout of hotels it really doesn’t want under its brands – a quickly executed plan that was delivered.  

At IHG, however, that clearing out is more like a festering sore. The culling of legacy Crowne Plaza and Holiday Inn hotels in the US portfolio has been an on-off story played out in results presentations over the last few years, making it a very slow burn, and leaving IHG with anaemic net unit growth. But maybe, with the group adding strong signings in China, and new brands in the US, IHG won’t miss those tired hotels of yesteryear.  

Additional comment [by Andrew Sangster]: This has not been a good period for the European global majors: both IHG and Accor have come unstuck, creating disappointment for their shareholders. 

The IHG net unit growth numbers (NUG) are dismal. And while any portfolio needs a pruning, IHG seems to have never put down the secateurs. It was back in 2007 when the clean-up of what was a tired Holiday Inn core brand began. The launch of the new build Holiday Inn Express in 1990 made existing Holiday Inns look significantly shabbier. 

It is time that IHG was able to stop shedding hotels at such a rate. During the first quarter, removing 9,500 rooms while adding just 7,300 is not the sign of a company with its foot on the accelerator. 

NUG is part of the holy trinity of profit drivers within the asset light model (the others being revpar and royalty rate). NUG is the number that varies the most between the leading hotel brand companies and is the number that highlights the saints and sinners within the industry. IHG needs to improve. 

Meanwhile Accor is stumbling thanks to being a latecomer to the asset light party. In theory, Accor’s higher mix of ownership, lease and management contracts, ought to make it more highly geared to benefit from the recovery. 

But this does not seem to be helping. Morgan Stanley analysts point out, when it comes to share price ratings, that “Accor has a weaker track record both pre and post Covid”. Investors do not seem to believe in management’s ability to deliver on its promises. 

Nonsense like the Air France / KLM stake discussions, and the diversion into unsuccessful digital forays, have not helped. 

Morgan Stanley more charitably state that Accor has plenty of optionality: it has a better global footprint than its peers and the widest set of brands. Like IHG, Accor has within it the tools to succeed. Both companies now need to seize the opportunities in front of them. 

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