InterContinental Hotels revealed it is to launch a collection brand to revitalise portfolio growth, as it discussed first half results.
“It’s become very clear that there is strong demand and appetite for a collection brand from IHG in the luxury and lifestyle space, something that could create more opportunities to work with us on properties that today may not have quite the right fit in our portfolio,” said CEO Keith Barr. He added it would “offer a different price point to our upscale conversion brand voco. This collection brand will allow IHG to fast-track further growth in segments worth over USD100bn billion and where 1.5 million rooms are currently independent.”
The brand is some weeks off its grand reveal, but Barr said he expected it to grow to 100 properties within a decade. “It enables us to go after different opportunities, luxury, lifestyle, independent hotels, it could lead us lean into the all-inclusive space as well too. We can build this brand organically, leverage our investments we’ve made in technology and loyalty and not have to utilize capital to go acquire something and there’s enough owner interest out there already. We’ve had a number of conversations with strategic owners who want to sign up for this brand too.”
The group reported an operating profit of USD138m for the half year, led by a strong recovery at hotels in China, and the US. In line with Hilton and Marriott, the group is also enjoying very strong demand at its resort properties. EMEEA remains the toughest of IHG’s regions, with revpar still 65% below 2019 comparables.
IHG has used the pandemic downturn to accelerate its clearout of US properties that fail to meet its current brand standards. “We planned for 2021 to be a transitional year with a higher than average removals rate,” said CEO Keith Barr. “On a gross basis, our net system size grew by 5% for the half including 132 openings, up 46% on last year. On a net basis, net system size growth was flat year-on-year.”
Most of the removals were Holiday Inn and Crowne Plaza hotels – around 200 properties are on the list for review. In the first half of the year, 56 hotels exited, while more than 30 agreed improvement plans, in order to stay with the brands.
Barr said that he expected net growth to bounce back soon: “I would expect that ’22 and ’23 looks a lot more like 2018 and 2019 – 5% is sort of what the industry needs to be getting to be one of the top players.”
In common with other hotel brand leaders, Barr expressed confidence in the return of business and group accounts. “I do think the death of business travel has been grossly exaggerated. And I think we fundamentally believe it will come back over time, but the shape and profile may look a little different than it used to. And remember a huge portion of our business travel is essential business travel, it has been here throughout the pandemic.”
“Looking at some of the airline numbers I saw the other day, they were saying 50-60% of corporate travel coming back and that would step up into Q3 and Q4. We are seeing some groups meetings and events begin to book and taking place in our hotels.”
And while IHG has effectively been reducing its presence in the US market, others are eyeing the opportunity to jump in. German budget operator Motel One has signed a new lease with landlord Union Investment, taking over a former Courtyard by Marriott in downtown Manhattan.
“As Motel One’s biggest landlord, we are delighted to have the opportunity to extend our longstanding strategic relationship outside Europe as well,” said Martin Schaller, head of Asset Management Hospitality at Union Investment. “We’re looking forward to jointly bringing this successful lifestyle concept to the local market and travellers from all over the world in the heart of New York very soon.”
Also looking to expand into New York is PPHE, which has acquired a site in the city for an art’otel. In January 2020, the company bought out its development partner, and is sitting on a planned USD43m development that was envisaged, pre-covid, to be ready for opening in 2023.
And CitizenM is doubling down on its US presence, with upcoming openings adding to its current five properties open across the country. It is due to open in Los Angeles Downtown, San Francisco Union Square and Washington DC NoMa before the end of the year, and has two further projects in development in Miami.
HA Perspective [by Chris Bown]: And so, another collection brand. What’s so special about IHG, when you’ve got options with Marriott, Hyatt, Hilton, etc etc? At the end of the day, for the independent hotel owner, it’s going to be about the marketing fee, the net income from a loyalty member’s stay – and how many more guests you can expect, and – related – how many other IHG listings there are in the vicinity. Horses for courses, but IHG ought to pick up their share.
Additional comment [by Andrew Sangster]: IHG was bullish on recovery prospects: “Actions take over the last 18 months position us well to exceed pre-pandemic level of growth and profitability”.
And it is doubling down on its desire to be the fastest organic grower, saying there was: “Clear strategic priorities to achieve our ambition of industry-leading net rooms growth in the years ahead.”
This year, though, Net Unit Growth in the first half was flat. Although 5% new rooms were added, the harsh pruning to get the brand portfolio ship-shape meant as many properties went out the door as came in.
If IHG is to realise its ambitions, it will be thanks to this hard work on maintaining brand consistency, a difficult juggle for any franchisor. And its brand portfolio is more coherent than most of its rivals.
Whether this matters of course, remains to be seen. Accor has been the most promiscuous of the global brand majors, opportunistically adding a raft of different brands that often appear to overlap. Marriott too, thanks to its Starwood acquisition, has a lot of brands that sit in the same space. It is perhaps only Hilton that is a match for IHG in having brands that have distinct swim lanes.
Where IHG looks less sure-footed is with its midscale offer. It had previously referred to such brands as mainstream but has now adopted the term “essentials”. This is somewhat ironic as IHG has the strongest grip of any company on this market segment.
Research by analysts at Bernstein shows that thanks to Holiday Inn Express, IHG outperforms its peers on generating the best average daily rate for its properties in the US (though not revpar, a crown taken by Hilton).
Express takes on Fairfield and Hampton and beats them. But this success has not been replicated outside of the US. Probably the next best estate is in the UK but Express significantly lags the market leader here, Whitbread’s Premier Inn.
What will ultimate drive organic growth success is the return on investment. Bernstein helpfully calculates this too, and interestingly has three extended-stay brands in the top four (Candlewood, Residence Inn and Home2). Only Hilton’s Tru, which has been an exceptionally successful new brand launch, joins this company in the 13% to 15% ROI range.
Bringing up the rear on ROI are luxury hotels, Sheraton at 5% and Conrad, Marriott and JW Marriott on 6%. Owners of these properties do, however, benefit from capital appreciation, point out Bernstein.