Executives at IHG Hotels & Resorts said companywide revenue per available room now is exceeding 2019 levels.
Speaking on a call with analysts to share the British firm’s third-quarter 2022 earnings, Paul Edgecliffe-Johnson, chief financial officer and head of group strategy, said another positive is business travel rooms revenue in the U.S. is above pre-pandemic numbers.
“The Labor Day weekend [Sept. 3-5] saw a 16% increase above 2019,” he added.
Edgecliffe-Johnson told analysts that RevPAR in the Americas for the third quarter increased in comparison with the same period in 2021 by 6.8% for the Americas and 28% globally.
RevPAR in its Europe, Middle East, Africa and Asia region was flat to 2021, but China remained the obvious outlier, with RevPAR down 20%.
"Against a backdrop of inflationary pressure in most economies around the world, the strength of IHG’s brands is clear with rate up 11% on 2019," CEO Keith Barr said in a statement. "As well as leisure rates being up around 15% in the quarter, business rates were up by 7% and group activity also saw rate move into positive territory on 2019 levels.”
In other news, Edgecliffe-Johnson said he will leave the company in six months to start a role as finance chief at sports betting firm Flutter Entertainment. Edgecliffe-Johnson started working at IHG as its senior vice president, head of investor relations, in August 2004.
“It has been a huge privilege to have spent almost two decades as part of such a dynamic and successful business,” he said.
IHG's current debt is 2.11 billion pounds sterling ($2.37 billion), and it has six bond issues remaining on its books, including one of 173 million pounds sterling due in November. Cash reserves stand at approximately 500 million pounds sterling.
The other bond issues will mature between October 2024 and October 2028. Edgecliffe-Johnson said IHG wishes to hold net debt to approximately 1.6 billion pounds sterling.
A share-buyback program will return $500 million of capital to shareholders by Jan. 31, 2023, and is 59% completed, he said.
Boosters and Breaches
Edgecliffe-Johnson said he is confident in the return of group business to IHG's hotels.
“Clearly leisure has been an important factor in our [third-quarter] numbers … but we have seen recovery across all the week. RevPAR has become flat across Monday through Wednesday, and these numbers give us confidence that there is more recovery to come,” he said.
“RevPAR for the quarter shows further strong momentum. … Another quarter of excellent, sequential improvement,” he added.
Edgecliffe-Johnson said more growth is expected in upcoming quarters in business and group demand, “which are not back to 2019 levels … and more growth to come from China and parts of Europe, Middle East and Africa.”
Greater China remains a challenge, with approximately 100 of IHG’s hotels in the region remaining in use only as quarantine facilities or not operating, he said.
“History has shown us, though, that whenever restrictions are relaxed, demand returns sharply thereafter,” he said.
He said conditions to open new hotels continue to be challenging everywhere, but especially in China.
“We’re still seeing appetite for conversions and multi-brand developments. Owners are talking to us. They want access to our platforms as they are saying it is just harder now getting over the line,” he said.
Edgecliffe-Johnson acknowledged signing with a brand increases fees but that traditional finance is currently almost unheard of for non-branded product.
“Showing the bank you have signed with a brand is another leg for the stool,” he said.
He said many owners started their careers in an era of higher interest rates and financing.
“We’re back to where many of them are used to. Hotels can make very strong returns, even if paying debt costs 400 basis points ahead of where they were. The challenge is getting hold of debt, and that is definitely harder than it was,” he said.
“I do not think that will ease up in the short term, and so it is down to the best brands, and ours are proven on a [rate of return] basis. We do well on a relative basis, but owners have to work harder to get access to that debt capital,” he added.
Wages will be another pressure in 2023, Edgecliffe-Johnson said.
IHG opened approximately 8,000 rooms in the quarter in 51 hotels, which represented a 4.3% increase year over year in its portfolio. He added approximately 3,000 rooms were removed, which included IHG's exit from Russia.
In the quarter, IHG signed 13,300 rooms in 89 hotels, which has resulted in a new pipeline of approximately 278,000 rooms. That includes the first all-inclusive Kimpton property, an asset in Playa del Carmen, Mexico, which is scheduled to open in 2024.
Edgecliffe-Johnson ended the presentation by saying a recent data breach had not resulted in any guest data being compromised.
“We had to close some of the booking channels [between Sept. 5 and 7] to get these criminals out of the system. … [but] nothing in the numbers shows us we have made a loss from this,” he said.
At press time, the firm’s stock was trading at 43.73 pounds sterling ($49.10) per share, a 12.5% decrease year over year. The London Stock Exchange’s FTSE 100 index was down 4.3% over the same period.