Executives at IHG Hotels & Resorts said the business environment and performance of its portfolio, particularly in the U.S., during the third quarter, are encouraging.
On a call with analysts to announce third-quarter earnings, Paul Edgecliffe-Johnson, chief financial officer and head of group strategy, said occupancy and average daily rate in some markets this summer were back to 2019 levels, buoyed by performance in the U.S.
“We’re trading significantly, with a strong pricing environment, encouraged by more business and corporate travel,” he said. Regarding the corporate rates process, "we’re very keen on locking in pricing. There are constructive conversations.”
He said every percentage point difference in revenue per available room had a sensitivity of $14 million — a number that, pre-pandemic, was approximately $13 million.
“Sensitivity all depends on when remaining owned and leased hotels and big management contracts go back to profitability,” he said.
Previously announced cost savings of $75 million remain on track, and the company is targeting another $25 million in savings, he added.
IHG executives are also encouraged that group demand has been improving since the second quarter and because average daily rate is holding, notably in leisure demand but also business demand.
Group revenue per available room in the third quarter was up 66% compared to the same period in 2020 but down 21% versus 2019.
In the Americas, third-quarter RevPAR was down 10% against 2019 but up 76% against 2020.
“In that region, we are within 10% of what we saw in 2019, due to leisure pricing in the U.S., due to demand and inflation in the broader economy. We’re up on 2019 on a nominal basis and back to parity on a real basis,” Edgecliffe-Johnson said, referring to occupancy increasing from 60% in the second quarter to 66% in the third.
In a press release accompanying the numbers, IHG's CEO Keith Barr said “the pace of returning demand is very encouraging as travel increasingly re-opens in every region."
"Discretionary business travel, group bookings and international trips have also shown increasingly encouraging signs, on top of continuing good levels of essential business demand,” he added.
The executives said better performance is expected to continue through next summer but warned that continued uncertainty around COVID-19 and governments’ response to that might muddy the waters.
Global Performance
Performance remains varied across international markets.
In the United Kingdom, IHG’s home, 52,009 new cases of COVID-19 were reported Thursday, even as 79% of people aged 12 and older have been fully vaccinated.
RevPAR in the U.K. for the period was 22% below 2019 levels. In London, RevPAR was 51% below 2019 levels, but in the regions it was only 5% below.
Edgecliffe-Johnson said performance in China, a key market, is sensitive to what he called a “big swing factor” if COVID-19 rates increase and its government decides on new action to counter it.
RevPAR in China has fluctuated significantly over the last two quarters, from 6% down in year-over-year July results to 50% down in August and 26% down in September, he said.
In Australia, year-over-year RevPAR was down 68% due to the reintroduction of strict travel restrictions, even among Australian states.
Portfolio and Pipeline
Edgecliffe-Johnson said IHG continues to add properties to its portfolio, and an analysis of its Holiday Inn and Crowne Plaza brands is due to finish by the end of the year.
In the U.S., the company opened almost 3,000 rooms in the third quarter, a year-over-year increase of 3.3%. Approximately 4,100 rooms were added to its U.S. pipeline, for a new total of nearly 97,000 rooms.
“There is a level of confidence if we look at what we’re seeing year-on-year, with signings up 5.2%. Exits are back to what we would expect to see. Yes, we’d have to see a few more openings, a few thousand [rooms], to be back to [pre-COVID 19 levels], but if you look at the very large pipeline, it is because there are a number of brands that are very attractive to conversions,” Edgecliffe-Johnson said.
He said the number of owners signing on to IHG brands is lower than it was in 2019, with one reason being that owners are focusing on their existing businesses and teams.
“[That] will take some time to normalize, but we are seeing a step up in the initial parts [of the development process], with an increase in interest in signings letters of intent and banks willing to lend,” he said.
Only 28 IHG hotels remain closed.
“We opened 4,000 rooms [in the third quarter], 5.2% up year-on-year, and half of signings are conversions,” Edgecliffe-Johnson said, noting that brands such as Avid, which can be opened 12 months after signing, are helping the process.
“There were 91 signings in the quarter, increasing the overall pipeline to 270,000 rooms, and this trajectory is expected to carry on through fourth quarter,” he said.
He said in the analysis of Holiday Inn and Crowne Plaza, 90 hotels have exited the portfolio, with a further 40 undergoing improvement plans.
“[That comprised a] review of 200 hotels, in line with guidance … and this will significantly improve the quality of these brands,” he added.
In the past 12 months, IHG removed approximately 26,500 rooms from its system, and approximately 17,100 were at Holiday Inn and Crowne Plaza hotels.
Edgecliffe-Johnson said labor remains a huge struggle, and IHG is doing what it can to help owners find employees.
"It will remain a challenge, but our owners are resourceful, they are entrepreneurs, and they know their markets,” he said.
IHG is celebrating its 75th anniversary this year.
At press time, IHG stock was trading at $69.53 a share, up 6.8% year to date. The New York Stock Exchange was up 17.6% over the same period.