IHG Hotels & Resorts executives are confident the company will continue to demonstrate resilience and expand its footprint in 2021 and beyond.
According to CEO Keith Barr during a presentation of full-year 2020 earnings, the Holiday Inn and Crowne Plaza brands performed relatively well in 2020, while newer brands like Avid will soon reach scale and further help revenues rebound as global travel restrictions slowly lift.
Expanding on Holiday Inn and Crowne Plaza, Barr said there are approximately 200 hotels worldwide that are not performing as well as they should.
“We will work very closely with [those] owners, who have received conversations well. There will clearly be some impact on our system as not all them will survive the journey,” he said.
Barr said IHG's owner partners, who on average own two to three hotels within IHG’s portfolio, are mostly focused on operations, not breaking ground, but overall there is optimism.
“We opened on average one hotel a day. It is a transitionary period now, but we expect to resume market leadership,” he said.
Executives at IHG Hotels & Resorts — formerly named InterContinental Hotels Group — told analysts they expect the future of the hotel industry to be dominated by companies with scale, despite IHG's 2020 performance showing declines in wide-scale metrics in line with the rest of the industry.
Barr said an example of the company’s market strength is in portfolio growth with brands such as Avid and Six Senses. Six Senses signed seven hotels in 2020, bringing its global pipeline to 31 and total portfolio to 47.
Barr said Avid will be IHG’s next brand of scale. It opened its first hotel outside of the U.S. in 2020 — the Avid Hotel Fresnillo in Mexico — and broke ground on a property in Canada outside of Toronto and a second hotel in Mexico.
No dividend will be paid following the release of IHG's latest earnings, said Paul Edgecliffe-Johnson, CFO and group head of strategy. Barr added the company will soon restore its dividend.
“We will reinvest capital to maintain growth and restore an ordinary dividend when sustainable to do so,” Barr said.
Barr said IHG had acted “quickly, actively and responsibly” following the outbreak of COVID-19 in line with its “conservative balance-sheet approach,” but that demand fell to the lowest levels ever recorded at the firm.
“That resulted in a 75% fall in underlying operating profits,” he said.
He added the company has liquidity of more than $2 billion, and a repayment next month of $600 million in the Bank of England’s Covid Corporate Financing Facility will go ahead.
Smart Scale
Barr and Edgecliffe-Johnson said the company's scale has enabled financial returns, since global locations are in different stages of recovery.
“In China, occupancy recovered to 60%" in the fourth quarter 2020, Edgecliffe-Johnson said.
The Europe, Middle East and Africa region continues to suffer, executives said, with revenue per available room declining 64.8% year over year in 2020.
United Kingdom year-over-year RevPAR in the fourth quarter fell 64.8%, while in continental Europe RevPAR plummeted 86%.
RevPAR declines in the Middle East and Australasia-Japan were not as bad, with performance down 56% and 53%, respectively. The U.S. performed the best of IHG's regions, with RevPAR down 46.9%.
In the fourth quarter, companywide RevPAR declined 52.5%, Barr said, while revenue for full-year 2020 in year-over-year terms was down 52% to $992 million.
Fee margins decreased by 20 basis percentage points to 34.1% in full-year 2020, with fee revenue down 45% to $823 million. There was an operating loss of $153 million for the year.
Nevertheless, Barr said he is confident IHG’s fee-based model shows resilience.
New signings are expected to continue, with IHG's current pipeline equal to 30% of the current network.
“We have 103,000 rooms in the U.S. pipeline … and in December, there was 50% occupancy in 30% of the portfolio,” Edgecliffe-Johnson said.
IHG's global portfolio increased 0.3% to 886,000 rooms in 5,964 hotels in 2020, Barr said, and 25% of those were conversions. The company broke ground on 213 hotels during 2020 and signed 360 assets.
Savings in 2020 amounted to $150 million, Barr said, adding the firm had maintained investment in its five newest brands and key money has been deployed to add hotel signings.
Barr also paid tribute to Arne Sorenson, former CEO of Marriott International, who died on Feb. 15, saying he was an “inspiring individual to so many people.”
As of press time, IHG stock was trading at 53.14 British pounds ($74.80) per share, up 13.4% year to date. The London Stock Exchange FTSE 100 is up 2.2% for the same period.