Under previous CEO Richard Solomons, IHG had looked to fill "white space" in its portfolio and it looks like this plan is continuing under his successor. Despite having a well-established luxury brand, the area is something of a weak spot for the company, with no true high-end offering. It sounds like IHG is well on the way to rectifying this.
InterContinental Hotels Group (IHG) is planning to buy a luxury hotel brand as part of a wider strategy to boost its presence in the segment.
IHG had previously hinted at growth and is now targeting one or two deals, having already held some preliminary discussions.
Rather than building a brand from scratch or buying a well-established company, CEO Keith Barr said the IHG would take a different approach.
“We are very focused on the sweet spot of acquiring an asset light, small luxury brand company or companies with a strong customer proposition, [and] strong owner proposition that we can grow,” Barr told investors in an earnings call following the release of IHG’s full-year results.
“There are a number of those located throughout the world right now that we’ve had conversations with that are interesting.”
IHG may claim to be the largest luxury operator through its InterContinental Hotels & Resorts offering, but it is lacking a high-end brand that can compete with the likes of Ritz-Carlton.
“We see a real opportunity to round out ur portfolio and add other luxury brands at a price point above InterContinental and potentially also in the resort space,” Barr said.
“A more comprehensive luxury offer will have numerous halo benefits, including helping us strength our loyalty offer and attracting more B2B customers.”
Prior to the results announcement analysts at investment firm Bernstein floated the idea of IHG buying one of Mandarin Oriental, Shangri-La Hotels and Resorts, or Belmond but these look to be too big for IHG’s strategy.
Alongside the potential acquisitions, IHG is also creating a new luxury division “to redefine operational excellence in this segment.”
New Upscale Conversion Brand
A luxury acquisition is not the only addition IHG is planning in the coming year. As previously flagged, the company is adding an upscale conversion brand in 2018 targeted at the Europe, Middle East, Africa, and Asia (EMEAA) region.
Barr said it would be much quicker to convert existing hotels than “having to break ground and build” like with the company did with midscale brand Avid.
“You would expect us to be able to see that pipeline be well established and grow quickly with lower time to convert when they come into the pipeline,” Barr said
IHG’s full-year revenue increased 4 percent to $1.8 billion, while pre-tax profit rose 14.7 percent to $678 million. The results covered the period to the end of December 2017.
Revenue per available room (RevPAR) — a popular metric used by hotel companies — grew 2.7 percent across the year and 4 percent in the fourth quarter. (As a comparison, Marriott International’s figures were: 3.1 percent and 4.6 percent respectively.)
IHG said it was looking to make $125 million worth of annual savings by 2020, which it would then reinvest in the business.
These savings will cost $200 million to achieve and as part of the progam, IHG spent $24 million on consultancy fees and $8 million on severance costs in 2017.
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Photo credit: The InterContinental Warsaw in Poland. Parent company IHG wants to add another luxury hotel offering. IHG