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InterContinental Hotels Group (IHG) is looking at two seemingly different ends of the hospitality spectrum for growth in the hopes that betting on both will lead to success.
The UK-based global hospitality company, which has more than 5,348 hotels, is targeting its growth in the $60 billion luxury hospitality market, as well as in the in-demand midscale hotel category, the company said Friday.
By focusing on those two sectors of the hospitality market, the company best known for its Holiday Inn brands anticipates reaching new markets and gaining more share around the world in key markets such as Asia and the Americas.
The Push for More Premium Brands
IHG’s pursuit of more premium, or luxury and upscale brands, has been well documented since CEO Keith Barr took over the post from Richard Solomons last year.
Under Barr’s leadership, IHG has not only expressed a desire to have more luxury presence globally, but has taken deliberate steps to obtain it. In March, the company announced its purchase of a majority stake in Regent Hotels for $39 million.
On Thursday, the company announced it will also be taking over the operation of 13 luxury and upscale properties throughout the UK that were formerly owned by Starwood Capital.
With these hotels, IHG has plans to rebrand them under its existing InterContinental Hotels and Kimpton brands, as well as under a new, not-yet-named upscale hotel brand that will be initially launched in Europe, the Middle East, Africa, and Asia.
“This brand will capitalize on the significant opportunity IHG has identified to offer consumers an informal, but differentiated experience in the upscale segment, whilst offering owners a strong return on investment by converting unbranded hotels,” IHG chief financial officer Paul Edgecliffe-Johnson said during a first quarter earnings call with investors on Friday.
Once IHG’s Regent deal closes, IHG will have a total of three luxury/upscale brands — not including the not-yet-named upscale brand — and the company hinted that it may pursue more luxury brand acquisitions going forward.
“In luxury, you’re better off buying the hard work someone has done for 10 years” Edgecliffe-Johnson said, when asked whether IHG would create a new luxury brand or buy an existing one.
“We would look a more such opportunities,” he added, referring to the Regent deal. “We do want to build out our luxury capability.”
He also acknowledged that while the boutique Kimpton brand was traditionally marketed toward the upper upscale hotel market, it is increasingly becoming more of a “boutique luxury” brand since IHG’s acquisition of it in 2015.
Avid for the Midscale Segment
It’s only been less than a year since IHG first announced it would launch a new midscale hotel brand — also initially without a name at the time.
In that time, however, Avid Hotels has become one of the company’s strongest brands, driving IHG’s pipeline to have its “strongest first quarter signings pace for 11 years,” Edgecliffe-Johnson noted. He said IHG has more than 100 signed contracts for the brand throughout the Americas, and that demand from hotel owners has “significantly exceeded our expectations.”
The midscale hotel category remains in high demand on a global scale, thanks to the fact that these hotels are inexpensive for hotel owners to build and operate, and they also yield relatively high margins with fewer operational issues and labor costs than a more full-service hotel model. In recent years, new midscale brands, Avid included, have made more of a concerted effort to be, well, less boring, with improved designs and features.
And whereas IHG is considering another acquisition in the luxury or upscale hospitality segment down the road, the company anticipates building more organic growth with a brand like Avid.
Possible Group Commission Cuts?
Like its fellow hotel peers Marriott and Hilton, IHG may also eventually cut down the commissions it pays to third-party meeting planners.
Edgecliffe-Johnson said, “We are looking at it as you would expect. We are a smaller groups and meetings business than Marriott and Hilton. We don’t have those big boxes that they do. We’re more leisure and transient than they are. We will continue to monitor it but we have nothing to say on it today.”
First Quarter Earnings
In a statement, IHG CEO Keith Barr expressed confidence in the company’s outlook for the year ahead, and satisfaction with a strong first quarter. “The fundamentals for our industry remains strong, we have the right strategy and we are confident in the outlook for the year ahead.”
Global revenue per available room (RevPAR) was up 3.5 percent for IHG, with average daily rate up 1.9 percent and occupancy levels up 1 percent. RevPAR in the Americas, Europe, Middle East, Asia, and Africa was also up 2.9 percent in the first quarter, and RevPAR in Greater China grew 11 percent.