A slowdown is coming — we don't know when and it probably won't be at the same scale as 2008 — but it will happen. A bullish IHG claims its business and its model makes it well-placed to ride out the storm.
The prospect of some form of global slowdown over the next year or so looks increasingly likely, especially with countries squabbling over trade, but InterContinental Hotels Group believes it’s in a position to be able to weather any storm that might blow its way.
Revenue per available room — a key metric in the hotel industry — dropped 0.8 percent across the group in the third quarter, indicating a weaker environment.
Some of IHG’s issues are market-specific. Protests in Hong Kong have had a detrimental impact on tourism, and IHG expects to take a $5 million hit on lost fee income. There are also issues relating to the group bookings, particularly in the United States.
“Our broad geographical spread combined with the resilience of our asset-light, cash generative model, our disciplined approach to cost management, and the continued execution against our strategic initiatives, positions us well for the future,” said CEO Keith Barr in a statement accompanying the company’s third-quarter trading update.
Speaking to analysts on Friday after the announcement, IHG Chief Financial Officer Paul Edgecliffe-Johnson echoed Barr’s upbeat tone, arguing that the company was well-positioned with the right portfolio spread.
“I think that what you tend to see in an event of a downturn is that the midscale, upper midscale brands do outperform. We certainly saw that last time around. And consumers are very attracted by strong loyalty offers,” Edgecliffe-Johnson said.
“So I would actually expect to see even more business come to us in the event of any sort of downturn like that. And we’ve expanded since 2008 the penetration we have into those segments.”
IHG isn’t required to publish full financial results every quarter, and this update only included revenue per available room and a few other select metrics.
Saudi Arabia Opportunity
One area of potential growth for IHG and other hotel companies is in Saudi Arabia, which is making a big push into tourism.
IHG is “very well represented” in the country, Edgecliffe-Johnson said, with a number of signings in Mecca and a new Voco coming to Jeddah.
“I think there’ll be an opportunity for more hotels in due course,” he added.
Thomas Cook Connection
As well as serving as IHG’s CFO and group head of strategy, Edgecliffe-Johnson was from July 2017 up until its recent collapse a non-executive director of UK-based travel group Thomas Cook. He served on both the audit and remuneration committee.
An inquiry into its demise started this week, and UK members of parliament serving on the Business, Energy and Industrial Strategy (BEIS) Committee were highly critical of the conduct of the board.
(Edgecliffe-Johnson did not appear at the first hearing but other ex-board members, including the former chairman, did.)
“[A] travel company is, in a way, quite a simple business. Your job is to send people on holiday, to ensure they have a good time, and to bring them back at the end. In the end, the board of Thomas Cook, a 178-year-old business, was unable to do those basics. That is why, in the end, you failed,” said committee chair Rachel Reeves in her closing remarks.
Skift asked IHG whether Edgecliffe-Johnson had offered to resign and whether the board — of which he is a member —had full confidence in him.
IHG declined to say whether Edgecliffe-Johnson had offered his resignation, but a spokesperson said: “The IHG Board has full confidence in Paul Edgecliffe-Johnson and his continued leadership as our CFO.”
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Photo Credit: The InterContinental Kuala Lumpur. IHG saw its revenue per available room slip in Q3. InterContinental Hotels Group
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