IHG CEO Keith Barr seems to be taking quite a level-headed approach to the coronavirus outbreak. Unlike some in the travel industry, he's not pressing the panic button yet and is waiting to see how things play out.
InterContinental Hotels Group CEO Keith Barr has tried to play down the impact of the coronavirus outbreak, adopting a wait-and-see approach to how it might affect the business.
Although China is a big focus area for IHG, it is still a relatively small part of the current revenue mix.
Barr said that while the country was an “important part” of IHG’s future, at the moment it is “a smaller part of our business overall” with the area representing less than 10 percent of operating profit and 15 percent of the open rooms.
So far IHG estimates it will take a $5 million hit from lost room revenue for the month of February in the mainland China unit.
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“There will clearly be some impact on our business, which we started to see coming through in late January. We are still building a clearer picture, but we are currently seeing less travel in the region, which is leading to reduced occupancy, and around 160 of our 470 hotels are closed or partially closed,” Barr told analysts on an earnings call on Tuesday.
Barr, who spent time in China before taking the top job, said the priority was “taking care of our customers and our colleagues.” One of IHG’s hotels in the region is hosting medics and another is making meals for hospital workers.
Beyond the immediate financial hit in China and continued weakness in Hong Kong, Barr said there was a limited impact in the wider Asia Pacific region with conference organizers cancelling or shifting dates around.
“Again, it’s really too hard to quantify it because things are picking up and moving around the world and some things are being canceled overall,” he said.
IHG has looked at what happened during and after previous outbreaks in the region including SARS and swine flu (H1N1).
“[The] key thing to remember is the Chinese government’s ability to stimulate economic growth and activity is unlike any other country,” Barr said.
Barr’s commentary on the virus seems more upbeat than that of rival Hilton. CEO Chris Nassetta talked about a recovery time of a year with a potential full-year profit impact (adjusted EBITDA) of between $25 million and $50 million.
Wyndham Hotels and Resorts said the market would likely remain soft for most of the year as the region recovers.
The coronavirus outbreak began at the end of 2019 in the eastern Chinese city of Wuhan and has spread across the country. As of February 16 it has infected 70,620 people in China, with 1,770 of them dying. The biggest cluster of cases outside mainland China is onboard the Diamond Princess cruise ship, where authorities have diagnosed 542 people. The vessel is currently quarantined in Japan.
IHG reported a 12.4 percent jump in pre-tax profit to $542 million for the year to the end of December 2019. Revenue rose 6.7 percent to $4.6 billion, giving the company a profit margin of 11.7 percent.
Global revenue per available room — a key hotel industry metric — declined by 0.3 percent during the year. IHG said this was down to unrest in Hong Kong, supply outstripping demand particularly in the U.S. upper midscale segment as well as China-US trade tension and Brexit.
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Photo credit: InterContinental Lisbon. InterContinental Hotels Group posted an improved set of full-year results. InterContinental Hotels Group