The pandemic nosedive in business helped IHG accelerate its plan to cut a few bad apples from the Holiday Inn and Crowne Plaza network. More trimming is likely to boost brand quality and — just as important — get back to 2019 levels of record growth.
IHG Hotels and Resorts cut ties with more hotels last quarter than it opened, part of a plan to address customer service issues across two of its biggest brands.
IHG removed 9,500 hotel rooms, or 61 hotels, from its system over the first quarter, with roughly half of that coming from Holiday Inn and Crowne Plaza. The UK-based hotel company only opened 7,300 rooms, or 56 hotels, last quarter.
The greater closure figure follows IHG CEO Keith Barr’s comments earlier this year that the company would target 200 underperforming hotels to remove from its network to improve customer service and better position the company for growth coming out of the pandemic.
“This is the right time for us to have conversations with owners. Guest expectations have changed,” said Paul Edgecliffe-Johnson, IHG’s chief financial officer, on a Friday investor call. “We have been working with the owners to take out the hotels in the system that hadn’t met our vision for the brands as they move forward.”
The rate of Holiday Inn and Crowne Plaza exits from IHG’s system is double that of the company’s other brands, but both divisions still play very important roles.
The company launched a $200 million brand refresh for Crowne Plaza in 2016 in the Americas, and IHG repeatedly signals Holiday Inn and Holiday Inn Express remain major growth drivers in markets like Europe and China. Nearly 80 percent of IHG’s U.S. portfolio is in the middle-market segment of hotels, which includes Holiday Inn.
But eliminating the bad eggs with lower customer service ratings boosts the respective brand profiles, especially at a time when IHG wants to sign more franchise deals with owners of existing hotels.
Barr noted in February roughly 60 percent of the hotels across the Middle East and Southeast Asia are independent, which presents a major opportunity to negotiate with those owners to take on a brand affiliation.
Both Holiday Inn and Crowne Plaza are popular brands in these markets. IHG launched Holiday Inn Express in China five years ago and already has deals for 300 hotels.
The 31-hotel deletion across the two brand portfolios last quarter means roughly 170 properties remain on IHG’s risk-of-closure list. Edgecliffe-Johnson indicated further details on the plan would come out this summer.
“Owners understand what we’re trying to do,” he said to an analyst on the investor call. “But there are further conversations to be had before I will be able to give you a meaningful level as to what proportion may stay and what proportion may go.”
The U.S. and China Comeback
IHG, like every other hotel company this quarter, emphasized stronger domestic travel in the U.S. and China as a bright spot for the hotel industry recovery. But the company is still way off pre-pandemic performance.
Revenue per available room, the industry’s key performance metric, is half of where it was for the company in 2019. The U.S. and China were the best performers, as U.S. revenue was down about 40 percent and China declined 38 percent from 2019. European rooms revenue was down 87 percent. IHG did not have to report a quarterly profit or loss figure since it is based in the UK.
While China is further ahead in its recovery than the U.S., the relatively small performance gap between the two countries stemmed from a winter surge of new cases and tough lockdowns in some of China’s major cities. But China is also a case study in how IHG expects the rest of the world to recover.
“We’re seeing conferences in China, we’re seeing large weddings, [and] a lot of business [travel]. It’s largely recovered, particularly in markets where there’s no longer any restrictions as to the size of groups that you can have,” Edgecliffe-Johnson said. “It’s an indication for us that we will return back to this pre pandemic normality.”
Organic Growth Over Acquisitions
IHG still inked new deals for 92 hotels, or about 14,500 rooms. That brings the pipeline up to 274,000 rooms, a 2,000-room increase from what was reported in February but 14,000 rooms less than where it was at the end of the first quarter in 2020.
While IHG has acquired brands like Six Senses and Regent in recent years — and was rumored last year to be in merger talks with Accor — Edgecliffe-Johnson indicated there isn’t a desire to beef up the brand portfolio with further acquisitions. The company typically builds out its non-luxury network with organic growth, and IHG has already acquired what it needs in the high-end sector.
“We think we’ve got the leading portfolio of brands now in the luxury segment, which we’re growing out, so there’s no need for any further acquisitions,” he added. “We’ve got a very attractive stable of brands right now that position us well for future growth.”
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Photo credit: Brands like Crowne Plaza and Holiday Inn remain important to IHG, but quality issues mean cuts are necessary to underperforming hotels. Augustus Binu / Wikimedia