IHG Downplays Stalled Growth Amid Pandemic Recovery

IHG Hotels & Resorts reported Friday its third straight quarter of essentially no net expansion to its global portfolio. But one company leader emphasized growth is just around the corner.

The company behind brands like InterContinental and Holiday Inn is still opening rooms — nearly 30,000 so far this year — but enough hotels are exiting the IHG network where the company hasn’t seen any annual net growth in recent quarters. New room signings in IHG’s Americas region are roughly half of 2019 levels.

Leaders at IHG, which is undertaking a review process of roughly 200 underperforming Holiday Inn and Crowne Plaza hotels, maintain the company can return to the strong growth momentum seen before the pandemic.

“Remember that there is quite a long lead time for a deal to go from when an owner starts to get interested in doing a signing with us to actually getting ink on a page and a legal contract in place,” Paul Edgecliffe-Johnson, IHG’s chief financial officer, said Friday on an investor call. “For quite an extended period of time, our owners have been focused on stabilizing their businesses, looking after their teams, etc. And it’ll take a while before that sort of normalizes. What we have seen, though, is very encouraging.”

There has been an increase in inquiries about franchise deals, he added. Potential owners have letters of intent for hotels and available property lined up, and a crucial part of the development equation — willing lenders at regional banks — is once again showing signs of life. 

Edgecliffe-Johnson indicated the company should be back to the growth it saw in 2018, which was the strongest level of rooms expansion seen in a decade, as early as next year.

“The regional banks have been calling our owners more to say, ‘We are open for business. We want to lend on your project,’” Edgecliffe-Johnson said. “Again, that’s a good early indicator as to the [pace of] signing doubling in due course.”

While IHG has seen flat growth this year, some of its competitors are managing to expand during the pandemic. Hilton reported a 7 percent net rooms growth in the second quarter compared to IHG’s negligible net expansion.

Marriott International, which similar to IHG saw a chunk of its rooms removed from its system due to a failed deal with a Boston-based real estate trust, estimated on its second quarter report the year would end with as much as 3.5 percent rooms growth.

A Year to Rebuild

Part of IHG’s flat rooms growth is attributed to the company’s ongoing review of roughly 200 Holiday Inn and Crowne Plaza hotels with poor customer service ratings. More than 90 of those hotels have either already been removed from the IHG network or are in the process of leaving. Owners of more than 40 of the hotels committed to a property improvement plan. 

Edgecliffe-Johnson estimated as many as 130 hotels could leave the system by the time the review process finishes by the end of this year. 

“The remainder are committing to a significant improvement, which will be great because it significantly raises the quality of those brands,” he said.

He also noted the review process is a major driver in the company’s higher rate of room removals this year and that other brands in IHG’s network are generally seeing room deletions at more normalized rates. 

A Volatile Recovery

UK-based IHG isn’t required to provide specific profitability figures on first and third quarter earnings reports. But the company did report its revenue per available room — the industry’s key performance metric — was 21 percent below levels seen in 2019.

The Americas garnered more of a stable recovery than China, largely due to the tougher mitigation efforts against significantly fewer reported cases in Mainland China compared to the more open policies in the U.S.

Rooms revenue in the Americas region was just shy of 10 percent off 2019 levels while Greater China saw a nearly 30 percent decline. China, which has generally led the global hotel recovery from the pandemic, slid due to the country enacting another wave of lockdowns over the last few weeks of summer in response to an outbreak of new cases.

IHG, like most of its competitors, still sees opportunity in China as well as pent-up travel demand. Recovery just hinges on the country’s virus containment policies.

“Where it ends up will depend on what restrictions the Chinese government puts in place,” Edgecliffe-Johnson said. “With restrictions, it will be tougher, and that’s why the swing factors are very difficult to call with that factor in mind.”