IHG Returns to Profitability After Dropping Laggard Hotels

IHG Hotels & Resorts is back in the black after completing an initiative to remove underperforming hotels from its global network. 

The company behind brands like Holiday Inn and InterContinental reported Tuesday a $494 million profit for 2021, up from the $153 million loss it posted the year prior. While IHG may have returned to profitability, it had a slight step back in size: The company shrank its overall guest room count by 0.6 percent after removing nearly 50,000 rooms from its system. 

A bulk of the room deletions were tied to a previously announced plan to cut underperforming Holiday Inn and Crowne Plaza hotels from the IHG portfolio. 

“We made important progress in 2021 on multiple fronts that will ensure we emerge from this period a stronger company,” IHG CEO Keith Barr said on an investor call Tuesday. “We’ve continued to invest in the quality and consistency of our estates, including completing our Holiday Inn and Crowne Plaza review.”

Roughly 70 percent of IHG’s room deletions came from the two brands. The company first announced early last year it was reviewing hotels across the two brands for potential removal. 

Holiday Inn saw 108 hotels leave its portfolio while 43 Crowne Plaza hotels were cut. The owners of the 83 hotels that stayed in the network have all agreed to investment plans for things like lobby and guest room renovations to boost customer satisfaction scores. 

“Both brands are now well positioned to meet guest expectations and continue expanding their distribution,” Paul Edgecliffe-Johnson, IHG’s chief financial officer, said. “The actions we’ve taken across the business mean we are strongly positioned to achieve our ambition of delivering industry leading net system size growth.”

Barr and Edgecliffe-Johnson faced several questions Tuesday regarding the company’s lack of rooms growth. IHG hasn’t seen the net rooms growth competitors like Marriott and Hyatt have reported for several quarters. But company leaders maintained this was all a result of the performance review at Holiday Inn and Crowne Plaza.

While IHG accounts for 4 percent of all hotel rooms globally, the company has nearly 11 percent of the global development pipeline.

“This is an incredibly strong position for IHG to be in,” Barr said. 

He later cited Holiday Inn Express as well as newer brands like Voco and the affordably priced Avid as major growth drivers in the years ahead. The company anticipates 2022 rooms growth looking like 2018, which was just shy of 5 percent and then the strongest IHG had seen in a decade. 

Barr specifically noted the company’s addition of six new brands across a variety of price points —luxury brands like Regent and Six Senses, the higher-end Vignette Collection and Voco, and more affordable offerings like Atwell Suites and Avid — since 2017 as making the return to growth possible. 

Many of these brands are aimed at conversion deals, where an owner of an existing hotel takes on a new brand affiliation. A quarter of all new signings at IHG were conversions.

“That wouldn’t have happened had we not had the brand portfolio that we have today,” Barr said.

Durable Business Travel

IHG’s brands generally court more resilient streams of business travel like construction workers and other essential “road warrior” sectors relative to competitors like Hyatt, which rely more on demand from larger companies that had the option to work remotely during the pandemic and not send employees on the road. 

Hyatt reported last week business travel demand at the company was only at 44 percent of 2019 levels in the fourth quarter of last year. But IHG’s business travel demand in the U.S. was only 8 percent off 2019 levels in the fourth quarter. 

Omicron dealt a setback to the hotel industry’s recovery momentum in the first part of 2021, but Barr remained bullish on his company’s ability to bounce back in large part because of the kind of business travel IHG relies on to fill guest rooms.

“We believe, come spring, you’re going to see business travel begin to normalize on top of that strong leisure travel [demand],” Barr said. “Then, the back end of the year, when you get very business heavy — kind of that September, October, November timeframe — is when you really see us being back to probably normal levels.”