IHG CEO Banks on Newer Hotel Brands to Drive Profit Momentum

A vital part of IHG’s strategy to return to high levels of growth rests on brands that only came into the company’s network within the last five years. 

IHG returned to profitability last year while it eliminated 151 underperforming Holiday Inn and Crowne Plaza hotels. But investors want to see the company return to expansion mode after several quarters of essentially no growth — and a slight 0.6 percent system-wide shrinkage last year — to its guest room count.

Company leaders on an investor call Tuesday indicated a strategy to return to the nearly 5 percent growth seen in 2018 — an IHG benchmark year since, at the time, it was the highest pace of expansion seen at the company in a decade. 

The Holiday Inn network, which includes Holiday Inn Express, will continue to drive much of IHG’s expansion. But newer brands are also playing a part in getting back to 2018 growth levels. 

“The Holiday Inn brand families are a core driver. Avid is the second one, and then it’s a balanced approach across luxury and lifestyle and upscale,” IHG CEO Keith Barr said in an interview with Skift following this week’s earnings call. 

Avid, IHG’s affordably priced mid-tier brand first launched in 2017, has just shy of 50 properties within the brand portfolio. Another 164 are in the Avid development pipeline, according to a company investor presentation. Paul Edgecliffe-Johnson, IHG’s chief financial officer, labeled it “a brand of great scale over time” during the earnings call while also noting it might take a while for Avid to achieve the more than 3,000-hotel network Holiday Inn Express has. 

“But watch this space, I guess,” Edgecliffe-Johnson said. 

There is still a hefty gap Avid would have to overcome to truly be neck-and-neck with Holiday Inn Express, which has 645 hotels in its development pipeline.

Other newer brands include the upscale Voco, which launched in 2018 and could more than double its 31-hotel portfolio with an additional 38 in the development pipeline. The luxury Vignette Collection, which has signed six hotels since launching last August, is another high-end growth vehicle for IHG. 

Deleting rooms from IHG’s system was a leading cause of the company’s size setback last year, and company leaders largely pointed to the Holiday Inn and Crowne Plaza performance review as the main culprit. Roughly 70 percent of IHG’s room deletions came from the two brands. None of the company’s other 14 brands are going to see a similar initiative, Barr said. 

“Were quite comfortable with our brands, and there are no plans for any big initiatives,” he added. “[We will] just continue to focus on scaling up our new brands.”

But Edgecliffe-Johnson earlier Tuesday admitted the company still has to find more deals beyond IHG’s existing development pipeline for the company’s growth target to have a chance of materializing. 

That strategy partially includes deals with owners of existing hotels to convert to a new brand. Some of IHG’s conversion brands include Voco and the Vignette Collection. Conversions still take money and time to complete, but they aren’t as vulnerable as ground-up construction hotels are to supply chain disruptions and tighter financing.

“Next year, we need to open a few more rooms to get up to where we’d like to see ourselves, which is back in line with what we were seeing in 2018,” Edgecliffe-Johnson said. “We still have to find some rooms to open during the year, for sure. That’s not unusual for us. We have some great conversion brands, and we’re well placed to do that.”

Acquisition Opportunities

Barr declined to comment specifically to an investor analyst’s question early Tuesday regarding merger and acquisition opportunities. But he later elaborated to Skift where there might be holes in the company’s network of brands. 

Urban micro hotels with smaller rooms — three rooms in the space where a developer would normally build two, Barr said — is something IHG “would be interested in over time.” While Barr didn’t mention any specific brands, CitizenM and Marriott’s Moxy both operate in this space.

Resorts and all-inclusive resorts are another area where IHG leaders see an opportunity to expand. 

Barr touted IHG’s return to profitability and strong cash flow as signs the business is in a strong position to consider these additional expansion plans.

“[It] just shows again how strong and resilient this business model is,” he added. “That gives us capacity to invest in organically launching brands, or, you know, what we’ve done in the past: We could acquire small brands.”

China Remains a Growth Target

Barr, like his competitors at Marriott and Hilton, noted China and the rest of the Asia Pacific region are lagging the world in terms of a hotel recovery. 

But he also echoed the likes of Marriott’s Anthony Capuano and Hilton’s Christopher Nassetta that the region’s tougher lockdowns and pandemic mitigation policies aren’t impacting his development outlook. Some analysts in recent weeks had begun to question if stringent “Covid-zero” policies would make developers second guess any decision to put so much time and money in building a hotel in the region. 

“We’ve been there since 1984, and we’ve had a long-term [bullish outlook] on China, and it’s paid dividends,” Barr said. “It’s our fastest-growing market still [and] pushing near double-digit growth.”

IHG has more than 1,000 hotels that are either open or in development in China. Barr sees plenty of runway for more expansion, as it is “an under-hotelled” market compared to a place like the U.S. But that doesn’t mean it is entirely smooth sailing going forward. 

“This year will be volatile, and it could spill over a bit into next year,” Barr said about lockdown measures impacting hotel performance. “But we run this business for the long term, and I wouldn’t I wouldn’t stop investing in China.”