Skift Take

IHG's loyalty program has lagged behind its peers in quality. But CEO Keith Barr said the company had overhauled the program to turn it into a magnet for high-value travelers. Early results look encouraging.

IHG Hotels & Resorts earlier this year fully revamped its loyalty program and in July launched its largest marketing campaign in a decade to support it. Executives said Thursday that these moves will speed up overall growth for the UK-based group, which runs 6,028 hotels under brands such as Holiday Inn and Kimpton.

In the second quarter, the company overhauled IHG One Rewards and saw enrollments rise 30 percent year-over-year. It added 11 million net loyalty members year-over-year. It didn’t specify the new total other than to say it had more than 100 million members.

The company said it expected ongoing gains as a result of the loyalty program overhaul.

“We’re getting about 50 percent of our room nights coming through our loyalty program,” CEO Keith Barr said in an interview with Skift. “We know there is more headroom in that number based on our consumer research and what our peers do.”

During the pandemic, the company had to choose how to invest for growth among multiple options.

“We made the decision to push a significant amount of our capacity into restructuring and transforming the loyalty program,” Barr said.

The hotel group touted how it had added tiers of membership and now offers members a choice of rewards after they reach certain levels.

“We believe it’s going to be one of the most compelling offers in the market for a selection of customers who will shift their share over time away from a competitor into IHG’s program,” Barr said. “We’ve got a lot of headroom between where we’re at today and where we could be at an end state.”

Rising engagement in the loyalty program will translate into “incremental revenue delivery” because the company’s loyalty members “are generally higher-value customers,” Barr said.

IHG’s loyalty members are nine times as likely to book direct, and direct bookings are a less expensive channel for owners than sourcing customers from online travel agencies. Loyalty members also spend 20 percent more than non-members on average.

The just-launched marketing push for IHG’s master brand may help boost its loyalty program, too.

Executives declined to say how much they would spend on the new marketing campaign out of its more-than-$1 billion annual budget to advertise its brand, masterbrand, and loyalty program. But they called the effort ambitious.

“You can see the scale of it if you walk into London Heathrow Airport right now, where you’ll see ads for IHG Hotels and Resorts everywhere,” Barr said. “You’re going to see the campaign across a number of channels, including using super highly data-driven targeted marketing via digital channels.”

Strong Year for IHG So Far

For the first half of the year, IHG reported an operating profit of $361 million on revenue of $1.79 billion.

The company said it is “very close” to global pre-pandemic revenue per available room, a key industry metric. It’s down only about 10.5 percent below 2019 levels, partly because of its exposure to China, which remains mired in Covid-related struggles.

IHG’s business in the U.S. and Canada is leading the way for a recovery. In the second quarter, revenue per available room for hotels in those countries was up 3.5 percent compared to the pre-pandemic level.

The staffing crisis and reduced levels of service, such as housekeeping, haven’t hurt guest impressions of the company, IHG said. Its “guest satisfaction index” on a rolling year basis through June 2022 was higher than the equivalent 2019 pre-Covid benchmark.

Pipeline Seems on Track

IHG has a global pipeline of 1,858 hotels that together will add about 278,000 rooms, representing roughly a third of its network.

The pipeline growth year-to-date was 2.7 percent. The company has said its aspiration is to have net unit growth of around 4 percent this year. Historically, the company has grown its network at a faster pace.

“There are headwinds facing all hotel companies, not just IHG, that are causing hotels to be delayed, such as some financing issues that are causing hotels not to break ground and the pandemic-related issues in China,” Barr said.

What’s changed for IHG in the past five years is that it has added or introduced a half-dozen brands that remain in the early phases of uptake with owners, the CEO said.

Its new Voco brand, for example, is meant to be relatively friendlier than many other brands in its stable to owners seeking to convert existing properties rather than build new ones.

“As the brands ramp up and we get out of Covid, our growth will continue to accelerate because we’re now able to compete in different segments with different owners than we used to in the past,” Barr said.

See IHG CEO Keith Barr on-stage at Skift Global Forum in New York in September.

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Tags: ceo interviews, ceos, earnings, hotel earnings, ihg, keith barr, loyalty, rewards, skift live

Photo credit: InterContinental Sorrento Mornington Peninsula in Victoria, Australia. Source: IHG.