IHG's new CEO Elie Maalouf sees blue-sky prospects across his group's portfolio of brands.
IHG Hotels & Resorts‘ new CEO Elie Maalouf said his strategy is to make the company’s portfolio as appealing to owners and guests as possible. Maalouf spoke to Skift on Tuesday after his first earnings call as CEO, having taken the helm last month.
Maalouf isn’t a new kid on the block at the Windsor, UK-based hotel operator — whose brands include Holiday Inn, Avid, Kimpton, and Six Senses. He previously led the group’s North American business for 8 years.
“It’s my sixth year on the board, so I’ve been integral to not only our Americas strategy but also our global strategy,” Maalouf said. “I’ve overseen the expansion of our portfolio into all segments, including luxury and lifestyle, our further expansion into the midscale, a global expansion geographically, and the strengthening of our loyalty plan and our enterprise systems and revenue management systems.”
Maalouf touted on Tuesday IHG’s 19th brand — as-yet-unnamed — that will be a conversion brand (rather than new construction) and a midscale offering. (In the world of STR classes, “midscale” hotels sit above the “budget” and “economy” classes and below the “upscale” and “luxury” classes.) IHG said it had “definitive” interest from owners of about 100 properties in the new brand.
“If you were the owner of an existing good quality asset in the midscale, but it didn’t really fit the shape and size and requirements of a Holiday Inn Express, we didn’t have a brand to offer,” Maalouf said. “Now we do.”
Yet IHG’s top boss said the group remained committed to growing its luxury and lifestyle offerings, too.
“Today, luxury and lifestyle globally represents 13% of all IHG rooms and represents 21% of our pipeline, meaning that, if we only stayed there, and opened just that pipeline, without adding any more hotels signed, we would be increasing that luxury lifestyle distribution around the world by 50%,” Maalouf said.
IHG’s New CEO
Maalouf cares about the guest experience, but a few analysts credit his rise to the CEO job to his special focus on a key plank in the company’s strategy: differentiating IHG’s owner proposition from its rivals by making its hotels more profitable to create and run.
Maalouf launched new brands and formats in North America with lower hotel development costs and leaner operating models.
The biggest win was Avid, a brand his team launched in 2017. It has been so appealing to developers that it’s now IHG’s second-largest contributor to system size after Holiday Inn Express. Avid has 59 open hotels and 147 in the works. Development costs for the typical 96-room U.S. property are in the $9.6 million to $14 million range. As context, that’s roughly 25% less than the typical midscale limited-service brand, as reported in a survey out this week from HVS, a valuation specialist.
IHG’s Americas region drove record profits under Maalouf. Now he’ll be overseeing all of IHG’s corporate strategy worldwide. Key parts include enhancing the company’s marketing, its loyalty program, and the technology that owners and guests use.
“Wholesale strategy changes are unlikely, and frankly unnecessary,” wrote Richard Clarke and his fellow analysts in a recent Bernstein Research note.
Hotel Pipeline Watch
One thing investment analysts are especially watching is how Maalouf manages the pace of growth in IHG’s empire. In his previous job, he grew the IHG footprint in North America by about 20%, or nearly 700 hotels, over 8 years.
Now that he’s group CEO, can he prevent IHG’s “net rooms growth” from sagging? The company said on Tuesday it had a “net system size growth” of 4.6% year-over-year in the first half of this year. That’s an improvement. But Marriott forecasts it will grow net rooms this year by at least 6.4%, and Hilton forecasts net unit growth for 2023 will be about 5%.
The sluggishness is part of a trend. IHG has had only a 3% annualized growth rate, on average, over five years, while many competitors of roughly equivalent size came in at roughly 4%. The company has partly blamed an effort to cleanse its system of owners who fail to keep their properties up to brand standards.
Earlier this year in the U.S., construction slowed for hotels because of a tightening of lending conditions for developers. Projects can have one-to-two-year timelines.
So some analysts worry net rooms growth may sag in 2024 and 2025.
When asked how he would reassure analysts, Maalouf said he “takes the long view.”
“We’re pleased with the growth that we had in the first half of the year, with 40% more openings by room count than we had last year at the same period and 11% more signings,” Maalouf said. “As long as demand stays strong — and demand is strong — that eventually translates into bringing back more financing and development.”
Still, IHG faces headwinds. In the U.S., there’s some distance between IHG and its peers. It has the third-largest pipeline of hotel projects, with 811 projects, behind Marriott’s 1,511 projects and Hilton’s 1,470 projects, according to Lodging Econometrics.
To keep the empire expanding, IHG announced a new conversion brand on Tuesday. Conversion brands can expand more quickly than new-build, which usually take longer because of construction delays.
Maalouf may eventually turn to mergers and acquisitions to sustain growth, too. But unlike IHG’s recent deals — which involved luxury brands Six Senses, Regent, and Iberostar, a play for the middle of the market seems likely.
Notably, when Maalouf’s team debuted Avid in 2017, he said the brand targeted “a vastly underserved $20 billion segment of the US midscale market.” He made a similar claim on Tuesday about wanting to target the under-served midscale market.
Appealing to Owners
Maalouf said he cares about all the variables that affect IHG’s algorithm for growth, such as the effectiveness of its loyalty program and its skill at setting rates for rooms and services.
But one of his hallmarks has been working closely with owners to try to position IHG brands as more competitive than rivals.
“The strength of the owner proposition affects market share and pricing power for IHG, with a direct impact on new openings and chargeable fees,” wrote Jaina Mistry and other Jefferies analysts in a recent report.
A case in point: Maalouf led the creation of Atwell Suites, which opened its first property in March 2022.
The brand is “upper midscale,” meaning it seeks a higher nightly rate than a typical business hotel — appealing to potential owners.
Atwell Suites’ rooms also resemble studio apartments, aiming to encourage business travelers to stay for more than one night. Getting guests to stay somewhat longer makes running a hotel more cost-effective for an owner. This is a classic Maalouf play at achieving a lean operational model.
“We continue to evolve,” Maalouf said. “Where do we go next? We look for spaces where guests want to travel in a segment where we’re not offering something today and where owner capital wants to go where we lack an offering. It’s that intersection of where guests want to go and what owners want in a space where we don’t have an offer.”
IHG’s Steady Growth
IHG said it saw next-to-no slowdown in demand when it reported first-half earnings.
- The hotel operator generated a profit before tax of $567 million in the first half, 61% above a year earlier.
- Its revenue rose nearly 25% to approximately $1.02 billion after deducting the revenue it collected and passed back to, or set aside for, its managed and franchised properties.
In the first half, the company saw operational strength across its portfolio.
- The company’s global revenue per available room — a key industry figure — was 8.7% above the pre-pandemic period of 2019.
- Occupancy was only 1.3 percentage points behind 2019 levels worldwide, on average.
CORRECTION: The story has been updated to say IHG’s leisure and lifestyle hotels make 13%, not 30%, of its portfolio.
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Photo credit: Elie Maalouf, the new group CEO of IHG. Source: IHG. IHG