Holiday Inn owner IHG sees room for expansion as travel recovery intensifies | Economic news


Recent trade updates from Premier Inn owner Whitbread and tour operators like TUI have highlighted strong pent-up demand in the travel and tourism sector.

The same goes for updates from airlines such as Ryanair, easyJet and Wizzair and even today, from International airline groupowner of British Airways and Aer Lingus.

Friday also brought another encouraging piece of evidence to that end from InterContinental Hotels Group (IHG), owner of the Holiday Inn and Crowne Plaza hotel brands, which said it has seen a strong recovery in business as travel international resume.

It said its average revenue per room (RevPAR) – a key industry metric derived by multiplying the rate charged for a hotel room by the number of times it was occupied during a period of benchmark – in the first three months of the year increased by 61% compared to the same period last year and was at 82% of the level of 2019.

Additionally, the company could also report that the average room rate increased by 21% compared to the same period last year, bringing it in line with 2019.

As Keith Barr, CEO, said: We experienced very positive business conditions in the first quarter, with travel demand continuing to increase in almost all of our key markets around the world. The high level of demand we have seen for leisure travel continues to drive rates and occupancy rates up.

“We also continue to see a return to business and group travel.”

Mr Barr said that as occupancy levels continued to rise, the company’s hotels were enjoying increased pricing power.

This is particularly notable in the United States, where InterContinental Hotels is charging leisure guests more than 10% higher rates than they were in 2019, with room rates across the United States increasing by 4% compared to this pre-pandemic year.

IHG has more than 6,000 hotels worldwide, its brands also including Crowne Plaza

The United States was undoubtedly the highlight. But the company is experiencing an uneven recovery around the world, with RevPARs in Europe, the Middle East, Africa and Asia up 122% from the same period last year, but still down 33%. % on 2019. Within that there are huge variations as well, with Middle East and UK recovering much faster than Australia, Mainland Europe, South Asia – East and Japan.

Even more disappointing is the situation in Greater China where, in the first three months of the year, RevPAR was down 7% from a year ago and 42% from 2019. In March, With much of China under new Covid-19 lockdown restrictions, RevPAR was down 53% from 2019 and a third of the group’s hotels were temporarily closed.

As the world’s fourth-largest hotel operator – behind Marriott, China’s Jin Jiang and Hilton hotels – the numbers are more or less in line with what industry analysts have found for the industry as a whole.

However, with its greater bias towards the United States compared to some of its rivals, some industry watchers believe IHG is well positioned to continue its recovery assuming the United States does not suffer from another episode of coronavirus.

Matt Britzman, equity analyst at broker Hargreaves Lansdown, said: “After last year’s cleanup of Holiday Inn and Crowne Plaza hotels that didn’t quite cut the mustard, new signings are coming in droves and quickly, which is good news because lost revenue needs replacement.

“With a cost of living crisis sweeping the globe, the group’s focus on a mid-value offering should keep it well positioned to capture demand from an increasingly cash-strapped consumer. .”

Not that it was reflected in any stock price reaction today. The shares remained largely unchanged in the update.

The relative confidence with which the company reminded investors of its expansion plans was also quite striking. It has a pipeline of 278,000 new rooms planned and this grew by 2.4% in the first three months of the year.

Explaining the decision, Ivor Jones and Douglas Jack, veteran industry analysts at investment banking Peel Hunt, told their clients: “Strong demand for leisure led to another solid quarter of recovery for IHG, in line with We expect leisure to be resilient, but for this (hopefully) post-COVID period to represent a high point as pent-up demand is released.

“The stock price, within 15% of its 2019 high, anticipated this rally, in our view.”

Additionally, some will worry about IHG’s ability to grow in line with its ambitions.

The hospitality industry is experiencing tight labor markets everywhere, especially in some of IHG’s most important markets, such as the US and UK. This can make it difficult for the company to attract and retain staff or force them to pay more. Other rising costs, including food and energy, may also prove harder to pass on to customers as savings accumulated during the shutdowns are spent.

But for now, after two miserable years for the sector, it is reassuring to see this huge global employer – on which some 350,000 livelihoods around the world depend – reporting relatively positive news for once.

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