IHG touts network growth as global jitters mute numbers
IHG touts network growth as global jitters mute numbers
03 MAY 2019 8:28 AM

InterContinental Hotels Group’s first-quarter performance largely reflects that of its competitors, with revenue per available room struggling amid economic and political uncertainty and general economic trends as executives focus on cost savings and network growth.

DENHAM, England—Revenue-per-available-room declines largely coming in between 0% and 3%, a weaker first quarter due to the timing of the Easter holiday and pressure from economic uncertainty and geopolitical unrest to the negative side, but confidence in full-year performance and a focus on increasing network size and decreasing operational costs to the positive.

Sound familiar?

InterContinental Hotels Group’s first-quarter earnings numbers mirrored those from other publicly traded hotel firms such as Hilton, which released its Q1 2019 numbers on 1 May.

IHG CFO Paul Edgecliffe-Johnson said on a conference call with analysts that the company is performing well in tightened markets, seeing growth in Latin America, the Caribbean and Germany, rolling out new and recent brands, and adding to its overall rooms network.

Approximately 24,000 rooms were signed to IHG’s pipeline in the first quarter, which was the strongest Q1 pipeline growth for 12 years. Of those rooms, approximately 2,700 came from IHG’s February buy of Six Senses Hotels Resorts Spas. An overall pipeline of 279,000 rooms is due to be added to IHG’s portfolio of approximately 5,600 hotels and approximately 843,000 rooms.

During the quarter, the company also opened its 400th hotel in the Greater China market.

Edgecliffe-Johnson said net system size is up 5.4% year over year, with much emphasis being placed on Avid and on the new all-suites brand yet to be named.

There still is a lot of room for traditional product, he said.

“The Holiday Inn family continues to be the engine of our pipeline,” Edgecliffe-Johnson said. “We also expect to open 20 to 25 Avid hotels per quarter over time, although there will be some fluctuations. … We have the largest luxury hotel portfolio, including Kimpton that now is in 14 countries around the world.”

During the first quarter, Six Senses had openings in Bhutan and Cambodia, bringing the brand’s portfolio to 18 properties, with another 18 in the active pipeline and 50 in negotiations, Edgecliffe-Johnson said.

On the new all-suites flag, the CFO said progress is good.

“We are pleased with its launch, which we will talk more about at our American conference with our owners. It is too early to talk about owner interest,” Edgecliffe-Johnson said, adding that a franchise document first needs to be approved by regulators before any talk of signings can commence.

News of first signings, he said, might come “at the back end of this year.”

Flat numbers
While IHG executives are positive about openings and signings, there were more muted expressions in terms of performance metrics, which analysts viewed as indicative of the global market.

Edgecliffe-Johnson said group RevPAR grew 0.3%, down from 3.5% in the same period in 2018. RevPAR at IHG’s hotels in China was flat, and the Americas grew RevPAR 0.8%, driven by a 1.2% growth in average daily rate.

Edgecliffe-Johnson said the Americas number was encouraging considering what he called tailwinds from hurricane-related activity. RevPAR growth for the U.S. alone was 0.6%.

If there is a Q1 IHG RevPAR star, it is the Latin America and Caribbean market, which grew 10%, but that low overall RevPAR tally was dragged down by the Middle East and South Korea.

“It is down 3% in France due to social unrest, where we more than others are more dependent on international inbound. Europe was a mixed bag; Germany is up 2%,” Edgecliffe-Johnson added.

Hotels in the United Kingdom reported RevPAR up 2%, but RevPAR for the rest of Europe decreased 0.7%.

Edgecliffe-Johnson said IHG is still on course to secure $125 million in savings by 2020.

IHG CEO Keith Barr, who was not on the call, said in a company earnings release that “while macro-economic and geopolitical uncertainties remain in some markets, the strong fundamentals of our business give us confidence for the balance of the year.”

As of press time, IHG stock was trading at $66.29 a share, up 17.4% year to date. The Baird/STR Hotel Stock Index is up 17.4% for the same period.

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