GLOBAL REPORT—InterContinental Hotels Group continues in 2012 to focus much of its attention on growing in China, dismissing the effects of a potential development slowdown initiated by the Chinese government.
On the company’s first-quarter earnings call Wednesday, CEO Richard Solomons lauded IHG’s launch of the Hualuxe brand in China and the Even brand in the U.S., saying: “No company has ever launched two brands on opposite sides of the world in the same quarter. The fact that IHG has been able to do this underpins our scale.”
Solomons said IHG has 20 letters of intent signed from owners interested in the Hualuxe brand. The first Hualuxe is expected to open early 2014. IHG currently has 170 hotels representing 55,871 guestrooms in China.
Richard Solomons, CEO of InterContinental Hotels Group
He addressed measures the Chinese government has taken in recent months to cool a residential real-estate boom, which in turn would impact hotel development. The actions have “only slightly affected” development of IHG-branded hotels in the region, Solomons said.
CFO Tom Singer said the Chinese government is trying to “put the brakes on” growth in China’s residential sector, particularly where there is a retail component to the development. He said those efforts are leading to delays in hotel construction because owners are forced to look for additional funding.
However, Singer said the restraints will only be short term and he’s confident IHG can “work through it” during the next couple months.
“It’s affecting owners of other hotel groups more than us,” he said.
Singer said the slowdown is not limited to or focused on particular regions or segments.
Greater China is IHG’s strongest market, with revenue-per-available-room growth of 11.9% and average-daily-rate growth of 3.3% in the first quarter compared to the same quarter in 2011, according to IHG’s earnings statement.
Revenue for IHG in Greater China increased 10% to $54 million and operating profit increased 25% to $20 million.
InterContinental signed contracts for nine hotels in Greater China during the quarter, including five Crowne Plaza hotels. The company opened three hotels in Greater China in the quarter. In April, IHG opened another three hotels, including the Holiday Inn Macao Cotai Central, the largest Holiday Inn in the world (1,224 rooms).
“Our strong and profitable platform and leading position in Greater China result from our growing scale, expertise of our team and the quality of our relationship with owners,” Solomons said in a statement.
- Solomons provided an update on the repositioning of the Crowne Plaza brand, which he said “has done well, but it isn’t where it should be.” He said IHG is in the process of removing underperforming assets and will discuss physical changes to the brand later this year. “Crowne Plaza is the fastest growing upscale brand in Asia; in the U.S. it just has a weaker position,” he said. “We see an opportunity to raise the bar around the world to the same level.”
- Solomons provided more detail on the promotion of Eric Pearson from chief marketing officer to chief information officer. He said Pearson was chosen to replace Tom Conophy based on his prior experience with NASA and IBM. “Technology is at the core of our business,” Solomons said. “Eric’s unique breadth of experience will help keep us ahead. He was the ideal guy to put back in charge because he just gets it.”
- InterContinental will deploy capital in 2012 on bolstering the Even and Crowne Plaza brands, Solomons said. The company hopes to recycle capital it will receive from a potential sale of the InterContinental Barclay in New York, which has been on the market more than a year. The company is continuing discussions with one party to close the transaction, Solomons said.