IHG: Rooms growth a bright spot amid RevPAR plateaus
IHG: Rooms growth a bright spot amid RevPAR plateaus
06 AUGUST 2019 7:42 AM

After a first half of 2019 characterized by sluggish revenue per available room, InterContinental Hotels Group executives are confident of the company’s future as it continues to grow its network, driven by recent acquisitions and established brands.

DENHAM, England—InterContinental Hotels Group’s half-year 2019 results are much in line with those of its competitors, said its two top executives, who remain confident the British firm’s network growth will result in increasing revenue and profit.

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Speaking on a telephone conference call and webcast about IHG’s latest earnings results, CEO Keith Barr noted a challenging signing environment and a decline in corporate, but not leisure, demand in China.

He added that the company currently has its most robust brand portfolio, having executed on acquisition targets and organic boosts to its brands, which have increased from 13 in 2016 to 18 today.

“We will continue to look at white spaces, but we have highlighted the options we saw 18 months ago,” Barr said.

Barr said the May launch of upper-midscale Atwell Suites and the February 2019 purchase of luxury Six Senses Hotels Resorts Spas is indicative of how the firm will maintain and grow its share of wallet among consumers. .

Barr also underlined the company’s August announcement that IHG is to be the first global hotel company to mandate bulk-size amenities across its entire estate.

CFO Paul Edgecliffe-Johnson said IHG’s achievements in a challenging market allowed the firm to increase its share dividend by 10%.

He said the firm’s previously stated $125 million annual savings by 2020 still is on course, with savings fully reinvested on an annual basis.

RevPAR updates
Revenue per available room numbers are sluggish at best, IHG executives said.

There is “muted RevPAR growth, but due to our supply we are seeing more revenue,” Barr said.

“In the U.S., we are positive due to (gross domestic product) growth. Yes, 5% to 6% RevPAR (growth) is a greater environment, but even with muted RevPAR, we are confident of driving revenue and profit.”

Earnings showed a 12% increase in reported revenue to $1.01 billion but a 1% decrease in operating profit to $410 million.

Across its estate, RevPAR is not equal, Edgecliffe-Johnson said, and global occupancy dropped 0.2% year over year.

First-half results showed a 0.1% increase in global RevPAR, which mirrors RevPAR growth for the Americas region. RevPAR remained flat year over year in the U.S., which is due to hurricane-related demand and the timing of Easter, Edgecliffe-Johnson said.

In Greater China, the company saw a 0.3% decline in RevPAR year over year.

Barr said IHG continued to outperform the rest of the industry in the first half of the year in Greater China RevPAR, although Hong Kong, which accounts for 15% of business in the region, saw RevPAR drop 0.4% due to ongoing political unrest.

“(H1) was a record performance in openings and signings in China,” Barr said, noting 36 new hotels with approximately 13,000 rooms and a signed pipeline of 90 hotels and 22,000 rooms.

System growth
“Net rooms growth (in H1) is 5.7%, our best performance in 10 years, and we have near-record occupancies and (average daily) rates, in a RevPAR-challenged market,” he added.

Of its newly launched or acquired brands, Barr said three Avid hotels now are open, and 200 signed; 6 Voco hotels are in operation; and two Regent and five Six Senses properties have been signed in the first half of the year.

Barr said that despite a slower RevPAR growth environment, IHG had made significant progress in the first six months of 2019, “delivering a 5.7% increase in net system size growth, our best performance in over a decade, with future growth underpinned by our highest level of signings over the same period.”

“The broad geographic spread and the resilient, cash-generative nature of our business gives us confidence in the outlook for the rest of 2019,” he added.

As of press time, IHG stock was trading at £53.13 ($64.70) a share, up 14.6% year to date. The Baird/STR Hotel Stock Index is up 14% for the same period.

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