“The death of business travel has been exaggerated by a number of pundits, people saying it’s going to be down 50 percent or 30 percent. I think it’s going to be impacted on the margin,” IHG Hotels & Resorts president and CEO Keith Barr said Tuesday during a quarterly earnings call.
Barr agreed that some business trips will be replaced by technology, but he’s bullish on medium-term business travel returning. “Travel budgets will gradually increase as people have more and more confidence to travel,” he said.
IHG has less exposure to the declines in corporate transient and group bookings, given its core mainstream business leans toward nondiscretionary business travel and has a high component of leisure travel, he explained. Still, full-year 2020 group revenue per available room was down 63 percent year over year on a comparable basis and includes the adverse impact from hotels that were temporarily closed, said IHG CFO Paul Edgecliffe-Johnson. “The travel restrictions and physical distancing measures in our key markets around the world contributed to an occupancy decline of just under 30 percentage points, with rates down 17 percent,” he said.
I think the business recovery will be more robust than people are giving it credit for.”
IHG Hotels & Resorts’ Keith Barr
But Barr sees opportunity. Referencing calls he said he recently held with CEOs, he said many are looking to reduce office-space footprints and have at least some people continue to work remotely. “Instead of driving to the office five days a week, they may have to fly in once a month,” Barr said. With smaller offices and less meeting space, those workers will “have to use hotels as gathering places to do things in the past they’ve done in their offices, which could be true drivers of demand overall. So I think the business recovery will be more robust than people are giving it credit for.”
Push on Rooms Growth
IHG’s year-over-year net rooms growth in 2020 totaled 0.3 percent to 886,000 rooms across 5,964 hotels—or 2.2 percent excluding the loss of 17,000 Service Properties Trust rooms—but the company is seeing conversion activity pick up, the company reported. Its pipeline, though down 3.8 percent to 272,000 rooms across 1,815 hotels, now represents about 30 percent of its current system size, the company said.
“The long-term confidence we share with our owners was reflected by another 285 hotels opening during the year and an average of almost one new signing a day,” Barr said in a statement. “Conversion activity increased across our brand portfolio, including the launch of Voco in the U.S. and China, taking the brand to more than 20 countries. We’re building Avid and Atwell Suites to be future brands of scale, while continuing to drive the growth of our established brands, with strong performances for Hotel Indigo and Kimpton, and our Holiday Inn brand family accounting for 60 percent of all openings and half of all signings in 2020.”
The 285 hotels with about 39,000 rooms represented 4.5 percent gross growth for openings year over year. The company signed 56,000 rooms across 360 hotels in 2020. Conversions represented 25 percent of all new openings for the year, as well as 25 percent of 2020 signings. About 40 percent of the current pipeline was under construction as of Dec. 31.
The company’s pipeline is strongly weighted toward the currently better-performing midscale segment, with midscale and upper-midscale properties accounting for 61 percent. Upscale accounts for 31 percent, while luxury represents 8 percent.
IHG’s Voco brand now is in more than 20 countries with 50 hotels opened and signed since its launch in 2018, and the company aims to have 200 hotels within 10 years. It represented 13 percent of IHG’s conversion signings globally in 2020. The midscale Avid is the next brand poised to scale, according to the company. Since its 2017 launch, there have been more than 200 signings, with 24 open to date.
Holiday Inn Express had 136 new openings in 2020, with 132 signings. Its pipeline, at 683 hotels, is about 20 percent of the brand’s current portfolio. IHG extended-stay brands Staybridge Suites and Candlewood Suites reported nearly 60 percent occupancy for the year. Combined, they represented 25 signings and 44 openings in 2020.
Q4 and Full-Year 2020 Performance Metrics
IHG’s fourth-quarter global comparable revenue per available room declined 53.2 percent year over year. Average daily room dropped 22.4 percent, and occupancy was down 26.5 percentage points to 40.4 percent.
The Europe, the Middle East, Africa and Asia region reported the steepest fourth-quarter RevPAR and occupancy declines at 70.5 percent and 44.9 percentage points, respectively. Greater China had the best results of all the regions, with quarterly RevPAR down just 18.2 percent, ADR off by 8.6 percent and occupancy dropping only 6.7 percentage points year over year. The Americas were in the middle, with a 49.5 percent RevPAR decline, 24.4 percent ADR drop and occupancy off by 23.1 percentage points to 41.7 percent.
For full-year 2020, IHG’s RevPAR was down year over year by 52.5 percent, ADR declined 17 percent and occupancy tumbled 29.5 percentage points to 39.5 percent. Again, Greater China reported the best results, followed by the Americas, then EMEAA. Among the brands, IHG’s extended-stay portfolio declined the least in key performance metrics, mirroring other hotel company results for the quarter and year.