Interest rates remain high contributing to an overall higher cost to construct new hotels, but IHG Hotels & Resorts is reassuring prospective developers that building their brands is more affordable and economical.
IHG on Tuesday reported its full-year 2023 results over a sprawling presentation that highlighted the group’s efforts in the past year. Elie Maalouf, who became CEO of IHG Hotels & Resorts last July, underscored five main pillars of focus for IHG: 1) a determined approach to realize the full growth potential of each brand; 2) expanding into more markets to capture high-growth and high-value opportunities; 3) a strong focus on ancillaries, such as credit card and branded residences; 4) a deep owner value and returns mindset across the full enterprise; 5) a clear and updated surplus capital return philosophy within its stated capital allocation policy.
IHG posted strong performance numbers, including a 16% YOY bounce in global RevPAR compared to 2022, with the strongest growth in Greater China, up 72%, reflective of the country’s loosening post-COVID travel policy.
ADR was up 5% over 2022, while occupancy gained 6 percentage points in the same period. IHG generated total gross revenue of $31.6 billion, 23% higher than in full-year 2022.
It also grew its net room growth by 3.8% to 946,000 rooms and reported a global pipeline of 297,000 rooms. In Q4, it opened 19,200 rooms and signed 28,300 rooms, one of the highest quarters on record, it said.
IHG also launched a new $800-million buyback program, which, coupled with dividends, it said it expected to return over
$1 billion to shareholders in 2024.
Maalouf noted that IHG’s structure was asset light and predominantly franchised at 70% of its entire system. Just over a quarter is managed while IHG owns less than 1% of its global portfolio. “We see growth coming from both franchise and management contracts,” he said, adding that growth in the former would come primarily from its Essentials (Holiday Inn, Holiday Inn Express, Garner, avid) and Suites (Atwell Suites, Staybridge, Candlewood) categories and in markets like China “that are developing further toward this model over time.”
IHG is most known for its core Holiday Inn and Holiday Inn Express brands, but over the past several years, through acquisition, mostly, it has grown its presence in the ever-lucrative and ever-in-demand luxury and lifestyle space. “We have strengthened and diversified our brand portfolio by adding nine brands since 2015,” Maalouf said. These include Six Senses, Regent and Vignette Collection, to complement its established luxury InterContinental brand. Maalouf said those investments are now paying off, noting that luxury and lifestyle is 14% of its system room mix, but 22% of its pipeline.
“We are disciplined with the expansion of our portfolio, adding brands that are at the intersection of guest and owner demand to address clear long-term consumer trends and capitalize on growth opportunities,” Maalouf added, saying IHG continues to assess potential opportunities in the market that are a “good fit.” Its Essentials brands make up the core of IHG’s system, at around 60% of rooms and 45% of pipeline.
Conversions have become, similar to IHG’s competitors, a focal source of growth, accounting for 36% of signings in 2023, which is up from 17% in 2017. “We have developed the brands enterprise platform needed to successfully attract conversion opportunities and have them open in short time frames generating more revenue for owners and fee income,” Maalouf said, adding that conversions allow hotels to be open and generating cash flow in as little as the same quarter.
Beyond conversions, IHG remains bullish on new development, which Maalouf alluded to as being on a “positive trajectory,” though still behind pre-pandemic levels. Still, Maalouf said that that there has been a 33% increase in new-build hotel signings compared to the lows of 2020.
One way IHG is looking to convert a higher percentage of new-build hotels is through its brand configurations, prototypes and procurement efforts. “We are constantly evolving our brands to make sure they remain relevant in the market, drive high guest satisfaction and generate superior owner returns,” Maalouf said. In a high-interest-rate environment and higher operating expenses, reducing the cost footprint is vital toward generating new development and net unit growth.
IHG said it has reduced the build cost of its Holiday Inn Express prototype by approximately 6% by, Maalouf said, “optimizing the floor plan to allow for more rooms on the same site.”
For its wellness-focused Even brand, IHG launched a new modernized prototype with a reported 9% reduction in cost per key through what Maalouf called a value-engineering programmatic design and further efficiencies achieved through furniture, fixtures and equipment.
Efficiencies have also been achieved, IHG said, in its extended-stay offerings. For Candlewood Suites, it developed a more efficient room design and mix with the aim of increasing the number of rooms on a smaller building footprint.
“We are extremely focused on lowering costs and driving efficiencies for owners across the lifecycle of a hotel, including cost to build, costs to operate and costs to renovate,” Maalouf said. This has included contracting with logistics partners to deliver what Maalouf referred to as more favorable freight rates, lower cost and higher efficiencies in HVAC and up to 30% savings in procurement across other goods and services.
In the past year, IHG grew its loyalty program, IHG One Rewards, to more than 130 members worldwide, in what Maalouf said was 50% more enrollments YOY. Reward nights booked were up by more than 20% YOY and 40% compared to 2019. “Our loyalty members are 10 times more likely to book direct and spend 20% more than non-members,” Maalouf said, further stating they now represent more than 55% of all room nights booked.