IHG’s Recovery Is Being Offset by Greater China Drag

China’s ongoing Covid crackdowns have put the brakes on an almost-there recovery for IHG Hotels & Resorts.

Thankfully, destinations like the U.S. and the UK are surging ahead, with cities including Miami, Austin, and London witnessing a particularly strong first quarter.

Overall the hotel group is almost back to pre-pandemic numbers — but the snag is Greater China and its localized travel restrictions.

In Greater China, first-quarter RevPAR — or revenue per available room, a key industry metric — was down 42 percent on 2019 (down 7 percent on 2021). Occupancy was at 36 percent, down 16 percentage points on 2019 levels.

“If we didn’t have China drag, we’d be looking better,” said Paul Edgecliffe-Johnson, chief financial officer and group head of strategy, during a first-quarter trading update investor call on Friday. “Until we have China fully normalized, you won’t see a full recovery.”

He added that while the region was challenging, his colleagues in the Shanghai headquarters were resilient, with new hotel signings showing just how committed they were. Lockdowns don’t make for the best operating conditions, and the pace of room openings is subdued; one example being there are eight hotels waiting to open, but official licensing due to closed offices is holding things up.

“Our experience over the last 24 months is that recovery comes back rapidly as it does elsewhere,” he added.

Pricing Power

At a group level, IHG’s first-quarter RevPAR was up 61 percent compared to the 2021 first quarter, reaching 82 percent of 2019’s level. Its average daily rate was also up 27 percent versus 2021, and in line with 2019 levels.

Breaking things down, for the Americas region, RevPAR was down 8 percent vs 2019 (up 58 percent on 2021.) For the U.S. the RevPAR was a little better, down 6 percent. U.S. hotels leisure rates also rose by more than 10 percent on 2019 levels, and the rate across the whole of the U.S. business was 4 percent ahead on 2019.

Europe, Middle East, Africa, and Australia saw RevPAR down 33 percent versus 2019 (but up 122 percent on 2021).

Overall, the hotel group signed 17,000 rooms into its development pipeline in the first quarter, and it reported gross system size growth of 4.9 percent year-on-year, opening 6,600 rooms (45 hotels) in the quarter, which was similar to 2021.

Its net system size growth was up 3.4 percent year on year, adjusted to an “abnormally high removal” of underperforming Holiday Inn and Crowne Plaza hotels from its portfolio.

In terms of the sector spread, across its 6,028 hotels, 68 percent was made up of midscale segments, and 32 percent upscale and luxury. Some 20 percent of signings in the U.S. were for lifestyle brands, too, compared to 12 in the first quarter last year.

In Europe, Middle East, and Africa there was “strong owner interest in luxury conversions,” but it may be the extended-stay portfolio that shines in 2022. Its Candlewood Suites division opened 1,000 more rooms in the quarter, and Edgecliffe-Johnson cited good customer scores, high margins, and a need for few personnel onsite.

He was also happy with the similar Staybridge Suites and Atwell Suites brands, and said the next openings in Miami and Denver would drive a lot of growth over the coming months and years.

A Slower Corporate Rebound

Meanwhile, business travel lags leisure bookings, but it was picking up at a good rate.

The U.S. Eastern Seaboard and London’s InterContinental Park Lane had seen the strongest growth since the pandemic. It wasn’t a bellwether for all its hotels, he admitted, but it was recovering rapidly. Corporate rates were still behind 2019, but marginally. The same applied for group bookings, with rates recovering and just a few percentage points below 2019.

“We’ve seen very positive trading conditions in the first quarter with travel demand continuing to increase in almost all of our key markets around the world,” said IHG CEO Keith Barr in a statement. “The high level of demand we have seen for leisure travel continues to drive increased rates and occupancy.”

It’s too soon to tell when the brand, which also owns brands including the Vignette Collection and Avid, will make a full turnaround. There’s optimism for a strong summer ahead, but short booking windows and reduced access to construction materials are clouding any vision IHG might hope for this year.