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IHG sees a tale of two recoveries between the U.S. and China

May 09, 2022
4 min read
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If you open up, the people will come. That’s the message conveyed repeatedly throughout the ongoing hotel earnings cycle — especially on the IHG Hotels & Resorts first-quarter report.

IHG (owner of brands like InterContinental and Regent as well as Holiday Inn and Avid), reported Friday that hotel performance levels at the company for the first three months of the year were at 82% of 2019 levels. That’s a 61% increase from the same quarter in 2021, and the U.S. and Americas region drove much of that recovery.

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Lockdowns cause poor performance in China

IHG leaders recognize the quarter could have been better had it not been for the tough lockdown measures taking place in China amid an omicron surge hitting Shanghai, where the company has a corporate office, particularly hard.

“China has been challenging, and we've seen that come through in the numbers,” Paul Edgecliffe-Johnson, IHG’s chief financial officer, said on an investor call. “What's important to note is that our experiences in the last 24 months or so show that China demand does come back very rapidly, as it has elsewhere in the world, once restrictions are lifted.”

This year, performance in IHG’s Americas region — which is home to most of its hotels — was down only 8% from 2019 levels, compared to China where performance was down 42%. In 2021, China was the bright spot, as its performance was only 7% off 2019 levels.

IHG’s U.S. hotels were only 6% off 2019 levels for the first three months of this year, another sign of the strength of leisure travel demand picking up in March. U.S. hotels were only 1.5% off pre-pandemic performance in March, Edgecliffe-Johnson added. This nearly full recovery in the U.S. is similar to what the CEOs of Marriott and Hilton reported of their own companies earlier this week.

Business travel-oriented cities like Boston and New York City saw an accelerated recovery for the quarter, and performance at hotels in both cities was only 20% off 2019 levels; not a full rebound but still a win, as the top 25 hotel markets in the U.S. lagged leisure destinations in their recovery. IHG’s hotels in San Francisco still struggled, as performance there was only half of 2019 levels.

A closer look at China shows just how much lockdowns hurt performance.

Performance at properties in Shenzhen, China, was 77% off 2019 levels while performance in Shanghai, which didn’t begin to see tough lockdowns until the last month of the quarter, was down by 40%. IHG remains bullish on China, where it plans to open a significant number of new hotels.

“We don't know the future extent or the length restrictions,” Edgecliffe-Johnson said. “What we saw each occasion in 2021 is whenever restrictions are relaxed, demand sharply returned thereafter.”

A Russia update

Edgecliff-Johnson provided an update on the company’s position in Russia, as the hotel industry faced scrutiny of being Western holdouts amid the invasion of Ukraine. Many Western companies like Starbucks and McDonald’s suspended operations in Russia, but hotel companies still have a presence there to various degrees.

IHG and many of its competitors closed corporate offices in Moscow. The hotel company also suspended future investments, development activity and new hotel openings. But each of the major Western hotel companies still has hotels tied to their brands in Russia.

Hyatt has scaled back its presence in Russia, and there were reports in Russian media that IHG was looking to wind down its business there as well. Edgecliffe-Johnson did not address that claim during his prepared remarks, but he referenced the company’s April announcement on how IHG was evaluating the “complex, long-term management or franchise agreements” with third-party owners of the hotels in Russia.

“We are in discussions with owners,” he added. “This is a complicated process and will take some time.”

Featured image by (Photo by Alena Ozerova/shutterstock)
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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