InterContinental Hotels Group said that it expected to see the pace of recovery “muted” going into the fourth quarter.
The company said that it was looking to its Holiday Inn portfolio as recovery focused around the domestic leisure market.
Revpar fell by 53% in the third quarter, compared to a 75% decline in the prior quarter, while occupancy was 44%, up from 25% in the previous quarter.
As at 30 September 199 hotels, or 3% of the estate, remained closed.
Paul Edgecliffe-Johnson, CFO, told analysts: “Uncertainty remains around further improvement in the short term. There has been improvement by month since the April low and if you look across each of the markets that was the case until September. China has been progressing very nicely and in the forth quarter I am not sure there is a stimulus to improve it further. In EMEA it is quite tough with the restrictions we are all seeing. In the Americas the US performance is a little stronger and we may see some further strengthening, but not at the same level in the period from April to September. Not a deterioration, but the pace is likely to be muted.”
IHG reported net system size growth of 2.9% year on year, with its global estate now at 890,000 rooms. The group signed 82 hotels in the quarter, taking it to 263 year-to-date, more than a quarter of which were conversions.
Edgecliffe-Johnson said: “Signings stepped up a little in the third quarter. A lot of our hotels (40%) in the pipeline are already under construction, which will underpin our growth. Those that are financed are pushing ahead. The unknown is those who cannot get bank financing - it’s hard to assess that at the moment. Lenders like to lend to brands with strong cash-on-cash returns. Our aim is to have market leading net system size growth and that was around 5%, 6% level in 2018, 2019. We are targeting that performance.”
Looking at performance he said: “We continued to see a divergence in performance between the managed and franchise estate, with the former weighted towards luxury and upper upscale in city centre locations.”
The US franchised estate, which was weighted towards domestic demand-driven mainstream hotels, declined by 43% in the third quarter, whilst the US managed estate declined by 71%. Revpar in the region was down 49.8% in Q3, with occupancy of 46%, compared to 28% in Q2.
The CFO said: “We’ve seen the mix between business and leisure stay pretty constant. Uncertainty remains regains further improvement in the short term. There has been improvement by month since the April low and if you look across each of the markets that was the case until September. China has been progressing very nicely and in the fourth quarter I am not sure there is a stimulus to improve it further. In EMEA it is quite tough with the restrictions we are all seeing. In the Americas the US performance is a little stronger and we may see some further strengthening, but not at the same level in the period from April to September. Not a deterioration, but the pace is likely to be muted.
In Europe revpar declined 70.4%, with Europe down 72%, Australia 66% and the Middle East 65%. Occupancy was 31% for the quarter overall. As government-mandated closures and travel restrictions partially eased, leisure-related demand led to the rate of revpar decline improving in July and August, before weakening in September. Performance continued to be more challenging in the managed estate and particularly in the portfolio of 18 owned, leased and managed lease hotels in the region, with eight reopened over the course of the quarter but six still remained closed. In total, 105 hotels or 9% of the EMEAA estate remained temporarily closed at the end of September.
In Greater China revpar fell by 23.0% in Q3. Occupancy improved to 57%, having been 32% in Q2 and less than 10% in February. In Mainland China, revpar was down 32% in Tier one cities, whilst Tier two to four cities, which were more weighted to domestic and leisure demand, performed better with a decline of 12%.
IHG said that it had $2.9bn in available liquidity. The CFO said: “In terms of cash burn we generated more than $100m in free cash flow. The operating business should be broadly cash neutral and we will inject $100m into the system fund - which we will get back eventually.”
Insight: And so the message from IHG is very much what we are seeing in the rest of the sector: expect to see a winter devoid of excitement. The company has settled its cash position and is pretty happy about having a strong reasonably-priced brand to see it through.
The new-era-of-low-level-consistency message was repeated in the business/leisure mix: “pretty constant” said the CFO. Likewise the split between OTA and direct bookings: “back to its normal level”. He confirmed that the booking level was “very short at the moment - the vast majority are within two days of the stay” which is shocking in normal times, but nothing we haven’t heard elsewhere.
Have hotels been panicking? “It’s pretty evident to hoteliers that dropping price won’t lead to demand, so discipline has been good,” said Edgecliffe-Johnson.
So a winter waiting game awaits. Waiting for a vaccine. Waiting for a lifting of restrictions in the Spring. IHG can draw on $2.9bn, which will fund quite a wait. Not everyone can wait that long.