IHG's flagship brand, Holiday Inn Express, is still the company's heart, but other brands like Avid and Voco are quickly climbing the ranks to account for more of the company's future development.
Brands that have just recently joined IHG's network are an important component of the company's goal to reclaim strong growth levels.Last year, IHG returned to profitability by closing 151 underperforming Holiday Inn and Crowne Plaza properties. Investors, on the other hand, want to see the corporation return to expansion mode after three quarters with virtually no growth — and a modest 0.6 percent system-wide decline last year.
On an investor, the company's leaders call Tuesday indicated a strategy to return to the nearly 5 percent growth seen in 2018 — an IHG benchmark year since, at the time, it was the highest pace of expansion seen at the company in a decade. The Holiday Inn network, which includes Holiday Inn Express, will continue to drive much of IHG’s expansion. But newer brands are also playing a part in getting back to 2018 growth levels.
“The Holiday Inn brand families are a core driver. Avid is the second one, and then it’s a balanced approach across luxury and lifestyle and upscale,” IHG CEO Keith Barr said in an interview with Skift following this week’s earnings call.
Much of IHG's development will be driven by the Holiday Inn network, which includes Holiday Inn Express. Newer brands, on the other hand, are helping to restore 2018 growth levels. "A key motivator is the Holiday Inn brand family. The second is Avid, and then it's a balanced approach across luxury, lifestyle, and upmarket," IHG CEO Keith Barr told Skift during the company's results call this week.
Avid, IHG's budget-friendly mid-tier brand, debuted in 2017 and now has slightly under 50 locations in its inventory. According to a business investor presentation, there are another 164 in the Avid development pipeline. During the results call, IHG's chief financial officer, Paul Edgecliffe-Johnson, described it as "a brand of significant size over time, call while also noting it might take a while for Avid to achieve the more than 3,000-hotel network Holiday Inn Express has. There is still a hefty gap Avid would have to overcome to truly be neck-and-neck with Holiday Inn Express, which has 645 hotels in its development pipeline.
Other newer brands include the upscale Voco, which launched in 2018 and could more than double its 31-hotel portfolio with an additional 38 in the development pipeline. The luxury Vignette Collection, which has signed six hotels since launching last August, is another high-end growth vehicle for IHG.
Deleting rooms from IHG’s system was a leading cause of the company’s size setback last year, and company leaders largely pointed to the Holiday Inn and Crowne Plaza performance review as the main culprit. Roughly 70 percent of IHG’s room deletions came from the two brands. None of the company’s other 14 brands are going to see a similar initiative, Barr said. But Edgecliffe-Johnson earlier Tuesday admitted the company still has to find more deals beyond IHG’s existing development pipeline for the company’s growth target to have a chance of materializing.
Deals with existing hotel owners to change to a new brand are part of that plan. Voco and the Vignette Collection are two of IHG's conversion brands. Conversions cost money and time to complete, but they aren't as exposed to supply chain interruptions and tighter financing as new build hotels are.
"We'll need to open a few more rooms next year to get up to where we'd want to see ourselves, which is back in line with what we saw last year," Edgecliffe-Johnson said. "We'll definitely have to locate some rooms to open during the year." It's nothing out of the ordinary for us. We have some fantastic conversion brands, and we're in a good position to do so."
Prospective Acquisitions
Barr declined to make any particular comments to an investor analyst’s question early Tuesday regarding merger and acquisition opportunities. But he later elaborated to Skift where there might be holes in the company’s network of brands. Urban micro hotels with smaller rooms — three rooms in the space where a developer would normally build two, Barr said — is something IHG “would be interested in over time.” While Barr didn’t mention any specific brands, CitizenM and Marriott’s Moxy both operate in this space. Barr touted IHG’s return to profitability and strong cash flow as signs the business is in a strong position to consider these additional expansion plans.
China Remains a Growth Target
Barr, like his competitors at Marriott and Hilton, noted China and the rest of the Asia Pacific region are lagging the world in terms of a hotel recovery.
But he also echoed the likes of Marriott’s Anthony Capuano and Hilton’s Christopher Nassetta that the region’s tougher lockdowns and pandemic mitigation policies aren’t impacting his development outlook. Some analysts in recent weeks had begun to question if stringent “Covid-zero” policies would make developers second guess any decision to put so much time and money in building a hotel in the region.
