InterContinental Hotels Group PLC (NYSE:IHG) Q3 2023 Earnings Call Transcript

Conversions grew strongly, representing 39% of openings in the year. The number of conversion room openings increased by 21% year-on-year, and pleasingly the number of new-build openings also grew by 12% year-on-year. Consensus currently shows an expectation of 4% net system growth in 2024, and at this early stage in the year that aligns with our internal expectations. We signed 79,000 rooms in the year, an increase of 26% on 2022 when adjusted for Iberostar. In Q4 alone, we signed over 28,000 rooms, up 50% on the same period in the prior year, representing one of the strongest quarters of development activity on record. This reinforces our future growth potential and clearly demonstrates the continued attractiveness of our brands and enterprise system.

We had strong performance across all segments, but it was very pleasing to see our six Luxury & Lifestyle brands account for 23% of signings, further increasing this part of the portfolio in our pipeline mix. Accelerating system growth and fee income further, one in two Luxury & Lifestyle development deals now comprises a branded residences component. In terms of signings by type, conversion signings more than doubled on 2022, but it was great to see that new build signings were also up on the prior year. Moving on now to give some brief highlights for each of the three regions, starting with the Americas. RevPAR was up 7% versus 2022, and 13% versus 2019. Occupancy was up 1.5 percentage points’ year-on-year, and rate up 4.6%. Trading in the first quarter of 2022 saw travel volumes impacted as a result of the Omicron variant of COVID-19, with comparatives becoming tougher from April onwards.

RevPAR growth in the fourth quarter was up 1.5% versus 2022, which still represented further sequential improvement versus 2019, up 14%. For the U.S., RevPAR growth was 0.1% given it was up against tough comps with resurgent demand in Q4 of 2022. That compares to the U.S. industry that saw RevPAR in slight negative territory for midscale and upper midscale in Q4. Industry forecasts for 2024, such as from STR [ph], are for RevPAR for all chain scales to be positive low-to-mid single digits year-on-year. Turning to gross system growth, which was 2%. Momentum picked up later in the year, with 40% of openings occurring in the fourth quarter. We were delighted to see the first two Garner conversions open by the end of the year, within just three months of the brand becoming franchise-ready in September.

It was also very pleasing to see an acceleration in the pace of openings for avid, with eight new properties added in the year, and a further 18 already under construction. At the other end of the chain scale, our Luxury & Lifestyle category saw the first Vignette open in the region, a new entry into Dominica with the InterContinental Cabrits Resort & Spa, as well as three new Kimpton properties. We signed 100 deals across the Holiday Inn and Holiday Inn Express brands, indicative of the enduring attractiveness of these brands, as well as the untapped growth potential they still hold. We signed a portfolio including three Holiday Inn Club Vacations hotels in Mexico, marking the first steps for the brand outside of the U.S. In the Luxury & Lifestyle segment, we had 29 signings, which was a 58% increase in rooms compared to 2022.

Many of these were in high barrier to entry markets such as New York, Napa Valley, Washington DC, Turks & Caicos and Hawaii. In the Premium segment, signings tripled, with strong increases at both voco and Crowne Plaza. And as we strengthened development activity outside of the U.S., we achieved 51 signings or nearly 20% across Canada, Mexico, Latin America and the Caribbean. Signings in total for the year were over 28,000 rooms, which, excluding Iberostar, was 34% more signings than in 2022. In our EMEAA region, RevPAR was up 23.7% versus 2022, and is up15.4% versus 2019. Occupancy improved year-on-year by 7.9 percentage points, while rate was up 9.8%. The U.K., which experienced a comparatively earlier easing of restrictions, saw RevPAR up 14% for the year versus 2022, and up 5% in Q4, despite tough comps.

Elsewhere, variances in performance largely reflected timing of recovery following the ease of travel restrictions, with fourth quarter year-on-year RevPAR in Australia up 7%, Continental Europe up 8%, South East Asia & Korea also up 8%, and Japan up 20%.RevPAR in the Middle East was down 1% in Q4 predominantly due to tough comps from the FIFA World Cup held a year prior, but was still up 24% on a versus 2019 basis. Gross system growth was 9.2% year-on-year with the opening of over 21,000 rooms in the region, of which nearly a third were added in the fourth quarter. Openings for the year included 16 further Iberostar Beachfront Resorts that were added as part of the long-term commercial agreement established in November 2022, and 26 openings across the Holiday Inn Brand Family.

It was also a particularly strong year for the InterContinental brand, with eight openings including Jaipur, Bucharest, Durrat Al Riyadh and Rome. We signed nearly 25,000 rooms in the region during the year, including 10,000 in the fourth quarter. As we look to rapidly expand in Saudi Arabia, a key growth market for IHG, 14 new properties were added to the pipeline, including the Regent Jeddah which will be the debut of the brand in the Middle East region. Overall for EMEAA, when looking at development activity levels excluding Iberostar in both 2023 and 2022, it was very pleasing to see openings up 25% year-on-year and signings up 24%. Moving on to Greater China, where RevPAR was up 71.7% year-on-year. With COVID restrictions only being relaxed at the very end of 2022, rapid recovery in the region meant that 2023 was the first year in which we sawRevPAR exceed pre-pandemic levels, delivering growth of 0.7% versus 2019.

Occupancy of 61.1% was up 19.1 percentage points versus 2022, while rate grew by 18%. Q3 RevPAR, which was strongly driven by domestic leisure trips, was up 43% versus 2022, an outstanding increase of 9.3% versus 2019. Q4 RevPAR was subsequently up 72% versus 2022 due to a comparable period in which the industry was substantially impacted by localised travel restrictions a year prior, but Q4 saw RevPAR slip just below 2019 levels. It is important to reiterate that RevPAR has recovered in Greater China at a much faster rate than what we have seen across the rest of our global business, and the slight regression in Q4 versus 2019 is simply a product of the demand mix being more weighted to business whereas Q3 was heavily weighted to incredibly strong domestic leisure demand.