With talk of a bid from China’s Anbang Insurance Group being dismissed by IHG, Sally White takes a look at what the future holds

Pity the poor management that delivers financial results to the market in the dog days of August. Take InterContinental Hotels Group (IHG), which reported a good set of interims with underlying earnings per share up 11% and gave investors a 9% dividend rise. Yet all the market is talking about is the likelihood of a successful bid from China’s Anbang Insurance Group. (Yes, the group that walked away from a $14 billion offer for Starwood.)

IHG certainly does not want to discuss that, and in fact issued terse denials. Nor, in its briefing to analysts on these first-half figures, did it talk of making more mega acquisitions itself. In fact, CEO Richard Solomons says that IHG has enough scale - it does after all own the world largest brand by a factor of two in Holiday Inn, and seems happy with its existing pipeline.

As a group it signed up 35,000 more rooms in the first half taking the pipeline to 222,000 and opened 17,000, “the fastest pace of growth since 2011”. It managed an underlying 5% revenue growth driven by a 2% rise in REVPAR, and achieved a 10% gain in underlying profit in the first half. In the US occupancy was close to peak at 70%.

He was happy to highlight, however, progress on two important areas in IHG's commercial strategy - direct bookings and the loyalty programme.

…two important areas in IHG’s commercial strategy – direct bookings and the loyalty programme

“Driving direct bookings is a core element of this strategy and our focus is paying off. Digital is our largest channel, delivering over 20% or $4.2 billion of our gross room's revenue per annum, up from just 12% in 2005,” he outlined.

“Mobile in particular continues to thrive with revenue up more than 30% in the half, delivering almost $1.4 billion in the last 12 months, up from less than $50 million per annum in 2010. Furthermore mobile now drives more traffic to our website and desktop either from mobile visits to our website or over our mobile app.”

Step changes

IHG believes it is making “significant step changes” and is seeing good results when it comes to loyalty. “We’ve made some major and high profile enhancements to the programme over the last two years, one of these being the launch of Spire Elite, our top tier membership level in July last year.

“Following our pioneering and successful direction of pricing trial in Europe and Americas in 2015, in May we launched Your Rate by IHG Rewards Club. This provides exclusive preferential rates to loyalty members when booking to our direct channels and is now live in around 4500 hotels across all of our regions except Greater China.”

There have subsequently been “material increases” in revenue from both new and existing IHG Rewards Members, he told the analysts. “Enrolments are significantly up as are points redemptions, a strong sign that members are engaged with the program and since the launch of Your Rate, we're seeing a material two point shift in growth rate to direct web from OTA.”

Not that he said anything against OTAs. The analysts could not draw him into saying more on the introduction of Your Rate than: “From an OTA perspective, it's very important and we've certainly pitched it this way and believe that OTA is a very important channel to us and it's not going away, nor do we want it to. It enables us to access price sensitive leisure travel very effectively with travellers who are not going to be brand loyal and we're never going to able to afford to access directly.”

…OTA is a very important channel to us and it's not going away, nor do we want it to

IHG CEO Richard Solomons

In his view, the issue was that “it's an expensive channel, so the business has to be incremental and profitable, otherwise its way too expensive. So we see them as very much not mutually exclusive. These are both channels that we want to pursue and they work very well and I think we're seeing - we're seeing a benefit from it.”

His CFO, Paul Edgecliffe-Johnson, added that “the additional management capability that we have from having this new channel means that we can average up so that any discount that we would otherwise have seen; we’re able to negate.” So, IHG gets the same average rate, but at much lower cost.

Looking ahead Richard Solomons sees the pipeline as “of higher quality than it’s ever been”. Other pointers to further good figures were that in the major US market RevPAR was up 2.1%, softness in oil producing states (which is now easing) being more than offset by growth in non-oil ones. Performance outside the Middle East, in that region, was strong, with RevPAR in India up 10.5%, Japan and Australia up in mid-single-digits and South East Asia up by low single-digits. Greater China RevPAR rose by 2.4%.

While European profits were hit by hotel exits and refurbishments, RevPAR was up by 2%, Germany particularly strong with a rise of 8.7%. The UK showed a RevPAR rise of 1.4%.

For the future, all looks good according to Richard Solomons, as he talked to the analysts about the drivers of hotel revenue growth across the globe. Disposable income, an aging population, globalisation of low cost airlines and emerging market expansion - are all set to continue to rise. He added happily: “…and it is the major branded hotel companies such as IHG that are benefiting most in these positive trends”.