“During 2008 we witnessed unprecedented events in the world economy. In spite of this, it was a good year for IHG. We benefited from our strategy to focus on franchising and managing hotels and beat our three year net rooms growth target by over 35 per cent.”
Business summary
In the year, we continued to grow sales, profits* and revenue per available room (RevPAR) – the industry’s main performance measure – which rose again, up 0.9 per cent globally. Throughout the year, we saw RevPAR outperformance in all our key markets, but in line with the industry we experienced a sharp downturn in the fourth quarter when our RevPAR declined 6.5 per cent. We have taken a number of actions to prepare the business for the tougher environment ahead. Sadly this has involved some redundancies across the Group.
Accelerated rooms growth
We opened a record 430 hotels during 2008, including 115 hotels in the fourth quarter, when the economic conditions had worsened significantly.
We were pleased to beat our target to add 50,000-60,000 net rooms within three
years and in the end we added more than 82,000 rooms to the system – a great
achievement. We signed 693 hotels, 98,886 rooms, into our forward development
pipeline during the year. More than 25,000 of these rooms were signed in the
fourth quarter, demonstrating the continuing appetite that owners and guests
have for our brands all around the world. At the same time, we continued to
focus on improving quality and we removed 193 hotels from our system. Overall,
we grew the number of rooms in our system by 6 per cent on a net basis.
Brand performance
The $1 billion relaunch of the Holiday Inn family of brands is progressing well. Almost 300 hotels had been relaunched by the end of 2008 and feedback from guests and owners has been encouraging. The improvements will deliver a higher quality guest experience and stronger returns for hotel owners.
In September 2008, we entered the timeshare market through an exclusive licensing and marketing agreement, launching our Holiday Inn Club Vacations brand. We successfully continued the expansion of our brands around the world with the launch of Staybridge Suites and Hotel Indigo outside our Americas region.
Advantages of scale
With almost 620,000 rooms worldwide, we can deploy our significant scale to benefit both ourselves and our hotel owners. Our reservations channels now bring in $7.6 billion of room revenues and our Priority Club Rewards members contribute $5.9 billion. We now directly generate around 60 per cent of room nights at our hotels through our system.
This year we started several projects to make more of our scale, to maximise efficiencies and drive cost savings. These include establishing a Group procurement team and consolidating several accounting processes to overseas locations. The savings will continue in 2009 and we have committed to keeping our costs below 2008 levels.
The trading environment became significantly tougher throughout 2008 and there is no doubt 2009 will be very challenging, but ours is a resilient business and our strategy remains the right one. Over the last few years, we have built confidence and momentum in the business and forged an even stronger bond with our community of outstanding owners with whom we operate our hotel system. Together we are all focused on a common goal, to create Great Hotels Guests Love and despite the poor short-term outlook, we remain confident we can deliver our ambition.
Andrew Cosslett
Chief Executive
* Before exceptional items.
Questions and Answers
with Andy Cosslett, Chief Executive
Q: Does IHG have the right strategy to deal with the current economic climate?
A: Three years ago we made the decision to focus on franchising and managing hotels, so we are predominantly a fee-based business. The benefits of this include a more predictable income stream and high cash generation. We own fewer properties ourselves now and our growth is funded by third-party investment. This growth helps us be more resilient in a tougher economic environment as the revenue we receive from new rooms helps offset that lost from declines in RevPAR. We are confident our strategy and business model set us up well to weather the storm.
Q: What is IHG doing to respond to the changing market conditions?
A: Over the past few years, we have taken a number of strategic decisions to set the business up for tougher times. We have established a new procurement function to make the most of our scale, invested in technology and our reservations systems and focused our marketing spend on short-term tactical marketing and long-term brand development. We will continue to review our cost base on an ongoing basis and invest in those things that drive guests to our hotels and revenues to our owners.
Q: Is IHG any more advantaged than any other hotel company?
A: As one of the biggest hotel operators, we have the advantage of scale. We have a number of strong brands across different price points, in nearly 100 countries around the world. Then we have the support structure – our reservations systems and our $1 billion marketing fund – to deliver more guests to our hotels. This is why owners choose our brands.
We have a great management team to lead the business. The loss of Steve Porter has been felt widely across IHG and the industry and he will be sorely missed as a colleague and as a friend. We are delighted, however, to welcome Jim Abrahamson to the Group, who brings with him a wealth of experience of hotel operations in the Americas region.
We also have a great working relationship with our owners, both directly and through the IAHI, The Owners' Association. During these difficult times, it is even more important to work side by side with our owners so that we can deliver Great Hotels Guests Love.
