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WIKI ANALYSIS
Intercontinental Hotels Group (NYSE: IHG) is the largest hotel company by number of rooms, with around 600,000 rooms in over 100 countries around the world.[1] It operates a diverse portfolio of brands across multiple economic segments, including Intercontinental Hotels and Resorts, Crowne Plaza Hotels and Resorts, Holiday Inn, and Holiday Inn Express. IHG makes most of its money by franchising hotels. Out of the nearly 4,000 hotels bearing IHG brands, it only owns an insignificant amount. [2] While this operating structure means that the company makes less revenue per hotel, it also means that the company has to commit less capital to develop and maintain its hotels.
Business Overview
Intercontinental Hotels Group can be traced back to 1777, but for most of its life was part of Bass, a conglomerate of beer, hotels, restaurants and soft drinks. The largest part of IHG's business today is the nearly 4000 hotels it franchises. It also manages around 500 hotels and owns a small number of hotels.[3]
IHG also has the world's largest hotel loyalty program, Priority Club Rewards, with around 40 million members. It is notable for its "Any Hotel, Anywhere" program, which permits members to redeem their points for stays in non-IHG hotels as well.[4]
Business Growth[5]
- Revenue: IHG's revenue grew from $1.538 billion in 2009 to $1.628 billion in 2010, a 5.85% growth in revenue.
- Net income: Net income grew from $214 million in 2009 to $280 million in 2010, a 23.57% growth in net income.
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Geographic Segments[6]
- Americas: Approximately 50% of total revenues.
- Europe, the Middle East, and Africa: Approximately 25% of total revenues
- Asia Pacific: Approximately 20% of total revenues
- Non-geographic: Approximately 5% of total revenues
Brands
Intercontinental Hotels Group has seven brands covering all major price segments.They are
Intercontinental Hotels and Resorts is the flagship of the Group, and is designed to cater to international business travelers in the upper upscale segment of the hotel industry. There are around 150 hotels in major cities in over 60 countries under this brand.[7]
Crowne Plaza is an upscale brand that has over 300 hotels in major urban centers, gateway cities and resort destinations around the world that caters to predominantly business travelers but has facilities that target leisure travelers as well.[8]
Holiday Inn is the powerhouse of the group, with around 1400 hotels globally and one of the world's most recognized hotel brands. It is a midscale brand that targets a mix of domestic business and leisure travelers.[9]
Holiday Inn Express, known as Express by Holiday Inn in the rest of the world, is a predominantly US brand, with around 1700 hotels in the US, Canada and Mexico, and 2000 globally. It is similar to the Holiday Inn brand in amenities and pricing, but offers slightly fewer amenities and services.[10]
Hotel Indigo is an upscale boutique hotel brand with fewer than 20 hotels found only in the United States. It offers the personality and high design common to boutique hotels within a multi-hotel brand, an unusual combination in the boutique segment.[11]
Staybridge Suites is an upscale brand of all-suite extended-stay hotels. There are less than 150 Staybridge Suites in the Americas as of the end of the first quarter, and a few in the pipeline in Europe, the Middle East and Africa.[12]
Candlewood Suites is a midscale chain of extended-stay hotels that consist of suites and studios. It has around 150 locations across North America.[13]
Trends and Forces
Large exposure to the United States market would hurt hotels in the event of a downturn.
While the hotel and hospitality market is quite fragmented, it is still geographically quite concentrated. The top 20 countries have over 80% of the world's 18 million rooms. The United States alone accounts for 25% of those rooms.[14] Over half of IHG's revenues come from the Americas, largely the United States, and 70% of its rooms are in the United States. Moreover, 69% of IHG's operating profit comes from the Americas.[15] As a result, IHG is vulnerable to a United States recession. However, it has long-term management and franchise contracts for most of its hotels that make it less vulnerable than its competition.
The branded hotel industry is growing strongly, especially in emerging markets like China.
The United States, in addition to having 25% of the world's hotel rooms, is also one of the few markets where many of the hotels are branded and are part of larger chains. In the United States, around three quarters of all hotel rooms are branded, compared to one third in the Asia Pacific region and a third in Europe, the Middle East, and Africa.[16] In these parts of the world, especially China, the hotel market is shifting strongly towards branded hotels. Moreover, the tourism industry in China is growing rapidly, and China is expected to become the world's number one inbound travel destination within the next ten to fifteen years.[17] Intercontinental has a large pipeline of hotels under development in these regions and is already the largest international hotel management company in China, giving it a substantial headstart at expanding into this market. Its position in China, with the most hotels of any chain and possession of the best-recognized brand in Holiday Inn,[18] will help it greatly.
Decreased availability of financing is slowing hotel construction and expansion.
Hotels are extremely capital-intensive to own and lease, and many hotel developers rely on financing to build hotels. As a result of the credit crunch, financing for such large-scale projects has become hard to find. As a result, despite the growth of the travel market, hotels could have difficulty expanding into new markets such as China. Intercontinental is somewhat buffered by having the largest pipeline in the industry. Nevertheless, these projects could still fall through or be substantially delayed, slowing IHG's growth in key markets. Moreover, its Staybridge and Candlewood Suites brands are new, and a slowdown in the development of new hotels would hurt their efforts to gain traction.
Marriott International (MAR): Marriott International, Inc. (Marriott) is a worldwide operator and franchiser of hotels and related lodging facilities. The company has around 3,500 hotels spread across almost 70 countries. Marriott generates around 90% of its earnings from hotel operations and a nominal amount from timeshares. The company's largest geographic segment is the United States.
Orient-Express Hotels (OEH): Orient-Express Hotels (NYSE: OEH) is a hotel and leisure group, which is focused on the luxury market. The company owns and operates luxury hotels, restaurants, tourist trains, and river cruises in over 25 countries. OEH's hotels, many operated only seasonally, target luxury travelers.[19]
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