InterContinental Hotels Group made the decision in July to
eliminate about 10 per cent of its corporate staff, said IHG CEO Keith Barr
during a Tuesday second-quarter earnings call. The cuts are part of a US$150
million cost-cutting plan that started this year and will be sustained into
2021.
"This necessary reduction in costs has sadly had to
involve looking at headcount across the business," Barr said. "Our
changes include a reduction in roles of around 10 per cent at a corporate
level, which we announced internally in July, and we are doing all we can to
support any impacted colleague during this really difficult time."
The reductions come amid the worst crisis to hit the
hospitality industry. Despite signs of improvement from the performance trough
in April due to the Covid-19 pandemic, the near-term market remains uncertain,
and key metrics are still far below desired levels.
IHG's global revenue per available room declined 75 per cent
year over year for the second quarter, which it had anticipated in its earnings
preview, and was down 51.7 per cent for the first half. Occupancy declined 30.6
percentage points during the half, and average daily rate was down 12.1 per cent
for that period. The company is beginning to see a recovery, Barr said, with
July RevPAR declines expected to be 58 per cent, up from April's 82 per cent
drop, and occupancy in July up to 45 per cent from about 20 per cent in April.
Revenues were $488 million for the half year ending 30 June, down from $1.01
billion at that point in 2019.
Of the company's roughly 5,900 global hotels, about 317 or 5
per cent remain closed, compared with about 1,000 at the end of April. Still,
IHG had 77 signings during the second quarter and opened 47 hotels and broke
ground on 47 more, Barr said. During the first half of 2020, the company's net
rooms grew 3.2 per cent to 883,000.
Regional results
Continental Europe RevPAR was down 67 per cent in the first half of the year,
with closures and travel restrictions particularly impacting the second
quarter, which was down 96 per cent, according to IHG. In the UK, RevPAR was
down 59 per cent for the half and 90 per cent for Q2, driven mostly by
government-mandated hotel closures. IHG said it predicts July RevPAR for the
EMEAA region will be down 74 per cent compared to the 85 per cent decline seen
in June. Sixteen per cent of the group’s properties in the region remained
closed at the end of July.
Greater China, where the coronavirus was first reported, saw
improvements in the second quarter over its first quarter performance. RevPAR
was down 61.7 per cent for the half of the year but improved to a 59.2 per cent
decline in the three months ending 30 June. Average occupancy was greater than
50 per cent in July, and 99 per cent of the region’s hotels are reopened. Net
rooms grew 9.9 per cent year over year for the first half.
Second quarter RevPAR was down 69.3 per cent year over year
in the US, and down 46.8 per cent for the first half of the year. Occupancy is
back up to about 45 per cent in July, with RevPAR declines about 54 per cent
for the month. IHG's upper midscale and extended stay brands have proved to be
the most resilient, the company said. Net rooms grew 1.7 per cent year over
year for the half in the Americas, and its pipeline was at 116,000 rooms as of 30
June.
Business travel perspective
When asked about the business travel recovery, Barr said there will be some
shifts, and perhaps some long-term trends, "but I don’t think this is the
death of business travel by any means". "It's pretty hard to Zoom
yourself on a family holiday or to Teams yourself on a big convention or
first-time meetings with a client you are going to do a huge deal with,” he
added.
"Fast forward you'll have still rising demand for
travel, rising emerging markets, those tailwinds will come back. You have to
remember, there is also a significant portion of business travel which is not
non-discretionary, which is why I think you've seen us hold up quite well
through this downturn. We still have a pretty significant amount of business
travel in our hotels as people have to travel from point A to point B to do
their job. They can't do it through technology, they have to be on site. That's
not the top-tier banker, but the person driving from Holiday Inn Express to
Holiday Inn Express to do their job. And that's here to stay.
"It would be inaccurate to say there won't be some
impact, because there will. But I don't think it's a material shift that
business travel will be down 10 per cent, 20 per cent, 30 per cent going
forward. I don’t think anybody has that real view on it yet. After 9/11, I remember
people saying they would never get on planes again. And we all know what
happened decades of travel from there. I think it's just too early to call, and
not all business travel is equal."