"The death of business travel has been exaggerated by a number of pundits, people saying it's going to be down 50 per cent or 30 per cent. I think it's going to be impacted on the margin," IHG Hotels & Resorts president and CEO Keith Barr said Tuesday during a quarterly earnings call.
Barr agreed that some business trips will be replaced by technology, but he's bullish on medium-term business travel returning. "Travel budgets will gradually increase as people have more and more confidence to travel," he said.
IHG has less exposure to the declines in corporate transient and group bookings, given its core mainstream business leans toward nondiscretionary business travel and has a high component of leisure travel, he explained. Still, full-year 2020 group revenue per available room was down 63 per cent year over year on a comparable basis and includes the adverse impact from hotels that were temporarily closed, said IHG CFO Paul Edgecliffe-Johnson. "The travel restrictions and physical distancing measures in our key markets around the world contributed to an occupancy decline of just under 30 percentage points, with rates down 17 per cent," he said.
But Barr sees opportunity. Referencing calls he said he recently held with CEOs, he said many are looking to reduce office-space footprints and have at least some people continue to work remotely. "Instead of driving to the office five days a week, they may have to fly in once a month," Barr said. With smaller offices and less meeting space, those workers will "have to use hotels as gathering places to do things in the past they've done in their offices, which could be true drivers of demand overall. So I think the business recovery will be more robust than people are giving it credit for."
IHG's revenues from its fee business and owned, leased and managed lease hotels fell by 52 per cent to US$992 million during the year to 31 December, with Barr calling 2020 “the most challenging year in our history”.
At an operating level, the group's profits on these hotels fell to US$219 million, from a profit of U$865 million in 2019, largely as a result of impairments to owned and leased hotels during the first half of 2020.
The group said that full year RevPAR was down 52.5 per cent but variation by region reflected local market Covid-19 restrictions and recovery pace; the recovery in Greater China was most advanced with Q4 RevPAR of -18.2 per cent, against -49.5 per cent in the Americas and -70.5 per cent in EMEAA.
IHG said it had achieved a US$150 million reduction in fee business costs and is targeting a further $75 million in order to be sustainable into 2021, while still investing for growth.
IHG’s global estate now stands at 886,000 rooms (5,964 hotels), after it opened 39,000 rooms (285 hotels) during the year. The group claims an 11 per cent share of the industry pipeline against a 4 per cent market share.
The Holiday Inn brand family accounted for 60 per cent of all openings and half of all signings in 2020. The group also launched voco in the US and China during the year.
“2020 was clearly the most challenging year in our history, with Covid-19 heavily impacting demand across our industry. 2021 has begun with many of these challenges still in place, with more meaningful progress towards recovery for the industry unlikely until later in the year and dependent on global vaccine rollouts, lifting of restrictions and an acceleration in economic activity,” said Barr.
“The shape of recovery remains varied globally, but we’ve continued to outperform the industry in key markets thanks to the strength of our teams, business model and segments in which we compete. This includes our industry-leading position in upper midscale, where demand remains stronger.”