IHG hasn’t paused when travel has been forced to over the past two years. The chain has enriched its brand portfolio, transformed its loyalty program, improved its digital capabilities, reduced the cost base, and more, details Kenneth MacPherson, CEO Europe, Middle East, Asia and Africa
IHG revenue increased 40% to $1.4 billion in 2021, compared to 2020. Operating profit increased 144% to $534 million, driven by a reduction of the cost base. But Asia lagged while China was volatile. How do you feel about this?
In fact, 2021 tells us about the industry’s ability to recover. I feel confident. When I examine the markets for which I have the privilege of being responsible, there are multiple confirmations that a combination of vaccine development and improvements in treatment is building confidence in governments, which means that restrictions are eased and as soon as that happens the industry picks up.
Is the Ukrainian crisis putting a brake on the work?
We remain optimistic that travel will resume in our EMEAA (Europe, Middle East, Asia and Africa) region – and globally – in 2022. The situation in Ukraine and Russia is a clear reminder to us of the need to continue supporting our employees, owners and hotels, especially when they need us most.
So how are you preparing your budget for Asia this year? I would also like to know your opinion on this subject on Greater China, since you were CEO of the region before becoming CEO of EMEAA.
Well, first, we have to stick with the distinct approaches that are pointed out. China is making it clear that it will continue with the current strategy, that quarantine requirements on international travel will continue for some time. But as soon as the conditions are right in China, the Chinese domestic market recovers quickly, as we have seen.
We are very respectful of the approach taken by China and recognize that with a zero Covid strategy there will be some volatility.
Other Asia-Pacific countries are taking more of the approach to living with Covid. And this is where the level of vaccination, the competence of health systems, the confidence of governments come into play. Different countries are at different stages. But the key is that our projections are returning markets.
This means we can invest in our business with confidence. We can confidently speak to our partners, owners and colleagues about growing and signing new deals.
But Asia depends heavily on China. How do you support your owners and hotels if the Chinese cannot travel?
The external situation is whatever it is. You cannot control this. So let’s focus on what we can influence.
Take the example of Thailand. It has opened up, so we will identify markets where travel corridors are available for Thailand.
The advantage we bring is the global reach of our brands and the enterprise platform (IHG Concerto) that we have.
Our partners know that we use our marketing campaigns, loyalty program and other commercial engines at our disposal to generate quality demand and revenue in our hotels.
We did a lot of things as the markets opened and closed. We have an obligation to do so, because we are at the side of our partners and our colleagues in the hotels.
And this year, we’re introducing a new IHG rewards program to the company.
We are also improving our digital capability. One example is the next-generation IHG app, which is in the pilot phase, with a full rollout planned for this year.
So whatever governments serve us, we’re just going to keep adapting and keep doing the right thing.
In China, despite the strict zero Covid approach, 40% of all signings globally last year were in China. IHG does not have master license agreements in China unlike some of the other chains.
We have an impressive team in China and considerable scale as we have been investing in China business consistently for many years now. Again, it’s about the strength of the relationships we have with owners, the portfolio of brands we have, and how localized our business in China is.
But there is also a lot of growth outside of China.
Yes, the rest of Asia-Pacific saw some pretty good signings – 40 last year. Was it in line with expectations and what is the objective this year?
I am happy with the result. It’s not just 40 signatures, but 40 in markets important to us in Asia-Pacific. I strongly believe in the resilience and growth potential of Asia-Pacific markets. During the year, the industry in terms of asset ownership became more confident. Our teams continue to identify opportunities and talk about what IHG brings to them, as well as our expanded brand portfolio.
So what are you expecting from signings this year?
We don’t give (forward projections), but an important part of our results message (2021) is the confidence that we have to return this year to the type of level of growth that is more like the level of 2018, and year after more as 2019 Growth Level.
I truly believe we can build on 2021 – the teams we’ve put in place, our expanding portfolio with Voco, Vignette Collection and others, and the work we’ve done to strengthen our business.
Voco is our fastest global brand launch ever. It is now growing in all three regions. Vignette is an important addition that allows us to integrate independent hotels into the system while allowing them to retain the vast majority of their unique identity.
I really want to do everything I can to help teams succeed. Coming out of this (crisis), my role is not to give them big goals and tell them, just to achieve them. Right now, we all need to support each other to be as successful as possible.
That’s part of what I’m here for, to know: what do we all need to do together? How can I support you? And how can I ensure that we keep this promise to our owners and what they expect of us?
Speaking of support, I recall that IHG was first lightened by restructuring in 2017, then again at the end of 2019, with the aim of being “closer to the markets”. It was Keith Barr’s first move when he became CEO. But on the earnings call last month, Keith also talked about cutting costs and getting to a linear cost base in 2021. I can’t help but wonder, how much else could you reduce without affecting the support you provide to owners?
Globally, we have achieved US$75 million in sustained cost savings in 2021 and there are also US$25 million in additional savings. And we told investors that they should expect us to put that money back into our business.
Clearly, with the Covid, we had to be careful. We’ve made sure that our close-to-market teams are impacted as little as possible because, as you know, we’ve spent a lot of time building this structure and it’s not just a model for us but for our owners and our hotel teams.
So after building it, we tried to scale it down as little as possible. We have kept many capacities close to market. In fact, I would say that we have invested in additional capacities in 2021, supporting our hotels and our customers in an improved way.