Iberostar evolves artisan strategy with IHG tie-up

PALMA DE MALLORCA, SPAIN -- Creating a strategic alliance with InterContinental Hotels Group (IHG) was no simple matter for family-run Iberostar Hotels & Resorts, which generated $1.3 billion in gross revenue in 2019. Months of negotiations that started with a blank slate eventually led to a 30-year deal that was much more than a commercial marketing deal, but more of a way forward for the all-inclusive, 70-hotel beach resort brand. While there was no exchange of shares or cash, agreeing on a growth plan was a very meaningful part of the agreement, according to Iberostar Group Chief Strategy Officer Luis Mota.

Today, the integration of Iberostar Group into the IHG system with some 24,300 rooms in the Caribbean, America, southern Europe and northern Africa is in progress with 27 properties (8,200 rooms) still requiring additional third-party approvals to join the system. This agreement does not include other Iberostar properties such as its urban hotel portfolio, and interests in Cuba are also excluded. Six other Iberostar Beachfront Resorts properties, representing some 3,000 rooms, will also be added to the IHG pipeline.

The brand will be added to distribution channels and the IHG One Rewards loyalty program. The Iberostar Beachfront Resorts brand will be included in a new Exclusive Partners category within the IHG collection of brands, along with the other Suites, Essentials, Premium and Luxury & Lifestyle categories. IHG's fee structure will increase through 2025 as hotels become increasingly integrated into the IHG platform. In 2027, annual revenue recognized within IHG's fare business is expected to be approximately $40 million, with a similar amount additionally recognized within System Fund revenue.

Luis Mota

But at the same time, Palma de Mallorca, Spain-based Iberostar will maintain 100% ownership, preserving its autonomy and its personal business values as a family business with more than 65 years of experience in the industry led by Chairman Miguel Fluxá, Vice Chairman and CEO Sabina Fluxá, and Chief Sustainability Officer Gloria Fluxá.

Hotel Investment Today recently spoke to Mota about the IHG deal and what it means for the future of Iberostar.

Hotel Investment Today (HIT): What does this deal truly mean to the Iberostar organization?

Luis Mota (LM): It will mean important changes in the way we operate. It means significant changes in terms of technology because, obviously, having both systems integrated is an essential part of the success of this alliance, and we are heavily working on that. We expect it to take some 12 to 18 months.

One of the great objectives of this alliance is to continue growing our direct sales and in that we think IHG will play a major role, of course, while always maintaining the commercial relationships that we have with very long-term partners in the industry. But clearly, growing our direct sales is a big objective.

HIT: What’s the status of the Iberostar properties in the IHG system?

LM: Of the 70 beachfront resorts, 43 are owned by the group. So, all of those are already connected and accessible on ihg.com. The rest, we are in the process of meeting owners and persuading them to sign on to the deal. And, so far, so good. Over the next few months, we expect a vast majority of those resorts will actually join the alliance.

There's marginal cost for them to be added. But the benefits should outweigh the costs by a country mile.

HIT: All the major hotel companies are getting into all-inclusive. How does it impact your strategy?

LM: This alliance is a step forward, both for IHG and us, to make sure that we protect our position in this space as best as possible.

Many of those new competitors are new to this segment, while we’ve been doing this for decades with constant evolution and innovation of our services. We remain true to two very significant pillars – one is quality and the second is sustainability and ESG, in general. It’s really in our DNA… We are committed to being waste-free by 2025 and net zero in terms of carbon emissions by 2030. That’s 20 years ahead of the industry, in general… It really affects things that a few years ago might not have been so obvious, which is increasingly financing is linked to this sort of things. Green financing is increasingly common. Banks are looking to lend money to projects that really respect sustainability and ESG policies. We believe we are leading with this response within the industry.

HIT: How are your non-owned hotels doing with their sustainability and ESG initiatives?

LM: It’s impossible to get 100% buy-in, but we focus a lot on really developing business cases and leading the way with our own hotels. So, when one can prove the efficiencies, then the decision for the owners is much easier.

HIT: How are you responding to guests’ changing wants and needs?

LM: Everyone is becoming increasingly more and more digital. We see our customers really valuing services that we offer digitally. For example, when they can choose their actual room online when making a reservation, it shows we are really in touch.

HIT: What kind of pipeline does Iberostar have right now?

LM: As a company have always liked developing greenfield and owning assets Obviously, we manage, but we always have a pretty rich development pipeline. The pandemic put us on standby for some two years or so. But last year, we reactivated our investment program because when the pandemic hit us in March 2020 we were just about to start a number of projects for which we had the plots of land… We are continuing our investment with a focus on three projects in Aruba. One of them is already under construction and should be opening in summer next year. We are also starting construction work in Punta Mita, Mexico, and have plots of land in Los Cabos, Mexico. That’s the only investment in the next two to three years and we have a pipeline of opportunities we are working on for management contracts.

On the other side of the Atlantic, we’re exploring opportunities in destinations such as Croatia, Greece and Spain.

In alliance with IHG, we plan to increase our asset light growth model, adding not only management but potentially licensing agreements, and getting where IHG is particularly strong. I’m thinking of destinations such as Southeast Asia.

Iberostar Selection Hacienda Dominicus in the Dominican Republic renovated in 2022

HIT: Have you signed any third-party deals since the IHG tie-up?

LM: We are very close to doing a couple, but they are still not in the public domain. We are working together, looking together, and bringing opportunities to one another… We have weekly dialogue on opportunities because things are moving, and we want to look at as much as possible.

HIT: Are you going to continue to develop on your own?

LM: Yes. That’s something that we will not stop doing. We continue acquiring plots of land in interesting destinations. But, as I said, I think that we’re going to promote more than we have done so far the asset light model.

HIT: Any plans for disposition?

LM: No. That’s not in our DNA. We tend to love our assets.

HIT: Do you acquire assets?

LM: It’s not something that we typically do. By developing greenfield project, we give them own personality. And in conversions, it’s more challenging to do that… We do look at acquisition opportunities, but it’s not our main avenue for growth – it’s something we do very rarely.

HIT: IHG has a very strong presence in the United States. Are you looking there?

LM: We’re not very active right now. But why not?

HIT: How is the portfolio performing?

LM: In 2022, growth in ADR and RevPAR were double-digit versus 2019… Three months now into 2023, demand continues to be very strong.

HIT: Sabina and Gloria Fluxá are stepping up their leadership roles in Iberostar. What is it like working with them and what should the industry know about them?

LM: They are totally committed to the company. They devote a lot of time to the business and are very committed to our values. That talks a lot about functional quality and about humbleness. Sustainability is something that both really have very close to their hearts, and they are genuinely convinced about the importance of that… We’ve had a business which is very linked to the oceans, and they are very focused on leaving a legacy for future generations.

HIT: Closing thoughts?

LM: We’re working together with IHG and preparing to become more standardized in the way we approach the investment community because it’s something we’ve been pretty artisan about it in the past. Now with IHG, they’re focused growth on licensing, management agreements and we’re working together on how to present to the investor community. We’re focused on getting out to the market as soon as possible to present that message.