Rebound in US drives IHG revenue acceleration

BERKSHIRE, England – InterContinental Hotels Group (IHG) reported earnings for the first half of 2024 on Tuesday and led with a 3% increase in RevPAR (+3.2% in 2Q), which was driven by a familiar story of weakness in China offset by strength elsewhere, including a solid rebound in the U.S.

Average daily rate was up 2% and occupancy was +0.6% points for the first half of the year, leading to total gross revenue of $16.1 billion, +6%.

IHG’s operating profit for the first six months hit $535 million, up 12% on an underlying basis. Adjusted earnings per share was also up 12%. IHG added that adjusted earnings per share growth is expected to be higher than the growth in operating profit and in line with current consensus expectations.

Revenue in the first half of the year was $2.32 billion, up 4.3% from $2.23 billion a year before. Pretax profit, however, fell 17% to $472 million from $567 million.

IHG explained that pretax profit includes a system fund and reimbursables loss of $10 million compared with a $87 million profit a year ago. This was driven by a planned reduction of prior system fund surplus.

IHG also reported an increase in financial expenses to $52 million from $16 million.

Fee margin of 60.6% was up 1.8 percentage points, driven by trading performance and new revenue from sale of loyalty points.

IHG said positive operational leverage is expected to drive a 100 to 150 basis points annual improvement in fee margin as revenue growth is expected to grow faster than the increase in its cost base. Additional drivers of this include structural shifts such as a growing proportion of franchising and increasing scale efficiencies in EMEAA and Greater China.

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IHG said positive operational leverage is expected to drive a 100 to 150 basis points annual improvement in fee margin as revenue growth is expected to grow faster than the increase in its cost base. Additional drivers of this include structural shifts such as a growing proportion of franchising and increasing scale efficiencies in EMEAA and Greater China.

IHG said it is developing further opportunities to drive fee margin over the longer term, including cutting costs and expansion of ancillary fee streams such as driving additional growth from loyalty point sales and co-branded credit cards.

Global RevPAR was up 3% (3.2% in 2Q versus 2.6% in 1Q) with IHG noting U.S. RevPAR was positive from April and up 2.5% for 2Q. In the Americas, first half RevPAR was +1.7%, with occupancy flat year-on-year and rate +1.7%.

Trading in the Americas improved from Q1 when RevPAR was down -0.3% with an adverse impact from the timing of Easter that led to lower demand in late March, including for business travel. This was followed by higher demand in April which, along with more normalized growth in the two subsequent months, resulted in Q2 RevPAR of +3.3%. U.S. RevPAR was +2.5% in Q2, and in aggregate across Canada, Latin America and the Caribbean RevPAR was +9.4%.

In EMEAA RevPAR was up 7.5% (6.3% in 2Q versus 8.9% in 1Q), while RevPAR in China dropped 7% in the second quarter (-2.6% for the first half of 2024).

In Greater China, H1 RevPAR was -2.6%, with occupancy -0.3%pts and rate -2.1% lower. Q1 RevPAR of +2.5% was followed by -7.0% in Q2 as comparatives became sequentially tougher due to timing of resurgent domestic demand last year after the lifting of travel restrictions.

Net system growth was +3.2% year-on-year with 18,000 rooms opened across 126 hotels. A record 57,1000 new rooms signed across 384 hotels, 67% more than in the first half of last year. The global pipeline of 330,000 rooms (2,225 hotels) is up 15% year over year.

“We celebrated 126 hotel openings in the half and the signing of a record-breaking 384 properties, equivalent to more than two a day,” IHG CEO Elie Maalouf said. “These included the first six openings and 118 signings from the Novum Hospitality agreement, which doubles our presence in the important and attractive German market. After growth of +7% in Q1, a very busy Q2 saw +23% more signings year‑on‑year or a more than doubling when including Novum, and this keeps us on track for net system size growth expectations.”

IHG raised its interim dividend by 10% to 53,2 cents and reported an operating profit from reportable segments of $535 million for the first half, up 12%. Including the ongoing $800 million share buyback, IHG said it remains on track to return over $1 billion to shareholders in 2024.

IHG did not offer second half RevPAR guidance but noted a second quarter that saw 23% more signings is keeping it on track to meet net system size growth.