IHG tells investors its coronavirus exposure is small

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Holiday Inn Express is IHG's largest brand.
Holiday Inn Express is IHG's largest brand. Photo Credit: Shutterstock

InterContinental Hotels Group (IHG) expects impact from the Covid-19 coronavirus outbreak to be “manageable,” despite having closed or partially closed approximately 160 of its 470 hotels across China.

“There’ll be some impact, but we haven’t seen anything significant,” IHG CEO Keith Barr told investors during the company’s full-year 2019 earnings call Tuesday. “Greater China is an important part of our future and we see a compelling growth story for the longer term. However, today, it is a smaller part of our business overall, representing 15% of our open rooms and less than 10% of our operating profit.”

Barr predicted initial negative impact in China for February will total around $5 million in fee revenue. 

“We are seeing significant reductions in occupancy in the month of February across the entirety of the [China] business,” he said. “Looking beyond China, we’re seeing some impact across Asia Pacific, [with] some conference and events shifting dates from Q1 into later in the year.”

For 2019, IHG saw RevPAR across Greater China drop 4.5%, with the company attributing much of the decline to unrest in Hong Kong. 

Meanwhile, Barr emphasized that IHG’s U.S. and Europe businesses have been relatively insulated from the coronavirus crisis thus far, despite industry concerns over a drop-off in outbound China travel. 

“There is clearly going to be some level of international inbound impact to the U.S., but it would be on the margin for IHG,” said Barr. “So, we’re not seeing any impact [in the U.S.]. Similarly, in Europe, we’re principally domestic there. There’ll be some impact, but we haven’t seen anything significant at all that we can even quantify.”

IHG reported that revenue per available room (RevPAR) in the Europe-Middle East-Africa region was up 0.3% for 2019, while RevPAR in the Americas fell 0.1% over the same period.

In the U.S., IHG posted a RevPAR decline of 0.2%, due in part to a softening in small-group business and a surplus of upper-midscale hotel rooms. For the fourth quarter of the year, IHG’s U.S. RevPAR was down 1.7%.

“Increasing preference from owners, lenders and guests for upper-midscale hotels means that Holiday Inn and Holiday Inn Express are competing in a segment where supply growth is now over 3%,” said Paul Edgecliffe-Johnson, IHG’s CFO and group head of strategy. “This highlights the attractiveness of our market-leading position in this segment but led to an occupancy-driven RevPAR decline as supply growth slightly outweighed demand growth.”

For full-year 2019, IHG reported companywide revenue growth of 8% to $2.1 billion.

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