IHG did not hit pause when travel was forced to do so in the past two years. The chain enriched its brands portfolio, transformed its loyalty programme, enhanced digital capabilities, reduced the cost base, and more, details Kenneth Macpherson, CEO of Europe, Middle East, Asia & Africa
IHG’s revenue was up 40 per cent to US$1.4 billion in 2021, over 2020. Operating profit was up 144 per cent to US$534 million, thanks to a cost base reduction. But Asia lagged behind while China was volatile. How do you feel about this?
Actually 2021 is telling us about the ability of the industry to recover. I feel confident. When I look across the markets that I have the privilege to be responsible for, there are multiple confirmations that a combination of vaccine development, and improvements in the treatment, is raising governments’ confidence, which means that restrictions are relaxed and, as soon as that happens, the industry recovers.
Does the Ukraine crisis throw a spanner in the works?
We remain optimistic for the recovery of travel in our EMEAA (Europe, Middle East, Asia & Africa) region – and around the world – in 2022. The situation in Ukraine and Russia provides a salient reminder of the need to continue to support our people, owners and hotels, especially when they need us most.
So how are you budgeting for Asia this year? I would also love to hear your thoughts on this on Greater China, since you were CEO of the region before becoming CEO of EMEAA.
Well, firstly, we’ve got to stay with the distinct approaches that are being signalled. China is being clear that it is going to continue with the current strategy, that quarantine requirements on international travel will continue for some time. But as soon as conditions are right within China, the Chinese domestic market recovers quickly, as we have seen.
We are highly respectful of the approach that China is taking, and recognise that with a zero-Covid strategy, there will be some volatility.
Other countries in Asia-Pacific are taking more of the living with Covid approach. And that’s where the level of vaccination, the competence of the healthcare systems, the confidence that governments have, come into effect. Different countries are in different stages. But the key is, our projections are of markets coming back.
That means we can confidently invest in our business. We can confidently talk to our partners, owners and colleagues about growth, and signing new deals.
But Asia depends heavily on China. How do you support your owners and hotels if the Chinese aren’t able to travel?
The external situation is whatever it is. You can’t control that. So let’s focus on what we can influence.
Take Thailand as an example. It has opened up, so we’ll then identify the markets where travel corridors are available for Thailand.
The advantage that we bring is the global reach of our brands, and the enterprise platform (IHG Concerto) that we’ve got.
Our partners know that we’re using our marketing campaigns, loyalty programme and other commercial drivers that we’ve got, to source demand and quality revenue into our hotels.
We’ve done a lot of this as markets opened and closed. We have an obligation to do that, because we are standing with our partners, and our colleagues in the hotels.
And this year, we’re bringing a new IHG rewards programme into the business.
We’re also enhancing our digital capability. An example is the next-generation IHG App, which is in pilot stage, with full roll-out planned for this year.
So, whatever it is that governments serve up to us, we’re just going to keep adapting and keep driving the right thing possible.
While on China, despite the strict zero-Covid approach, 40 per cent of all signings globally last year were in China. IHG does not have master licence agreements in China unlike some of the other chains.
We have an impressive team in China, and tremendous scale, as we’ve consistently invested in the China business for many years now. Again, it’s about the strength of the relationships we have with owners, the brand portfolio that we’ve got and the extent to which our business in China is localised.
But there’s also a lot of growth outside China.
Yes, the rest of Asia-Pacific saw fairly good signings – 40 last year. Was that in line with expectations and what is the target this year?
I’m pleased with the result. It’s not just 40 signings but 40 across important markets to us in Asia-Pacific. I deeply believe in the resilience and the growth potential of markets in Asia-Pacific. Coming through the year, the industry in terms of asset ownership has become more confident. Our teams continue to identify opportunities and to talk about what it is that IHG brings to them, and about our expanded brand portfolio.
So, what are you looking at for signings this year?
We don’t give (forward-looking projections) but an important part of our (2021) results message is the confidence that we have in getting back this year to the kind of growth level that’s more like 2018 level, and year after more like 2019 growth level.
I really 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 enterprise.
Voco is our fastest-ever global brand launch. It’s now growing in all three regions. Vignette is an important addition that allows us to bring independent hotels into the system yet enable them to retain the vast majority of their unique identity.
I really want to do everything I can to support teams to be successful. Coming out of this (crisis), my role is not to give them big targets and say, just deliver those. Right now, we’ve all got to support each other to be as successful as possible.
That’s partly why I’m here, to find out: What do we all need to do together? How do I support you? And how do I make sure we deliver that promise to our owners what they expect from us?
Speaking of support, I recall IHG was first to be leaner by restructuring in 2017, then again in late 2019, with the aim to be “closer to markets”. It was the first move by Keith Barr when he became CEO. But during earnings call last month, Keith also spoke about cost-cutting and achieving a linear cost base in 2021. I can’t help wondering, how much else could you cut without affecting the support you give to owners?
At the global level, we delivered US$75 million of sustained level of cost savings in 2021 and there’s also a further US$25 million savings. And we said to investors they should expect us to reinvest this into our business.
Clearly, with Covid, we needed to be prudent. We took an approach of making sure that our close-to-market teams were as little impacted as we could because, as you know, we spent a lot of time to build this structure and it’s not just a model for us but for our owners and our hotel teams.
So having built it, we tried to cut it back as little as we could. We retained a lot of capabilities that are close to market. In fact, I’d say we invested in additional capabilities in 2021, supporting our hotels and our guests in an enhanced way.
