LONDON—For the second quarter of 2020, IHG recorded a global RevPAR decline of 75%, including a RevPAR drop in the U.S. of 69.3%. For the first half, RevPAR fell 52% globally and 46.8% for the half.
“Our global RevPAR declined 52% in the first half and 75% in the second quarter as hotel demand fell to the lowest levels we’ve ever seen on the back of government travel restrictions around the world,” said CEO Keith Barr. “In most markets, these have now started to ease in varying degrees, and we currently have 95% of our estate open. In July, we expect our RevPAR decline to have improved to around 58%, with global occupancy hitting 45%, up from the low point of 20% back in April. The first-half RevPAR decline led to an 83% fall in underlying operating profit.”
He added, “As has been the case in previous downturns, domestic mainstream travel is proving to be the most resilient. Our weighting in this segment, led by our industry-leading Holiday Inn brand family, positions us well as demand returns in our key markets. In the U.S., our mainstream estate of almost 3,500 hotels is seeing lower levels of RevPAR decline than the industry, and is operating at occupancy levels of over 50%.”
First-Half and Q2 Highlights:
- H1 comparable RevPAR: Global (52)%. Q2: Global (75)%; Americas (71)%; EMEAA (88)%; Greater China (59)%.
- Net system size growth of 3.2% year-over-year. In H1, there were 12,000 room additions and 12,000 removals, including 2,000 relating to a previously flagged portfolio of hotels in Germany. Global estate is now 883,000 rooms and more than 5,900 hotels.
- First-half signings of 26,000 rooms (181 hotels). The total pipeline now stands at 288,000 rooms (1,932 hotels).
- Operating profit from reportable segments were down 82% to $74 million before system fund result of -$52 million and operating exceptional items of -$255 million, predominantly comprising non-cash impairments to owned and leased hotels and acquired management agreements, together with impairments of trade deposits and receivables.
- Q2 free cash flow broadly neutral, resulting from strong cash management; H1 outflow of $66 million
- Total available liquidity of $2.0 billion at end of June and end of July
- July comparable RevPAR is expected to be ~58%; occupancy levels in comparable open hotels improved to ~45%. 317 hotels or 5% of the estate closed at end of July; 3% of Americas, 16% of EMEAA and <1% of Greater China.
“Reflecting our long-term growth prospects, and the strength of our brands and owner relationships, we opened more than 90 hotels in the half and strengthened our pipeline with an average of one new signing a day, including almost 100 for our Holiday Inn brand family,” said Barr. “We have also taken Voco, our upscale conversion brand, outside of EMEAA, with initial signings in the U.S. and Greater China.”
He added, “The impact of this crisis on our industry cannot be underestimated, but we are seeing some very early signs of improvement as restrictions ease and traveler confidence returns. While the near-term outlook remains uncertain and the time period for market recovery is unknown, we are well positioned with preferred brands in the largest markets and segments, a leading loyalty platform and one of the most resilient business models in the industry. This gives us confidence in our ability to meet the needs of our guests and owners, and to emerge strongly when markets recover.”
Comparable RevPAR decreased 47.6% (Q2: down 71.2%), driven by occupancy reducing to 41% (Q2: 28%). U.S. RevPAR was down 46.8% for the half, down 69.3% in Q2, with the performance ahead of the industry in the second quarter. The Q2 decline in the U.S. saw the franchised estate—which benefits from a weighting toward domestic demand-driven mainstream hotels, with a lower reliance on large group business and higher distribution in non- urban markets—decline by 66%. This compares to an 86% decline for the U.S. managed estate, which is weighted to luxury and upscale hotels in urban markets. On a segment basis, the RevPAR decline in Q2 was most acute in luxury (down 93%) and upscale (down 83%), whereas the decline in mainstream, which represents 84% of rooms in the U.S., declined by 64%.
Reported revenue of $262 million was down 50% against the comparable period and reported operating profit of $153 million decreased 56%.
Underlying fee business revenue declined by 46% to $226 million, while underlying fee business operating profit declined by 49% to $163 million. The adverse mix impact from a higher proportion of temporary closures in the U.S. managed estate than in the franchised estate, which also led to $5 million lower recognition of incentive management fees, was partially offset by progress made toward reducing fee business costs, as well as the benefit of a $4 million litigation settlement at one hotel, and the recognition of a $4 million payroll tax credit, with a further ~$7 million expected to be recognized in H2 2020.
Reported owned, leased and managed lease revenue was down 65% to $36 milllion, with a reported operating loss of $10 million compared to $21 million profit in the comparable period. The mitigation of renovation-related losses by business interruption insurance at one hotel was more than offset by extended periods of closure and low occupancy across the entire estate, reflecting the greater dependency on international travelers to urban and resort locations.
For July, the comparable RevPAR decline in the Americas region is expected to be ~54%, representing an ~8% improvement on the 62% decline for June. Occupancy levels in comparable open hotels improved to ~45%. Given further reopening progress during the month, the number of hotels that remained closed at the end of July reduced to 133, or ~3% of the Americas estate.
Comparable RevPAR decreased 58.9% (Q2: down 87.6%), driven by occupancy reducing to 34% (Q2: 14%). In the U.K., RevPAR was down 59% for the half, with the Q2 decline of 90% particularly impacted by government-mandated hotel closures.
Continental Europe RevPAR was down 67%, with the closures and travel restrictions particularly impacting the second quarter, which was down 96%. Elsewhere, the Middle East was down 46% in the first half, with Australia and Japan down 48% and 64% respectively.
Reported revenue of $134 million decreased 60% and the reported operating loss was $16 million, a reduction of $104 million on the comparable period. Results include a previously disclosed $1 million (H1 2019: $4 million) benefit from an individually significant liquidated damages payment.
On an underlying basis, revenue decreased 59% to $131 million and the operating loss was $20 million compared to $81 million profit in the comparable period. The underlying fee business revenue was down 63% to $56 million, with an operating loss of $4 million compared to a $87 million profit in the comparable period. The adverse impact from hotel closures and subdued demand across the estate resulted in lower recognition of incentive management fees (down $35 million vs. the comparable period), which were partially offset by cost reduction measures.
Reported owned, leased and managed lease revenue was down 57% to $77 million, while the operating loss reported in H1 2019 of $5 million increased to a loss of $13 million. This portfolio consists of 12 properties in the U.K. and a further six elsewhere in the region, most of which are only expected to gradually reopen through the third quarter, and once open IHG expects to experience low occupancies and lower than usual non-room revenues. The operating loss for the period includes the significant cost reduction measures undertaken across the estate, together with rent reductions received; there was also the benefit of a $3 million gain from the sale of the lease on Holiday Inn Melbourne Airport for proceeds of $2 million.
For July, the comparable RevPAR decline in the EMEAA region is expected to be ~74%, representing an ~11% improvement on the 85% decline for June. Occupancy levels in comparable open hotels improved to over 30%. Given further reopening progress during the month, the number of hotels that remained closed at the end of July reduced to 180, or ~16% of the EMEAA estate.
Comparable RevPAR decreased 61.7% (Q2: down 59.2%), in line with the industry in the second quarter, with occupancy in comparable hotels of 27% (Q2: 32%). In Mainland China, RevPAR was down 59%. Tier 1 cities were down 67% (Q2: down 66%), impacted by their weighting toward international and group events and meetings demand. Tier 2-4 cities which are weighted more toward domestic and mainstream demand performed relatively better with a decline of 55% (Q2: down 50%).
RevPAR in Hong Kong was down 86% for the half, and down 90% in Q2, impacted by the reliance on inbound travel and the uncertainty posed by the political disputes, while Macau RevPAR was down 72% for the half.
Reported revenue of $18 million decreased by 73% and the reported operating loss was $5 million compared to $36 million profit in the comparable period.
On an underlying basis, revenue decreased by 72% to $18 million, with an operating loss of $5 million compared to an operating profit of $35 million in the comparable period. The adverse impact from the current trading environment, including lower recognition of incentive management fees (down $23 million vs. the comparable period), were in part offset by cost reductions across the region.
For July, the comparable RevPAR decline in the Greater China region is expected to be ~36%, representing a ~13% improvement on the 49% decline for June. Occupancy levels in comparable open hotels improved to over 50%. Given further reopening progress during the month, the number of hotels that remained closed at the end of July reduced to just four, or less than 1% of the Greater China estate.