Even In Tough Times, Travelers Still Seek a Room With a View

Running one of the world’s largest candy and beverage companies might seem a far cry from the hospitality world of the InterContinental Hotels Group. But to Andrew Cosslett, tapped to lead the InterContinental Hotels Group in 2005, similarities abound between his present post and his previous job at the top of Cadbury Schweppes before the company demerged. “Both companies have a strong focus on finding out what the customer wants and then delivering it,” said Cosslett, InterContinental Hotels Group CEO, who likes to offer visitors Cadbury Dairy Milk Chocolates.

The hotel management industry was in a state of flux when Cosslett joined InterContinental, but today the industry must grapple with even greater challenges, ranging from expanding in emerging markets such as China, to the worldwide economic problems affecting hotel performance and new hotel development.

Besides global expansion, especially in China with some 100 new hotels in the pipeline, Cosslett has focused his efforts on building brand identity, starting with the InterContinental Hotels & Resorts division. Next up is the re-launch of Holiday Inn and Holiday Inn Express. The InterContinental Hotels Group, headquartered in Buckinghamshire, Britain, has 4,000 hotels around the world, but it owns a mere 18 of them. Cosslett says that their current strategy is to think of themselves as “brand owners, brand managers, franchise owners, operators of hotels, and great managers of hotels.” Despite the current economic crisis, Cosslett remains upbeat about the company, citing its range of geographic locations and diverse hotel chains as the ticket to keep performing well.

The 53-year-old chief executive offered his views on the industry in an exclusive interview with Mark Chesnut of LATIN TRADE during the InterContinental Hotels Group’s annual Americas Investors & Leadership Conference in Los Angeles.

LT: How is the InterContinental Hotels Group’s performance, given the state of the global economy?

AC: As we reported at our quarter-three trading update in November, our continuing revenue and continuing operating profit were both up 5 percent to US$475 million and US$139 million respectively. Revenue per room was up 1.6 percent globally and we outperformed the competition in all our markets and segments. In the quarter, we opened 135 hotels, 36 percent more than the same period last year and we’re still signing almost two hotels a day into our pipeline. As expected there was a sharp decline across the global hotel market in October and our revenue per room was down 4.5 percent [for that month]. But our fee-based model is more stable in uncertain economic conditions, and brands tend to outperform in a downturn.

LT: How are the economic problems affecting occupancy?

AC: We are still positive in revenue per room. We are demonstrating as an industry — and particularly as IHG — that we are resilient. People are choosing to travel, and they continue to travel. They are making different choices about what class of travel they may use, or what class of hotel they want to stay in, but they are still moving around.

THE BUSINESS IS DRIVEN BY UNDERLYING DEMAND FOR ROOMS

LT: And that’s the case in the Americas as much as anywhere?

AC: Everywhere. If there is an underlying demand for the product — if people want to go sleep in a hotel and if there is no hotel there, someone will find a way of getting one there. It’s an interesting trade-off, because our profits are driven by the revenue and the fees we take from our existing hotels, [as well as] the additional revenue that we get from new hotels that we’re opening. And we’re opening a new hotel every day. So those are significant, and if that were to slow down at all, let’s say, then what would happen is that because the underlying demand is still strong, the rates and the revenue per room of the existing system will rise, so you get compensation.

LT: How is the economic situation in the United States affecting the rest of the Americas?

AC: We’re all in a wait-and-see position at the moment. We are trying to manage the situation as well as we can. We have a very strong pipeline. A lot of the pipeline is financed, and a lot — 45 percent to 50 percent — is under construction around the world. So we have a lot of new revenue coming from that pipeline over the next few years.

REACHING A CRITICAL MASS

LT: Are there any areas in Latin America with a lack of InterContinental Hotels Group presence where you’d like to see development?

AC: We are in 21 countries; we are getting into new ones. We just opened in Ecuador. We are probably more focused in Brazil than we have been in the past. We know that it’s going to have the same trajectory as some of the bigger developing markets in the world, like China and other Asian markets. We’re growing very quickly in Mexico. Once you get your critical mass, you can grow very fast, because obviously your brand and infrastructure gets known.

LT: What will be the key factors driving growth?

AC: We haven’t even started yet to see the arrival to the world scene of hundreds of millions of new travelers, which is going to happen in five or six years, from China, from Russia, from India. These people have never had the wherewithal or the political freedom in the past to travel. Now they can.

LT: You think those new travelers will affect the travel industry in every part of the world?

AC: The macro trends for this industry are very strong, and it doesn’t matter if you
are in Latin America or the United States or Europe or China. The thing that drives industry demand over time is people living longer, people doing different things in retirement than my parents ever did. There are some very big tailwinds pushing our industry along. We have some headwinds at the moment, clearly, from this financial seizure, but I do not detect any major reduction in demand for travel. And as long as that continues, and as long as the gross domestic product and the world population continue to increase, that means that hotel demand will continue to increase with it. And if we are the strongest player in it, and we have the best brands in it, and we are the most international, chances are that we will be in a good place.