IHG launching ANOTHER new hotel brand – but this one should be good

IHG, owner of the Holiday Inn, InterContinental, Crowne Plaza etc hotel brands, published its interim results for 2021 yesterday. You can download them as a PDF here.

I don’t intend to go into the numbers in detail, suffice it to say that the company is now profitable everywhere except Europe and the Middle East. The issue is IHG’s massive interest payments on its $2.5 billion of net debt, which are caused by loans it took out purely to pay dividends to shareholders.

Let’s look at this new hotel brand.

IHG is launching its own version of Hilton’s Curio, Marriott’s Autograph or Hyatt’s Unbound Collection. We don’t know the name yet.

These brands all target upmarket hotels which want to remain independent but wish to become part of a ‘marketing system’. In return for IHG funnelling them bookings via ihg.com, the hotels agree to join IHG Rewards and to honour member benefits.

The hotels keep their existing branding and the senior hotel management will not become IHG employees.

IHG Rewards offers no benefits and that’s why this idea is genius

We have seen considerable ‘churn’ with Hilton’s Curio Collection in recent years, admittedly less so with Marriott’s Autograph Collection.

I think this is because the hotels that join Curio and Autograph have to give three things:

• top elite members must get free breakfast, which cuts out a revenue stream

• top elite members are due upgrades, which some hotels prefer not to offer in an attempt to make guests pay for premium rooms if they want one

• top elite members are automatically (with Marriott) or offered (with Hilton) late check-outs which can interfere with day to day room management

IHG’s new brand will appeal to all hotels who struggle with the above:

• IHG Rewards doesn’t offer guaranteed upgrades, or even promise to make much of an effort to give you one

• IHG Rewards doesn’t give free breakfast to anyone

• IHG Rewards doesn’t guarantee late check-out to anyone

Which luxury hotel could say ‘no’ to all this?! They can join IHG Rewards without having to give anything up, except for the requirement to offer 5% of their standard rooms as reward nights. No messing about giving away breakfast, upgrades or late check-out ….

Here is the official announcement

Keith Barr, IHG’s CEO, said in the introduction to the accounts published yesterday:

“We’re also excited to announce that we’ll soon be launching a new Luxury & Lifestyle collection brand to provide further choice for guests and owners. Over the last four years we’ve added five new brands to create a portfolio of 16, each targeting a specific segment and enhancing our market reach. The addition of a collection brand will provide high quality independent hotels access to the many benefits of IHG’s system, whilst retaining a property’s distinctive identity. There are currently around 1.5 million independently run rooms in the market segments we are targeting, and we expect the collection to attract more than 100 hotels within 10 years.”

This is the detailed explanation given further on:

“Building on IHG’s position as the world’s #2 Luxury & Lifestyle player in terms of both system size and pipeline, IHG plans to launch a new collection brand in the coming weeks. The upscale and luxury segments currently represent 31% of our system size and 41% of our pipeline (midscale being 69% and 59%, respectively).

The new collection brand will complement our existing Luxury & Lifestyle brands consisting of the more recently acquired Six Senses, Regent and Kimpton brands, along with InterContinental and Hotel Indigo, whilst also offering a different price point to our upscale conversion brand voco – our fastest ever brand to rollout globally since its launch in 2018.

Owners of independent hotels and small chains are increasingly attracted by the opportunity to benefit from the scale, expertise and investment of a global system, illustrated by conversions growing to represent a quarter of IHG’s signings over the last 18 months. Owners that join IHG’s new collection brand will gain access to our world class revenue delivery systems, technology platforms, loyalty offering, operational expertise and procurement savings, without high upfront costs or any compromise on their hotel’s distinctive identity or name.

For guests, the addition of more unique, exclusive hotels in sought after resort and city locations will add further choice to our Luxury & Lifestyle offer, where we already have more than 400 hotels and 100,000 rooms, and will increase the attractiveness of our IHG Rewards loyalty programme to its more than 100 million members.

The new collection brand will help fast-track IHG’s growth in market segments worth over $100bn in rooms revenue globally in 2019, and where over 40% or around 1.5 million rooms are currently independent. Over the next 10 years, we anticipate the collection to attract more than 100 properties globally, helping contribute to our ambition of delivering industry-leading net rooms growth.”

Ambassador may now be a dead duck

InterContinental’s Ambassador loyalty programme, which has a $200 annual fee, does work well for many people because of the guaranteed benefits.

As IHG has added Kimpton, Regent and Six Senses in recent years, Ambassador has begun to look a little lost. Kimpton has retained its Inner Circle programme whilst Ambassador benefits are not consistent across Regent and Six Senses.

IHG now needs to decide how to handle the 100+ luxury hotels it believes that its new ‘collections’ brand will bring into the fold.

I don’t think IHG will be rushing to give up the revenue that Ambassador generates, but at the same time it needs to become a programme which sits equally well across InterContinental, Regent, Six Senses and the new brand. The conversion of InterContinental Hong Kong to Regent Hong Kong next year may be a trigger as the hotel risks losing revenue from Ambassador members to the other InterContinental in town.

Conclusion

I am a big fan of Hilton’s Curio Collection and Marriott’s Autograph Collection. Some hotels in Hyatt’s Unbound Collection are also on my wish list.

If IHG gets this right then it will be a valuable addition to the brand and to IHG Rewards, but for this to work there has to be some reason for guests to stay. If they are not going to get free breakfast, upgrades or late check-out, what are they going to get?

We’ll tell you more once the new brand is unveiled, expected in the next few weeks.

PS. Here is another titbit from the IHG accounts:

“An increase in assessment revenue was broadly offset by offering increased Reward Night value to IHG Rewards members through dynamic pricing, which impacted net revenue (after redemption costs) as well as unfavourable year-over-year breakage.”

Put simply, dynamic reward pricing has actually cost IHG more money. It isn’t clear if this is more money on average – ie IHG has extinguished fewer points for every $1 paid to hotels to fulfil free nights – or if it is more in aggregate, ie dynamic pricing has led to more redemptions.

Stopping your points expiring during covid has also cost IHG money, hence ‘unfavourable year-over-year breakage’.

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