InterContinental Hotels Group (IHG) is witnessing a surge in its share price, riding on the back of a strong trading update from last October. Despite global economic and geopolitical challenges, the hotel industry, including IHG and Whitbread (LON:WTB), is flourishing. IHG's Q3 update revealed strong demand from both business and leisure sectors, contributing to a significant recovery and growth in the company's stock since the 2009 financial crisis and the recent pandemic.
On Friday, IHG reported a "very healthy" travel demand in Q3 2023, leading to a 10% year-on-year increase in revenue per available room (RevPAR). The company added nearly 8,000 rooms across 50 hotels in the quarter and introduced another 17,000 rooms to its pipeline as part of its growth strategy. IHG operates on an asset-light model, franchising 71% of its rooms in 2022 and receiving a royalty fee of 5-6% of the revenue from hotel owners. An additional 28% of IHG’s rooms operate under the managed hotels business model.
The owner of brands like Holiday Inn, Regent, and Six Senses, IHG has experienced robust sales and summer bookings across leisure, business, and group travel sectors due to a return to pre-pandemic travel demand. Following China's relaxation of its strict zero-Covid policy, IHG's Q3 RevPAR grew by 10.5% year-on-year, with a 43.2% surge in Greater China's room revenues. Overall rooms revenue also increased by 12.8% compared to pre-pandemic 2019 levels, indicating a near-complete return to pre-Covid levels of demand.
Despite facing short-term financing challenges and potential valuation risks due to high share prices, CEO Elie Maalouf remains optimistic about IHG's future. He cites industry-leading advantages for guests and hotel owners, along with a strong projected financial performance for 2023, as key drivers of this optimism. This positive outlook is shared by Whitbread, owner of Premier Inn, which also reports buoyant travel demand and is benefiting from a reduction of independent hotels on the market since the pandemic.
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