Roads to Resilience

Case study: InterContinental Hotels Group (IHG)

Introduction

InterContinental Hotels Group (IHG) is a global hotel company with a vision of running ‘Great Hotels Guests Love’ 1 . It operates seven well-known brands: InterContinental, Crowne Plaza, Hotel Indigo, Holiday Inn, Holiday Inn Express, Staybridge Suites, Candlewood Suites, and launched two new brands in 2012, EVEN™ Hotels, and HUALUXE™ Hotels and Resorts, in China. IHG has over 674,000 rooms in over 4,600 hotels in nearly 100 countries, providing 157 million guest nights per year. The IHG business model is relatively resilient from a property risk perspective as it franchises and manages the majority of its hotels under long term contract with its business partners owning the ‘bricks and mortar’. From the 4,600 hotels that carry IHG brands, only nine of these are directly owned by IHG; 650 are managed; and the majority, 3,949 are franchised. “ We recognise that our business has evolved from an asset-heavy, owner and operator of hotels, to an asset-light, branded business that is highly reliant on reputation. We know that reputation takes a lifetime to build but can be lost in a moment, so we mustn’t be complacent. We build trust with a broad range of stakeholders and continue to make improvements in the resilience of the business ” (SVP Head of Global Risk Management). The roots of IHG go back as far as 1777, when William Bass founded a brewery in Burton-on-Trent but it was not until 1988 that Bass fully embraced the hotel business, when it purchased Holiday Inns International. In the 1990s Bass launched the new hotel brands Holiday Inn Express, Crowne Plaza, and Staybridge Suites by Holiday Inn. The InterContinental company was acquired by Bass in 1998, adding an ‘upscale brand’ to its portfolio of hotels leading to important synergies. From 2000, there was an important change in strategic direction: from a focus on breweries and public houses, to becoming an international hospitality provider. This led to the sale of Bass Brewers and the company changing its name to Six Continents PLC in 2002. Six Continents PLC saw the benefit of a stand-alone hotel business separate from its pubs and restaurants division which led to a demerger of Six-Continents to form the InterContinental Hotels Group PLC (IHG) on 15th April 2003 which is listed on both the UK and the US stock markets. As a stand-alone business the Board and senior leadership of IHG embarked on an ‘asset-light’ strategy in the years following 2003, disposing of 191 owned hotels for a total of $6.2 billion and returned over $7 billion to shareholders excluding ordinary dividends. In the last ten years, IHG has grown significantly, following its strategy of brand franchising. It currently has over one thousand new hotels in the pipeline, the majority of which will be franchised. This means that IHG are meticulous at determining “ how the brands are each uniquely defined and working on a daily basis with our owners to help them understand what this means, because the best brands are those that are delivered consistently ” (Regional President, the Americas and IHG Board Member). The brand focus within IHG is encapsulated in the expression ‘BrandHearted’, which means “ that Brands become our primary asset class, more so than even IHG’s operating system, contracts, and hotel assets ” 3 . Key events 2

1 Based on http://www.ihgplc.com/index.asp?pageid=16 2 Based on http://www.ihgplc.com/index.asp?pageid=326 3 From IHG internal presentation material.

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Roads to Resilience: Building dynamic approaches to risk to achieve future success