Shares in Holiday Inn-owner InterContinental Hotels (IHG) reported a modest rise in first quarter revenue as weakness in places like China, France and South Korea unsettle investors.
Good numbers in its Latin America and Caribbean markets were offset by flat revenue per available room (RevPAR) in these weaker markets.
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RevPAR is an important industry metric that reveals how good hotels are at filling their rooms. It is calculated by multiplying the average daily room rate by the occupancy rate.
TOUGH ACT TO FOLLOW
Tough comparatives in 2018 have not helped InterContinental, with RevPAR in South Korea down 30% on the first quarter of 2018 due to last year’s results being boosted by the Winter Olympics.
While the flat revenue in China wasn’t helped by last year’s 11% growth, which was boosted by the timing of the Chinese New Year.
Political unrest is also having an impact on the company, which squarely blamed the gilets jaunes movement in Paris for a 3% drop in RevPAR in France.
The weaker China performance is not a surprise given rival AccorHotels flagged up the country for holding back RevPAR growth in its results last month, blaming uncertainty over China’s ongoing dispute with the US.
But the lower numbers, mainly driven by smaller demand in China’s less urbanised cities, have still disappointed investors.
Shares in InterContinental eased off 1.1% to £49.415, but have enjoyed a firm run since run since the stock market sell-off in October.
IS IT WORTH IT?
Investors may also be questioning InterContinental’s aggressive global expansion given fears of a potentially dangerous slowdown in the world’s economy. The International Monetary Fund recently said the global economy is in a ‘delicate moment’.
Yet InterContinental added 23,526 rooms to its worldwide pipeline in the first quarter to 31 March, its strongest first quarter pace of expansion in 12 years.
This included 2,700 rooms from its acquisition of luxury hotel operator Six Senses, a deal which InterContinental says ‘rounds out our offer in the top tier of luxury’.
Some analysts claim that the company paid too much for.
Bank of America Merrill Lynch analyst Geoffrey d’Halluin sees the strategic but argues against the value for money dynamics of the deal given that it is unlikely to generate worthwhile returns for four years.
InterContinental’s overall RevPAR rose 0.3%, and its total number of rooms is up 5.4% year-on-year at 843,000. More detailed figures will come when the company reports half year results later in the summer.
The longer-term elephant in the room, the emergence of asset-light competition in the form of Airbnb and others like it, remains. Airbnb claimed that 2018 was its second straight year of profits in January as it shapes up for an anticipated stock market float possibly later this year.
