At no time in the history of hotels has brand undergone such dramatic change, so quickly or so pervasively, as it has since 9/11. InterContinental Hotels Group is leading the trend by selling outdated properties, bulking up its development pipeline and planting flags in emerging markets around the globe.
“For the first time in the history of this company, we are nothing but a stand-alone hotel company — our business is just global hotels,” says Stevan Porter, president of the Americas for InterContinental Hotels Group PLC (IHG) based in Atlanta.
Since 2003, IHG has sold more than $4.5 billion in assets. The company has shed 174 hotels, but in nearly all cases it still manages or retains its flags on those divested properties.
“The leading edge of that was here in the U.S., but we were able to anticipate we'd see that across the globe,” says Porter. “I think we were fortuitous in grabbing onto that trend and using it to propel this company.”
Porter, 52, directs global franchise strategy as executive director of IHG, which trades on both the London and New York stock exchanges. In his five years at the helm, Porter has steered the company from a portfolio of five brands with virtually no growth to what is now a global platform of seven brands. Operating system improvements under Porter's watch include reinvention of the Priority Club Rewards program and the addition of proprietary Web sites in 11 languages.
“We know more about [our] brands and competitor brands in this market, the U.K. and China than anybody else,” Porter says.
A Columbus, Ohio native, Porter began his career at Stouffer Hotels in Cleveland, Ohio in 1976. Before joining IHG in 2001, he served in various roles at Hilton Hotels Corp., most recently as executive vice president of operations in charge of 350 hotels and 40,000 employees.
“The IHG brand, with all of its starts and stops and leadership changes, made the best move they've ever made in bringing Steve Porter in to run the company,” says Mit Shah, president and CEO of Atlanta-based Noble Investment, which owns five IHG-branded properties.
Shah believes that it is Porter's background in operations that has made him so successful at IHG. Prior to Porter's arrival, the company was in bad shape in the wake of 9/11 and a foundering economy. “Steve did the most remarkable job of any leader I've seen in taking something that was broken in so many different ways.”
Porter has been in the thick of sweeping changes at IHG, from hiring new brand executives to shifting from an ownership model to one focued on franchising in 2003. A year later, the company acquired Candlewood Suites and also launched the trendy Hotel Indigo, a boutique lifestyle brand, which has 30 hotels open and 22 in the pipeline.
IHG is the world's largest hotel group by number of rooms, with 556,000 hotel rooms in more than 3,700 hotels. Some 85% of the company's portfolio, or 3,158 hotels, are franchised. Another 14% of the portfolio, or 498 hotels, are managed and the remaining 1% are owned.
And IHG's pipeline of 140,000 rooms in 1,100 hotels is the largest in the industry. In fact, the company's brands cover all points on the spectrum, from luxury InterContinental and Crowne Plaza to trendy boutique Hotel Indigo, midscale Holiday Inn and select-service Holiday Inn Express. Also under the IHG umbrella are extended-stay brands Staybridge Suites and Candlewood Suites.
Beyond 9/11
The events of 9/11 left the travel and tourism industry in shambles. “We were laying off people, people weren't traveling and we were just hurting,” recalls Al Calhoun, a managing director with Jones Lang LaSalle Hotels' select-service division in Atlanta. Aware of the situation, the hotel companies loosened brand standards, giving operators and owners room to breathe until they could recover.
It was against this backdrop in 2002 that Noble Investment was struggling to convert a hotel to an IHG brand. At the time, third-party Internet providers, like Travelocity, were shaking up the industry by undercutting room prices. “We were just being decimated from a revenue standpoint by not having some proper brand integrity strategies,” says Shah.
Shah sought help from Porter, who met with him several times to resolve issues at Shah's single hotel at a time when Porter was planning IHG's resurrection. “He still took the time to say: ‘You're a partner, you have a problem. I'm going to make it my problem as well, and I'm going to help resolve it.’”
IHG's recent success can be clearly defined by the numbers. At year-end 2006, total gross revenue from all hotels in IHG's system was up 9% over the previous year to $16.2 billion. Revenue per available room (RevPAR) increased 9.2% with rate hikes accounting for most of the spike.
RevPar for Holiday Inn Express grew by 10.7% in 2006, followed by InterContinental and Crowne Plaza each at 10.4%, and Holiday Inn and Candlewood Suites, both at 7.4%.
The Green Sign
Many industry watchers would argue that the strength — and perhaps weakness — of IHG is one of its oldest brands, Holiday Inn. The midscale stalwart became the world's first hotel franchise in 1954. Some 53 years later, the brand boasts 1,395 properties and 260,470 rooms globally.
“Holiday Inn is an older brand but so is Coke,” says Calhoun. “Just because you're an older brand doesn't mean you're a poorer brand.” What makes Holiday Inn work for brokers selling the product, Calhoun notes, is that the brand is a consistent performer and comes with a reservation system that really works. “The Green Sign — that's what we call it. At the end of the day, the damn thing works.”
Holiday Inn occupancy in 2006 was 62.8%, up from 59.1% in 2003. Select-service spin-off Holiday Inn Express, meanwhile, jumped to 68.1% occupancy from 62.5% over the same period.
Protecting that legendary asset has been a large part of Porter's mission. Annually, some 50 to 100 properties (primarily Holiday Inn) are taken out of the system. These assets may be older properties, or simply built in markets that are no longer relevant to the brand.
“The power of the system is when they sign the license agreement, they must comply with the standards,” stresses Porter. IHG employs a number of devices to monitor hotel performance and to ensure that operators are holding up their end. Compliance tools include interviews of priority club and non-priority club guests, online surveys, and on-site inspections.
Hotels come up for franchise renewal at the point of sale. New owners who wish to convert a property to a Holiday Inn flag must also run the franchise gauntlet.
“Holiday Inn Express, for instance, is highly sought after for conversions but it's very hard to get,” says Calhoun. “Steve Porter and his crew know how strong that brand is, and they want to make sure when they do a conversion that they're keeping the brand standards up.”
At any given time, 100 to 200 Holiday Inn hotels are not in compliance with their franchise agreement and are under some level of significant review, says Porter. “Holiday Inn is the most valuable asset this company has and it's one that has been allowed to tarnish unnecessarily,” he laments.
“We are working hard to buff it up and get the consuming public — both the owners and stayers — to understand how relevant Holiday Inn was in the past and clearly is for the future.”
The new prototype for Holiday Inns also began under Porter's leadership. About 67% of the revenue-generating space in the traditional Holiday Inn was being efficiently utilized. The new model has an average efficiency of 77%.
Export to import
One major factor in dusting off the brand is that Holiday Inn — indeed every IHG brand — is being exported around the world, to South America, the Middle East, Russia, India, and to China, with its awe-inspiring population of 1.3 billion.
To the extent that Chinese travelers are familiar with Holiday Inn and other IHG brands at home, Porter contends that they will gravitate toward those same brands when they travel. In China, InterContinental has taken the lead against competitors Hilton, Marriott and Starwood. The hotelier's portfolio includes 59 existing hotels and 55 in the pipeline.
The vast market is the Holy Grail when it comes to capturing the coins of international tourists, estimated to have spent $20 million there in 2005, according to the China National Tourist Office. IHG's expansion focuses on Holiday Inn, but also includes Crowne Plaza and InterContinental brands, according to a recent report by analyst Merrill Lynch.
“Clearly China is another dimension of success both from a growth perspective as well as profitability,” says Porter, pointing to the reverse impact of the global branding. “In the next 10 to 15 years, China will sponsor about 100 million outbound travelers,” explains Porter. “By virtue of us having presence there since 1984, we know from our internal research that Holiday Inn is the most well-recognized and well-understood lodging brand in China.”
Global game plan
IHG's strategy in China, and other emerging markets, has been to pinpoint specific cities — not to thinly cover large geographic swaths of land. “For example, Russia is an important market to us, but it's not so much Russia as it is Moscow and St. Petersburg and a handful of key cities,” explains Porter.
Beginning with the key cities, IHG then moves outward in concentric circles with flags, identifying specific locations that fit particular brands. Much like retail, hotels gain messaging power through greater concentration, says Porter.
It is Japan, however, not China, where IHG has had the most success in terms of planting the flags. In October, IHG signed a hotel operating joint venture agreement with All Nippon Airways to create IHG ANA Hotels Group Japan.
“Japan has been [a great] accomplishment for us through the joint venture with ANA that we just signed at the close of 2006,” says Porter.
The deal propels the group to being the largest international hotel operator in Japan. IHG is investing $15.7 million for a majority stake in the joint venture, which includes 13 owned and leased hotels totaling 4,943 rooms.
Over time, the hotels will be re-branded to one of the three co-brands created for Japan — ANA-InterContinental, ANA-Crowne Plaza and ANA-Holiday Inn.
At the time of the deal, ANA President and CEO Mineo Yamamoto stated that the joint venture will allow ANA hotel owners to tap into IHG's operating systems.
It is such deals that make Porter a potent leader, and he knows it. “I put IHG right back at the leadership table for the industry,” he says, “because it sure wasn't there before I got here.”
Sibley Fleming is managing editor.
IHG LEADS HOTEL DEVELOPMENT IN CHINA
With 59 existing hotels and another 55 in the pipeline, IHG is a head above its competition.
| Company | Existing supply of hotels | Hotel development pipeline |
|---|---|---|
| InterContinental | 59 | 55 |
| Marriott | 32 | 17 |
| Starwood | 25 | 25 to 30 |
| Hilton | 5 | 25 |
| Source: Merrill Lynch | ||
InterContinental Timeline
1946
PanAmerican World Airlines founds InterContinental Hotels Corp.
1954
Holiday Inn is franchised
1961
IHG opens Phoenicia Hotel in Beirut
1965
IHG introduces Holidex, the world's first computerized hotel reservation system
1984
IHG opens China's first international hotel brand, The Holiday Inn Lido Beijing
1991
IHG launches Holiday Inn Express, the first limited-service brand in the U.S.
2002
Stevan Porter joins IHG as president of the Americas
2004
IHG launches boutique brand Hotel Indigo
2007
IHG continues overhauling Holiday Inn brand