ii view: InterContinental Hotels battles biggest ever challenge

Room revenues have fallen dramatically, but some positive signs are emerging in China.   

First-quarter trading update

• Group revenue per available room (RevPAR) down 24.9%
• 15% of estate (1,000 hotels) closed at the end of April
• Occupancy levels in comparable open hotels in the low to mid 20% range

Chief executive Keith Barr said:

"Covid-19 represents the most significant challenge both IHG and our industry have ever faced. We are responding on every front and taking decisive action to the benefit of all our stakeholders. Our top priority remains to support our guests, colleagues and hotel owners through this crisis, whilst protecting for the long term and positioning the business for recovery.

“Following a solid performance in the first two months of 2020, occupancy levels dropped to historic lows in March and April, as social distancing measures and travel restrictions came into effect around the world.

“IHG's response to Covid-19 is centred on remaining true to our purpose and values, and we are taking all necessary actions to manage through the uncertainties and challenges facing our industry.”

ii round-up:

Hotelier and operator of brands including Crowne Plaza and Holiday Inn, InterContinental (LSE:IHG), has seen occupancy rates for those of its hotels which do remain open fall to historic lows. 

Around 1,000 of its hotels under Covid-19 population lockdowns were closed at the end of April. Approximately half of its outlets in Europe, Middle East, Asia and Africa were shut. 

Revenue per available room (RevPAR), a common industry measure, fell by almost 25% in the first quarter and is expected to have fallen by around 80% in April. 

InterContinental shares are down over 30% year-to-date. Rival Whitbread (LSE:WTB) and owner of Premier Inns has seen its shares fall by more than 40% during 2020.

But in the Americas, including its biggest market the USA, around 90% of hotels were open as at the end of April. 

And in China, where the pandemic first began, occupancy levels have risen from a trough of 5% in mid-February to the mid-20% region in recent weeks as the country slowly attempts to return to normal. 

InterContinental shares rose by more than 2% in the wake of the news. 

A further 6,000 rooms have been opened, including 1,000 in March. 

ii view:

InterContinental largely seeks to operate hotels as opposed to owning them. In previous years it undertook a series of asset sales and subsequent returns of cash to shareholders. The company offers diversity in both its brands and market positioning, and geographical breadth. 

Under measures to battle Covid-19, 2020 capital expenditure has been reduced by around $100 million versus 2019, application to the Bank of England’s Covid loan facility has been made, while cost savings in the order of $150 million are being pursued. 

For investors, and while InterContinental is far from alone, the cancellation of its 2019 final dividend and suspension of further dividends is a blow. Uncertainty regarding the length and nature of lockdowns across Europe and much of the world is immense. But InterContinental remains well managed, and some chinks of light at the end of the coronavirus tunnel might be emerging. 

Positives: 

• Strong and diverse brand portfolio
• Total liquidity available of $2 billion 

Negatives:

• Occupancy levels down to the low to mid 20% region
• Full year 2019 net debt rose by 36%

The average rating of stock market analysts:

Hold