By MICHAEL CAROLAN
LONDONâ€”InterContinental Hotels Group PLC said room rates, which fell during the recession, have started to rise in most markets as the return of business travelers boosts its revenue and profit.
The world’s largest hotel operator by number of rooms said revenue per available room, or revparâ€”a key industry measureâ€”rose 7.4% in the second quarter, compared with a 0.2% rise in the first quarter. By July, revpar was up 8.1%. A 1% increase in revpar improves full-year operating profit by $13 million.
InterContinental, often called IHG, franchises or owns more than 4,000 hotels globally under the brands Holiday Inn, Holiday Inn Express, Crowne Plaza and others. It also operates 168 luxury hotels under the InterContinental Hotels and Resorts brand, seven of which it actually owns.
IHG’s results followed similarly upbeat second-quarter reports from other major hotel operators, which also signaled a return of corporate travel and conference. Starwood Hotels & Resorts Worldwide Inc. posted a 13% increase in second-quarter revpar from a year ago and outlined a 2010 forecast for a revpar gain of 7% to 9%. Marriott International Inc. posted a 9.9% rise in revpar and a 1.6% rise in nightly rates.
“Business and leisure stays at our hotels are trending up,” Marriott Chairman and Chief Executive Officer Bill Marriott said.
IHG said the improving revenue was driven by higher occupancy levels. While room rates still were lower in the second quarter than a year ago, the company said rates are stabilizing and beginning to rise is many markets.
Overall, IHG reported operating income of $136 million in the second quarter ended June 30, up 27% from the same period a year ago. Earnings per share was 30 cents from a loss of 20 cents per share a year ago. Revenue in the latest quarter rose 9.3%, to $410 million.
Despite the positive news, shares of IHG dropped 4.1%, to 1,078 pence ($17.15), in London after a profit warning from tour operator TUI Travel PLC sent shares across the sector lower. Still, IHG shares have doubled since March of last year.
A recovery in business travel is critical for hotels because business travelers tend to pay higher rates than leisure travelers. In addition, corporate meetings and conferences are a more stable and lucrative flow of business for hotels than tourism traffic.
“Last year was an awful year for corporate travel,” said John Arabia, an analyst with Green Street Advisors Inc. “What we’re seeing now is more corporations getting back on the road. As a result of that, hotels are increasing their number of room nights from high-paying corporate travel. Some hotels in some markets are able to pull back on some of the discounts they had been offering.”
IHG has 197,431 rooms waiting to be built or converted into one of its brands. This is less than the May pipeline of 200,895 rooms, suggesting the company is struggling to increase its estate. Rather than owning all of its hotels directly, IHG operates a franchise model in partnership with hotel owners and must rely on developers finding financing for new hotel construction.
Richard Solomons, IHG’s chief financial officer, said developers still were finding it tough to secure financing for new hotels in the U.S. and Europe. He added that 30,000 rooms will be removed from IHG’s system in the second half of the year, following 10,000 removals in the first six months. These are mainly Holiday Inns that are leaving the brand rather than investing in refurbishing.
The company started a relaunch of its Holiday Inn brand two years ago and is set to complete it at the end of this year. Mr. Solomons said the relaunched hotels were performing at the top end of his expectations.