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InterContinental Hotels Group announces cost-cutting measures across the globe

InterContinental Hotels Group is implementing a range of cost-cutting measures across the globe in the wake of the COVID-19 outbreak which CEO, Keith Barr, says is about “managing the business through this unique environment”.

Barr says the company has many cost reduction and cash conservation measures at its disposal and in this environment, IHG has acted decisively across the business to challenge all discretionary costs and reduce salary and incentives, including substantial decreases for Board and Executive Committee members.

He says these measures will result in a reduction of up to $150 million in IHG’s fee business costs and similar actions, while along with a reduction in marketing spend, are being taken across the System Fund in response to expected lower assessment fee receipts.

IHG is also taking action in its owned, leased and managed lease hotels to contain costs and in addition, to support its owners and manage their cash flows, the company launched a comprehensive package of measures including delaying renovations and relaxing brand standards.

“At this unprecedented time, our top priority remains the health and wellbeing of our guests, colleagues and partners, and ensuring that in light of such a significant impact on the global economy and, in particular, on the travel industry, we take the right steps to protect the long-term health of our business,” Barr says.

“Demand for hotels is currently at the lowest levels we’ve ever seen.

InterContinental Hayman Island Resort, Australia

“IHG has a robust business model and the measures we are announcing today to reduce costs and preserve cash give us the capacity to manage the business through this unique environment and to support our owners during this incredibly difficult time.

“These were not easy choices and we are mindful of the impact these decisions will have on our colleagues and shareholders.

“However, we believe that these are essential to ensuring that we come out of this as strong as we possibly can and ready to capitalise on what remains an industry with excellent long-term growth potential,” Barr says.

IHG’s Global RevPAR decreased 6% across January and February, with a broadly flat performance in the US offset by declines in Greater China, which saw an almost 90% decline in February.

During March, given the measures adopted by governments around the world to restrict travel and social contact, IHG says it is anticipating Global RevPAR declines of around 60%, “with steeper declines in those markets most impacted by restrictions”.

Cancellation activity for April and May, and current booking trends, indicate continued challenging conditions, according to IHG.

Voco Gold Coast

On the brighter side, in Greater China, IHG says it now has 60 hotels closed compared to 178 at the peak, and “in recent days have begun to see improvements in occupancy, albeit at low levels”.

Alongside the cost-cutting actions, IHG says it remains conservatively leveraged.

“The staggered bond maturity profile, with the first maturity of £400 million not due for repayment until 2022, provides long term funding,” the company says. “In addition, the company has access to a $1.4 billion Revolving Credit Facility (RCF), which is currently $1.2 billion undrawn, which together with free cash flow generation provides significant liquidity.

“We are taking further steps to protect our cash flow, including reducing our gross capital expenditure by $100 million from 2019 levels and managing working capital.”

IHG says it continues to monitor the situation closely and will provide further commentary at the First Quarter trading update on May 7, 2020.

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