IHG Talks Hotel Growth Opportunity in Germany

InterContinental Hotels Group (IHG) predicted Friday that a recent deal would effectively double its presence in Germany and provide a foothold for stronger growth.

On April 15, IHG said it had signed a deal with Novum Hospitality, a German hotel group, to add 119 properties (with about 17,700 rooms) over the coming years. 

“Obviously, we and other hotel groups are trying to grow our distribution in this high-value market,” said IHG CEO Elie Maalouf in an earnings call.

Maalouf said it was a franchise deal and did not disclose the cost. The CEO said Germany’s hotel market doesn’t yet have many deals with global hotel groups.

IHG trims costs paid by hotel owners

IHG, whose brands include Holiday Inn and Six Senses, said Friday it would essentially slightly lower a critical fee it assesses its hotel owners.

For context, IHG runs a so-called “system fund,” a pool of money shared by owners and IHG. Hotel owners contribute a percentage of their revenue, and IHG contributes some money from the sale of loyalty points to credit card companies.

IHG then withdraws money from the pool essentially in the form of assessments for the costs of paying for IHG brand marketing campaigns, improving the Amadeus-built reservation software that hoteliers use, and running the loyalty program.

The fund has grown 27% since 2018, to $1.6 billion now. It will likely add $25 million to the bottom line this year, executives said.

IHG said it could make this move because of the rising value of its loyalty program. Customers wanting to top up their loyalty program accounts are now paying IHG more for extra points. The hotel group is using that additional money to reduce the fee franchisees and other hotel owners pay.

“The relaunch of the loyalty program [a year ago] has driven increased numbers of members, increased engagement with members, and that also drives sales,” said CFO Michael Glover.

They said IHG opened 46 hotels with over 6,200 rooms, meaning a 5% growth in its net count of open properties. The company saw a 2.6% growth in revenue per available room year-over-year.