InterContinental Fills Global Hotel Pipeline

Stevan Porter, president of the Americas for InterContinental Hotel Group, recently sat down with Business Travel News hotel editor Michael B. Baker to discuss growth within the world's largest hotel company in terms of revenues and number of rooms in 2006, trends in corporate negotiations, his forecast for the overall hotel industry and his work to improve processes for international travelers to the United States.

BTN: How is the growth plan progressing at IHG?

Stevan Porter: The best way to talk about today is to go back to five or six years ago, when the company started its journey of taking back a strong leadership position. At about that point in time, we were just on the heels of Sept. 11, which had a significant impact on the lodging and travel business overall. There was concern and confusion about how enduring that impact would be and when it might turn around. That was the point I joined the company. The leadership team agreed that we had three or four things that we wanted to do. The first was to return to a leadership position in the industry, because we had clearly been deemed not to be from the standpoint of growth, guest satisfaction and owner performance. The second was to strengthen and reinvent our midmarket position, which is our biggest, with the Holiday Inn and Holiday Inn Express business. The third was to find a way to take advantage of our current portfolio of brands.

At that point, we had five brands: InterContinental, Crowne Plaza, Holiday Inn, Holiday Inn Express and Staybridge Suites. We wanted to improve the organic growth off of those five and explore other alternatives to broaden our brand portfolio, recognizing that branding and trends in the industry were moving pretty fast. We set up the framework to do that.

BTN: What was the result?

Porter: Our revenues have actually declined as a result of selling our real estate, which is a key part of our strategic initiative. The strength of those revenue streams has grown because we've transitioned from owning a lot of hotels into being a big manager/franchisor, which was the backbone of the business to begin with.

We expanded to seven brands, first with the acquisition of Candlewood Suites and then the introduction of Hotel Indigo. Our operating margin went from about 28 percent in this part of the world to just around 50 percent as a result of this restructure. On a growth perspective, just on the measured pipeline, we went from a 4 percent position in 2002 to about a 14 percent position today. We went from the back of the pack to hovering in the number one or two spot. That's a pretty significant accomplishment when you think about how we go to market. To get through all of those hoops in the process, and be able to claim 14 percent, and come from the back to the head of the pack is a significant accomplishment in the hands of a great team of folks. Now we are exploring options to take that strong growth and even expand that factor, especially in the United States.

BTN: Will the United States continue to be the biggest market for growth?

Porter: We've got a strong position in three to five of the biggest lodging markets in the world: the United States, the United Kingdom, Japan and China. We can leverage those forward as well, because the industry demonstrates the ability to absorb capacity, and we're well positioned to win in those geographies. It's a pretty sweet spot to be in.

BTN: Will we see more of a presence of IHG in China?

Porter: China has been and will continue to be an area of focus. We've had a strong position there over the years. We operate there on a platform of four brands: InterContinental, Crowne Plaza, Holiday Inn and Holiday Inn Express. The Holiday Inn family is understood to be among the Chinese a local brand, so we see that as an advantage toward continued growth. It's an enormous market that's improving its infrastructure, has significant population growth and an emerging middle class.

BTN: Are there any other particular international markets of focus, such as India?

Porter: We continue to keep our eye on India, and have an office there. In one year in that market, we signed 16 deals. It sounds like a small number, but in terms of an emerging opportunity like India, it's actually pretty sizable. We are slower going there than we are in China because India is still swinging through its infrastructure options and trying to figure out how to accomplish that growth. We feel more comfortable with the infrastructure and the mechanics in China today.

There are other markets that continue to be strong for us. I talk a lot about the U.S., but you can talk more broadly about NAFTA, because we are strong in Canada through Mexico. We have a big position in Brazil and continue to grow in that market and like the dynamic. The United Kingdom, Japan and Germany are also big emphases.

BTN: What kind of cleaning up within the Holiday Inn brands has occurred in the past years?

Porter: As we've gone through this journey that we've been on the past several years, we've been very aggressive about rethinking our quality expectations, forcing those quality expectations on owners and stepping up to remove bad actors from the system. It's been about 100 hotels a year, and we see that continuing for a period of time, because it's the right thing to do. Holiday Inn enjoys the highest level of guest recognition for a lodging brand in the world, but we had damaged that confidence, given that we had far too many just-not-good hotels in the system. In tandem, we've continued our heavy emphasis on Holiday Inn Express growth and came out with the new Holiday Inn prototype that works in suburban and tertiary markets. It's simpler, smaller to build and easier to operate. We're also reimaging hotels in big markets. If anything, we started too late, but we're catching up fast.

BTN: With upscale rates increasing at such a fast pace, have you seen more interest from corporate buyers in putting more midprice properties like Holiday Inn in their hotel program?

Porter: Between Holiday Inn and Holiday Inn Express, we sleep more people around the world than any other hotel brand every single night. At times like this, when prices are moving fast, the power of that brand offer comes through loud and clear. We've had continued, significant, positive movement. We're the biggest supplier of rooms to the United States government, among the biggest supplier of rooms to IBM and among the biggest supplier of rooms to General Motors, to Ford Motor Co. and to a variety of big corporate accounts. We don't see that changing anytime soon.

BTN: How is the new Hotel Indigo concept coming together?

Porter: It's doing spectacularly well. We put the offer out there and we had a tremendous response. We have eight open today and close to 50 in the pipeline. We're pretty bullish on Hotel Indigo, for sure.

BTN: Is it something that appeals to corporate travel buyers?

Porter: It has responded to local markets and to corporate travel buyers. It took a while for corporate travel buyers to understand the offer because it is unique, and it initially was just a concept on a piece of paper. Then it was an open hotel, but everybody doesn't get to Atlanta, which is where the first property opened. It took time to build experience. Where we were advantaged was in the location we had in Atlanta, across from the Fox Theatre. It's a great location.

We have good corporate business around us: Coca-Cola, Bank of America, Georgia-Pacific. We're close enough to Georgia Tech. That all helped build this aura of expectation for Hotel Indigo.

We have guest satisfaction for Hotel Indigo that rivals the top of the industry, so we're up there hunting satisfaction in the arena of a Ritz-Carlton- or Four Seasons-type experience. The service and the operating models are streamlined, so the returns to owners are extraordinarily high. We have found a great formula, and we're continuing to grow very fast. That was all part of this notion of reinventing this company and changing the game. We've changed the game both in our mainstream position and this new offer. Many competitors are trying to follow us, but we got there first, and that's playing to our advantage.

BTN: I understand you're looking to expand your extended stay footprint overseas.

Porter: We have capital projects underway in the United Kingdom. We have a small set of them, little model rooms, and we've had guest feedback. That market appears to be ready for what we think of as a U.S.-style extended stay offer, and we'll have firsthand experience in the not-too-distant future, as we have our first Staybridge Suites probably about 12 months from now.

BTN: U.S. extended stay brands don't have much presence in Europe, do they?

Porter: They have serviced apartments and corporate housing, but what we would think of as an extended stay hotel, you don't have that in most parts of the world.

BTN: A lot of hoteliers are putting a heavy emphasis on revenue management, particularly in a push for dynamic pricing agreements with corporate travel buyers. Is this something IHG has been pushing?

Porter: We are pushing for both. We have been practicing revenue management for many, many years. We've gone down the path of emulating the approach used in airlines, but moderating the style by being much more transparent about how we establish pricing.

When owners look to achieve a brand premium in revenue growth, which sometimes can range from 10 to 11 percent, skill in revenue management is a key part of that. We enhance that for them through a variety of online support mechanisms. We provide local market options for reservations activity. We have a separate revenue management system that they can buy into as an alternative to what they would do on property. That aside, we provide specific training for hotels, including guidance on how to participate in the annual request-for-proposals process, and within that, guidance on how to participate in pricing options.

Dynamic pricing is important for a variety of reasons, not the least of which is this industry's consumption of room nights—especially in the United States, where we've seen unheard-of levels in the past two years, and we don't see any decline in that. You want to be fair to your customer and your owner, so the use of dynamic pricing is the best way to accomplish that. Lodging is a unique sector, but in all retail settings, they use dynamic pricing. The difference is, they might have a price tag attached to it, but they're still moving that price. We think lodging should be able to do the same thing.

BTN: What else are buyers emphasizing in negotiations?

Porter: Safety continues to be a concern—having the confidence that we hold each hotel to the same level of standards and comply with local ordinances.

High-speed Internet access is key, as is either on-property or nearby access to food and beverage. In the full-service hotels, access to meeting space is important. In the guest room, in-room coffee has been an important amenity, as have irons and ironing boards. Business travelers are self-serving, get-it-done stayers who want to have everything at their fingertips. We keep working to shape and understand what the right features and benefits are to make that happen.

BTN: What is the status of Internet availability in your hotels?

Porter: It is a brand standard for Holiday Inn and Holiday Inn Express. We have it in place for all the others. The difference comes into place as to whether it's provided for free or at a charge. For a variety of interesting reasons, we charge in our higher-end hotels and give it away free in our less-expensive hotels. There's a long, long history of that across the industry.

BTN: How is the meetings side of business travel in your properties performing?

Porter: The arena is strong, and our expectations are that it will continue to be strong. If you reflect on how we came out of the downturn post-Sept. 11, it was first leisure travel that really propelled the industry around the world, followed by return growth in groups and meetings, and that growth has never looked back. That's true whether it's the 5,000-plus annual conventions or continued rise in the meetings of 25 to 50 attendees. We saw that trend in tandem with our Crowne Plaza position—hotels like this tend to have more meetings per guest room than you might expect, and we seized on "a place to meet" as a key part of our position and platform. That has proven to be a right decision.

BTN: You said you don't see a decline in room night consumption. Is the hotel seller's market here to stay for a while?

Porter: Yes, it is. Supply is growing, and some people might say that will dampen increases in demand. That's unwarranted, given that most of the supply growth is happening in suburban and tertiary markets as a result of population growth and shift. Just in the U.S., we passed the 300 million mark in population last year. That population is making cities like New York, Washington or Boston that much more active. Similarly, we've got infill that's happening. Pretty soon, you'll be able to drive from Boston to Atlanta and you won't have any green space. That causes great demand for hotels and for room nights.

The continued global spread—with low-cost airlines and the reinvention of air traffic—has a lot to do with growth. Baby boomers are aging, but as they age, they've become very wealthy. They've grown up traveling and they're likely to continue to be travelers, so we see that as a great help.

China is moving toward probably about 100 million outbound travelers in the next seven to 10 years. If you put that in perspective, that's one-third of the U.S. population who will take a trip in the form of some activity every 12 months. That is a tsunami of outbound travelers. All of that warrants an outlook that is bright.

Clearly, we're a cyclical industry, so you would expect that you would see some movement over time, but I think those will be very soft oscillations. I don't think we'll see huge valleys or necessarily peaks, save some outside event that everybody participates in.

BTN: You've been quite active alongside Loews Hotels CEO Jonathan Tisch in the Discover America Partnership. What have been some of the areas of focus there?

Porter: One is the whole arena of immigration reform. The leadership of every industry has a broader accountability to enlarge the pie. In our case, enlarging the pie means finding a way to get more people to this country and to fill the many, many jobs we have that are open.

The second is to cause this country to be a welcoming place to visit. We are a world leader, and we should offer greater experiences for folks coming over here. There's this tremendous intersection between travel and public policy, and we're the front door to where we live. Immigration reform is one important mechanism to solve the fact that we can't find enough people where our hotels sit to fill all the jobs that we have.

The borders have to be secure, and our industry flourishes when there's a sense of safety and security. At the same time, we can be a touch more welcoming, and we can cause it to be easier to get a visa, from the time commitment, and we can cause it to be a more pleasant experience to arrive here. That's a change that has to happen through government. You can't put that at the feet of private industry.

BTN: Is Discover America looking to partner with corporate travel companies?

Porter: There's been a broad array of partnerships and alliances all to push the agenda, and we've been successful. We've had a hearing on Capitol Hill, and we've advanced this to written legislation. We're just trying to find the right bill to attach it to. People have come to realize the best way to have understanding and support for American public policy is to have people visit the United States and learn America through Americans and change those perceptions when they go back home.