One-On-One: The Morning After The Breakup

InterContinental Hotels Group on April 15 became a separate entity from the pub business with which it formerly was linked under the Six Continents Plc umbrella. Last month, Stevan Porter, IHG president of the Americas, briefed BTN hotel editor Bruce Serlen on the new company's position in the marketplace, particularly involving corporate buyers.

BTN: What actually changed in April from the buyer perspective?

Stevan Porter: We became a true, stand-alone hotel company. For a company with five brands and better than 3,000 hotels, to now have a singular focus on the lodging industry is significant. For all of our buyers and users, but specifically corporate travel managers, it strengthens the simple, single-point-of-contact approach we've put in place.

Corporate buyers especially have known the InterContinental name and the largely InterContinental-sponsored sales force for a number of years. The fact that that salesperson now can represent a portfolio of brands and solutions for buyers has been well received.

BTN: Soon after the April announcement, the company laid off 800 employees. Given the state of the economy today, buyers are very sensitive about cutbacks that might affect the quality of the experience for travelers at their preferred hotels. Please explain the cuts.

Porter: We clearly saw an opportunity to strengthen the company through a significant reduction in overhead expense. The reason I call it overhead is that these were expense reductions outside the hotels at the corporate level. What this did, in fact, was give the hotels air cover to continue to weather this very difficult economic time. On the other hand, it put pressure on all of us who sit outside the hotels, each of whom is an overhead expense.

BTN: Have you seen buyers gravitating toward your midprice brands, specifically Holiday Inn?

Porter: In the United States alone, Holiday Inn represents about 32 percent of the midscale with food and beverage supply and captures better than 38 percent of the related revenue in that segment. We like to think of the brand as having the value of the midpoint, but with a full-service experience. Certainly, this plays to buyers who are under pressure to contain costs. They want the wide distribution first, the value second and the full amenities at a mid-tier price third.

BTN: According to Smith Travel Research, for as well as midprice with food and beverage chains have performed in the economic downturn, midprice without food and beverage brands have performed even better. Yet, these chains tend to offer very few amenities. How has this played out at such a brand as Holiday Inn Express?

Porter: Take the breakfast service as an example. Holiday Inn offers a quick, fast, hot breakfast, while Holiday Inn Express offers a quick, easy-to-access breakfast that's free, but it's not hot. Yet, to keep Holiday Inn Express at a competitive advantage to other midprice without food and beverage brands, we introduced a new branded breakfast concept that featured a warm signature item. Within a 90-day time period, we introduced it in each of the 1,247 U.S. Expresses.

BTN: Has a significant amount of trading down actually occurred?

Porter: We've seen some, but it's really been more market specific than it has been price point or brand specific. Some of the trading down that's occurred has had to do with structural shifting. By that I mean large pieces of group business, for example, or contract business that got shifted around. Clearly, some transient stayers have had their daily allowances tightened, causing them to step down from one price point to another, but it hasn't been as significant a phenomenon for us as people perceive it to be.

BTN: Some buyers have reported that they've begun using extended stay hotels for more of their transient stays because they like the attractive rate structure. Has any significant shift in bookings occurred for your Staybridge Suites brand?

Porter: Not really. Yes, we do see some transient business in there as well, but the major opportunity is still in the local market extended stay volume.

BTN: Do you continue to see potential for growth in the extended stay segment?

Porter: By all means. We've achieved better than 50 units. In fact, we opened numbers 54 and 55 this month in suburban Chicago. Within the segment, we were the fastest brand to achieve 50 hotels. We have a further 50 in the pipe, so we should be at 100 in the next year or year and a half. That's the number we use internally to define a national brand.

BTN: Almost one year ago, IHG was one of the first companies to introduce a best rate guarantee to drive Internet bookings to your own sites. How has that gone?

Porter: It's certainly evident by now that the Web represents ease-of-access for the staying public, whether it's business or leisure travelers. Consequently, it's become an important channel for us. We view it strategically and are committed to offering full access to our rates and inventory, that's why we implemented the lowest rate guarantee. We've seen extraordinary growth as a result.

BTN: Have you had complaints from buyers about negotiated room rates being undercut by Web rates?

Porter: Yes, it has surfaced and is something our brand managers and revenue management people constantly review. On the one hand, we want to be sure we give good guidance to our franchisees regarding pricing. On the other hand, we need to be true to the commitments we make to our clients. The bottom line is we've had more success than failure, but the occasional failure is an issue and something we're working through to make sure we clamp it down.

BTN: Different hotel companies seem to be taking different positions on Web pricing with their owners and franchisees. How aggressive is InterContinental being?

Porter: We can't dictate pricing, but the best rate guarantee rests on their backs in terms of the rates they put forward on the Web, and we include ourselves in that because company-owned hotels make us our own largest franchisee. The guarantee ensures that their lowest rate will be available on the brand-sponsored Web site. It's really just recognition on their part that, like us, they've invested heavily in creating a relationship with the guest and in a brand name. To deflate that and give up control of their inventory and pricing is not the best way to grow the business.

BTN: One of your multi-brand competitors this spring entered into an agreement on rates and inventory with Expedia, a travel agency site that has a merchant discount rate component. Do you contemplate doing something similar?

Porter: We're also involved with Expedia, Travelocity and WorldRes, where we've been able to negotiate favorable terms, but we're also a founding member of Travelweb, which is the lodging industry's own booking site. As we continue to work with the various sites, our sense is that people still are looking for a branded experience, so they first have to make a brand decision. They then want to book with ease through whichever channel they choose.

BTN: In a way, aren't you and the other branded companies just competing against yourself with Travelweb?

Porter: Not really. The difference is that, for the traveler, our branded site represents a brand decision first, followed by location. Travelweb is perhaps location-based and has a broad array of brands available. The industry was smart in recognizing that there are some people who like to buy that way.

BTN: That same competitor also made news when it announced travelers would not receive frequent guest points for stays booked on certain discount Web sites. It's unusual to see the frequency program used as a stick as opposed to a carrot. Can you see that approach spreading?

Porter: We're doing the same thing on some sites and are evaluating which strategy to pursue. It certainly raises questions about what drives customer loyalty and how important points are relative to price. After all, if you take points away as an incentive, what kind of customer might you create? Yet, at the same time, what customers are you getting rid of?

BTN: Given that the discount Web sites have grown in popularity during a downturn where there was plenty of excess rooms, how do you think they'll fare when the industry rebounds?

Porter: There's no question many of these sites emerged as opportunities for rapid sale of distressed inventory. What we hadn't anticipated was that the industry was entering a phase where we'd have a whole lot of distressed inventory, so it was clearly a demand-led pressure. As demand returns, some travelers still will want the ease-of-access the sites provide. Yet, the whole notion of distressed inventory will change because we'll choose which price points we want to put on the sites. You won't see companies putting forward as much inventory or as much discounted inventory.