Report
Dan Wasiolek
EUR 850.00 For Business Accounts Only

Morningstar | InterContinental's Brand Advantage Intact Despite Slower U.S. RevPAR

We expect InterContinental Hotels Group to expand room share in the hotel industry in the next decade, driven by a favorable next-generation traveler position supported by renovated and newer brands, as well as its industry-leading loyalty program. The company currently has a mid-single-digit percentage share of global hotel rooms and midteens share of all industry pipeline rooms. We see its room growth averaging near mid-single-digit rates over the next decade, above the long-term U.S. supply growth average of 2% and in line with the firm's growth of the past few years.With 99.5% of rooms managed or franchised, InterContinental has an attractive recurring-fee business model with high returns on invested capital and significant switching costs for property owners, as managed and franchised hotels have low fixed costs and capital requirements, and contracts lasting 20-30 years have meaningful cancellation costs for owners.We expect InterContinental's intangible brand and switching cost advantage to strengthen, driven by new hotel brands, renovation of existing properties, technology integration, and a leading loyalty program, which all lead to a strong next-generation traveler position for the company. InterContinental has added eight brands since 2012; it now has 15 in total. One of the latest is a midscale concept announced in June 2017, Avid, which the company sees as addressing an underserved $20 billion market with 14 million guests. Also, InterContinental has relaunched Holiday Inn hotels (29% of total room base) in the past few years and is renovating its Holiday Inn Express (33% of total room base) properties. The firm has expanded technology integration and has over 100 million loyalty members.Cyclicality and overbuilding in the industry present the main risk for shareholders. Typically, lodging recoveries last seven to nine years. We model this cycle to last through 2019 (10 years) in the United States, which we believe is reasonable considering that from 2009 through 2017, U.S. demand and supply have increased by around 30% and 10%, respectively, with supply growth roughly matching demand growth in 2018.
Underlying
InterContinental Hotels ADR

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Dan Wasiolek

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