Shares in Holiday Inn owner Intercontinental Hotels (IHG) fell 1% to £42.14 as the company laid clear the impact of the coronavirus pandemic, although there are signs it is on the road to recovery.
In a trading update for the three months to 30 September, the firm said revenue per available room or RevPAR fell 53.4% year-on-year as occupancy rates fell 30%.
RevPAR in the Americas was down 49.8% in the third quarter, down 70.4% in Europe, Middle East & Africa, and down 23% in Greater China.
But the company said performance had improved quarter-on-quarter as the 53% decline in third quarter RevPAR compared with a 75% decline in the prior quarter, while occupancy was 44% up from 25% in the second quarter.
Despite the unfavourable backdrop, InterContinental opened 82 hotels year-to-date, and signed agreements to open a further 82 hotels, with its total pipeline standing at 1,899 hotels.
It also reported positive cash flow in the third quarter, leading total available liquidity at end of September to increase to $2.1 billion.
‘DISASTROUS IMPACT ON EARNINGS, BUT REASONS TO BE OPTIMISTIC’
AJ Bell investment director Russ Mould said the lack of customers for hotels will have a ‘disastrous impact’ on earnings given they still have to be ‘fully kitted out’ ready to do business, and pointed out that hotels have a large number of fixed costs so a drop in revenue results in an even greater decline in profit.
However, he added that under the circumstances InterContinental’s latest update ‘contains reasons to be optimistic’, highlighting the improving occupancy rates and the fact the decline in revenue per available room is ‘nowhere near as bad as the previous quarter.’
Mould said, ‘Positive cash flow has improved the company’s liquidity position which is very important as it provides a stronger buffer to support the business should the pandemic linger well into 2021.
‘Interestingly it continues to open new hotels, showing that management has got an eye on the long-term opportunity rather than sitting on their hands waiting for the crisis to disappear.’
‘PERFECT TIME FOR ACCOR MERGER’
Mould also said InterContinental’s update could spur French hotel giant Accor to ‘take a harder look’ at a possible merger once again, highlighting that the company is in a better position than others to ‘ride out the storm’ thanks to its geographical diversification, with results varying dramatically from country to country.
He added, ‘Rumours were circulating over the summer that Accor wanted to do a deal and now is a perfect time to combine forces and come out the other side with a very strong proposition.’