InterContinental Earnings: Leisure Demand Continues as China, Group, and Business Travel Recover

Narrow-moat InterContinental’s IHG first-quarter sales update points to continued resiliency of travel demand, echoing results from the peer group in recent days. Leisure demand is enduring, with room revenue up 30% in the first quarter and at 125% of 2019′s level. But the recovery is now being led by business and group, which saw sales growth of more than 30%, with the former back to 2019′s level and the latter at 88% of prepandemic marks. Geographically, Greater China is seeing a strong rebound in domestic travel, resulting in its revenue per available room, or revPAR, jumping 75%, representing 91% of 2019′s level, a strong lift from the roughly 60% mark in the fourth quarter. Meanwhile, IH’s largest market, the United States, posted revPAR at 110% of 2019′s level, in line with the fourth quarter. IH is not seeing any signs of demand weakening, and we think China will continue to recover in 2023, as flight capacity gradually returns. As a result, we don’t plan to materially change our 2023 6% revPAR growth forecast or our $71 per share fair value estimate.

IH’s brand intangible asset is intact, with unit growth up 3.4% (4.2% excluding removal of Russian rooms), and its room pipeline of 287,000 also up 3%. IH noted that financial conditions have tightened in the U.S. as a result of the simmering regional bank environment. But it still expects around 4% unit growth in 2023 (versus our estimate of 4.3%) and an acceleration in future years (we forecast 4.7% growth in 2024), as strong conversion activity (one third of openings and signings), the reopening in China, and the potential financial assistance it could provide works to offset any dropout emanating from tightening credit markets.

After 30 years at IH and six as its CEO, Keith Barr will be stepping down June 30, 2023, to spend time with his family. He will be replaced by Elie Maalouf, who has led the Americas region for the last eight years.