Interview with Karin Sheppard, SVP & Managing Director Europe at IHG. A discussion with Vanguélis Panayotis, CEO MKG Consulting.
What is the situation on your side in terms of hotels openings and trends that you can observe through your regional footprint in Europe?
The current situation obviously is impacted by the lockdown 2.0 that we had hoped we could avoid but is the reality in most parts of Europe. That means that we have to live with various restrictions for hotels whether that be a ban on leisure travel or whether there have been some such hard economic measures that it doesn’t make sense to have hotels trading.
We are living through that; I would say what we are seeing though, and I can see it particularly here in the UK where I am based, the moment that lockdown measures are eased, we instantly see the increase in web search and in booking coming on the back of that. I take great hope from that because I think, we have seen it back in the summer and we will see it again, that once that it’s possible to travel, people will absolutely travel again.
How many hotels are open within your network?
We do have the majority of our hotels open and because what we saw was even in markets as they entered lockdowns actually the essential business that was able to still be taken in the hotels meant that for most hotels, they could stay open, so here in the UK for example where we have a strong Holiday Inn and Holiday Inn Epress footprint. It matches very well against the demand that is out there from a sort of essential travelers’ perspective.
It has mainly been in the key cities and the large luxury hotels where it has not necessarily made economic sense to reopen. Some of those have taken the opportunity, I am pleased to say to do some of the renovation work that you can’t do when it’s very busy. I think the beautiful InterContinental Paris Le Grand is a good example of that. Actually, with the support of the owners, we have decided to complete the second phase of the renovation faster and reopen in the full glory, apart from hosting your fabulous events the hotel is focused on getting the renovation done and that’s the example that we are seeing across of the luxury hotels in Europe.
As you say, we should keep ourselves optimistic looking forward in the future. We saw in different countries or destination that hotel is still opening during that specific time. I remember a few months ago during the first lockdown we had a discussion and you said that we have to still continue to sign contract and there is still enthusiasm from the investors. Could you share with us few iconic openings you had in the recent months?
You are absolutely right and it’s the part that become the joy in my life as we are working through this difficult crisis is the fact that owners are still investors, are still positive about the future of the hotel industry and I think it’s so important we ground ourselves in that. Some of the highlight openings since we last spoke, we have opened the beautiful hotel Indigo in Bath, our hotel Indigo brand which is all about the neighborhood story and bringing that into the vibrant design that journey continues. We have opened voco Paris Montparnasse, again expanding the journey for voco which is going tremendously well. We have had just two flagships open in Warsaw, a Crowne Plaza and a Holiday Inn Express that are really the latest in the design and will be exemplary trophies for the brand, I am delighted to see that we have got these openings to be excited about and on the signings front the same is true we are still signing some exciting deals. We have seen great momentum in particular in addition to sort of our mainstream business in luxury deals this year. We may have signed InterContinental Rome last time we spoke, and we have just announced a Kimpton in Majorca, again taking our luxury brands into new destinations across Europe, so it gives us something to look forward to in the future as travel normalizes.
I believe it’s very important for us because our industry is mostly oriented toward empathy and human services provided by human, do you have any initiative or thought to share with us?
I completely agree, I think we have never had so much coverage interest in the hospitality industry as we have had this year. Unfortunately, with a lot of sad stories about job losses closures of restaurants and hotels etc. and of course impact to people as you say. We also know that on the other side of this we would want to hire people back into the hotel industry. I think that it’s on us as IHG, the wider industry to really come out with those positive messages and reiterate the fabulous careers that you can have in hotels and we absolutely got that on our agenda for next year to play our part in that.
It is an industry where you can start literally at the front line of business and work your way up to senior leadership positions. I shared a story with some colleagues about my latest hire to my leadership team, my VP of commercial Paul Proctor who came from our business in China. Now Paul started in operation and worked his way through the ranks to become a general manager then an area general manager got excited about commercial came into our head office in China and has moved across here. It shows you can absolutely have great careers.
One of the things that we work on right now is how we can multi-skill our frontline colleagues so they come in and get more diverse experiences and can learn faster. How can we turn the necessity of what we are going through now to opportunities for our people and most important as you say actually talk to them about it, so they see the hotel industry, the hospitality industry can be a place and will continue to be a place where you can build great careers.
Everyone is looking at financial ratios and asking themselves what is the future business model, should we pivot company business models? Should we revamp the way we are doing business? One way to look at it is to look at the stock market, it says what is the appetite from the investors. We observed that the IHG stock market was quite resilient, what in your opinion is the reason for that?
Frist of all, the main bulk of our hotels worldwide are in the mainstream category with Holiday Inn and Holiday Inn Express being our two major brands. We know from previous recessions or crises that the mainstream brands recover the best and the fastest. I am sure that plays into why our business is being seen as resilient and we are seeing that Rev PAR performance as markets recover already. I think the second piece is we have been very focused on our financial discipline throughout this we have been able to protect our cash position and in a very good place to right through the recovery and build for the future as well. They are probably a couple of the factors that have played into that perception in the stock market.
I say more broadly actually it is encouraging that travel related stock has had a good bounce back as we have had more of the positive news about the vaccine and I think it indicates that there is absolutely belief in travel and tourism for the future. It’s a question of getting through the current crisis we’re in, and moving through that recovery.
Would you say that IHG is now well organized in terms of business model and that investors were positive to that?
I would not say we are in a good position to deal with the crisis, no one was, and no one could have expected it to this scale, but you are right, our asset light model which is one we moved towards a long time ago and have progressively had as our core business model absolutely sets us up in a good position. Being asset light, very much franchise focused on our main scale markets provides some great stability top our model.
Do you have some plan with IHG to release new services, maybe new brand, new concept, new product?
We will continue the expansion of our newest brands, I mentioned voco before and it really is quite a phenomenal story for us. Opportune that we launched a brand that is so primed for conversion opportunities before this happened because I think we all agree they are going to be more conversion opportunities in the market through this. voco is perfectly positioned to reap the benefits of that and our last results announcement we talked about the fact we have got 15 open, we have got 23 in the pipeline and counting fast towards the end of the year and we have gone from 19 countries and now also penetrating the US and China. I think that there is still plenty of expansion opportunity for a brand like voco.
I mentioned Kimpton before. Six Senses, the new brands we acquired and brought into the fold, we are very much focused on actually delivering on that opportunity and I see a big opportunity in Europe for that.
They are sort of the brand side, I would say operationally, we believe that there is so many learning through this crisis about how to optimize the experience to delight the guests and to operate efficient hotels that can deliver returns for the owners. I think we have all learned through this that there might have been standards in place before that actually the guests didn’t value or that we might have taken out necessity in the crisis but may never reintroduce again. I don’t know if that printed newspaper is going to be with us in the future, notepads and pens perhaps as we think about our sustainability agenda and think about what guests really want. We would have found some real opportunities to take cost out of the business and actually still delight the guests so that thinking absolutely is staying with us.
What is your feeling about when the demand will be back?
I am still as optimistic and hopeful as I was when we last spoke even if it’s taking longer to get through this than we perhaps expected. I think with the realistic lens on, we need to acknowledge that the vaccine is a very positive step. It needs to get out and get out at scale and that’s not going to happen overnight. We have still substantial lockdowns across Europe, and we are not going to be out of that in a couple of weeks’ times.
I think the first quarter will continue to be tough trading. We believe as we get into the second quarter and the vaccines become far more widely available.
The pent up demand that’s there will actually start materializing, I think we could have a tremendous summer because there are people that are longing to have that holiday that they didn’t have this year. As we talked about before business will return in faces.
There’s essential business out there are projects that get started but some other segments will wait a bit longer. Meetings and events, it’s interesting, the cancellations have not materialized to the extent we thought it’s been more postponed. I think we are still expecting that, it will return but it will take longer. As we sort of come through 2021, we will continue to see those positive signs of recovery, we are going to have to be patient, we are very focused on how we continue to help our owners come through that because it’s not going to be like flicking a switch, but the light is there and I can’t wait to see all of that materialize.