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Interview with Richard Hartman, Managing Director EMEA, InterContinental Hotels Group: "To be more than the second largest brand in Europe"

Arriving at the controls of the EMEA zone, Richard Hartman is working to reinforce the values of his brands ,particularly Holiday Inn and Express by Holiday Inn, in order to raise them up to the ranks of national leaders in countries retained for their growth potential.

{{HTR Magazine: More than a year after Six Continents split into two companies, what is the effect of this event on your management performance?R.H.:}} As I believe midscale is essentially domestic, we don’t want just to be the second largest brand in Europe, which we are, but to be the second largest or even the biggest brand in individual countries. Our philosophy now is to select countries where we can actually grow a big domestic presence rather than go out and sign deals everywhere. With Holiday Inn and Express, the distribution in the inner country is going to make a difference. In the UK, where we now have about 225 hotels, we suddenly have top of the mind awareness from the market. Holiday Inn is one of the top competitors in France, but it hasn’t reached the same level of awareness. We are now reviewing each country and assessing the potential of going large scale within a reasonable period of time and we will put our primary resources there. Germany, France, Spain and Italy are top on the list, and the big unknown is Russia.Richard Hartman: }} The separation was good for both companies. Now we are really managing a business instead of managing a conglomerate. The change in the company’s culture is dramatic. Today, there are very few, if any, successful conglomerates in the world.{{HTR: Is the disposal of assets a major shift in strategy?R.H.:}} We have a portfolio of 3,500 hotels and over 500,000 rooms in the world, and, in the course of our history, we never owned more than 170 hotels. We never bought the hotels to hold them forever, but to establish distribution from which we could grow the business through licensing and management. Our disposition of assets going forward is just part of an overall strategy, the same as for most hotel companies. Our timing is pretty good, I think, because there is a huge interest in real estate on the part of investment funds.{{HTR: We don’t see so many deals following the sale & lease back pattern…R.H.:}} Because of the changes in the international accounting system, the leases are now on the balance sheet. The discount you use on the lease payments is normally lower than the discount used on the earnings because the lease payments are certain and the earnings are not a sure thing. So what happens is, unless the leases are extremely favourable, the net present value of the deal usually comes out negative. It is a problem for publicly traded companies like ourselves. At the end of the day an owner is interested in the guarantee that he is going to get a return on his investment and there are other ways we can do that. A management contract with some income support in the first few years is an example.{{HTR: What do you intend to do with the cash available?R.H.:}} We can invest in projects that will increase earnings, we can reduce debt or we can give money back to shareholders. They have expressed their wishes to see a return of cash, so we have embarked on a major share buyback plan and we have just decided to distribute an extraordinary dividend that was paid on the December 17th. Altogether we are returning about one billion pounds to our shareholders (euro1.45 billion).{{HTR: And in the future?R.H.: }} What we do with the cash generated through more dispositions of assets will definitely depend on what opportunities there are in the market. If we can increase the Total Share Value of the company by investing in new business opportunities, that’s fine. But if the best way to increase TSR is to give more money back to the shareholders then we will make that decision. It is a question of timing and state of the market. It is very difficult for me to project our decision.{{HTR: Would you consider increasing the perimeter of the group through new acquisitions?R.H.:}} It is possible, but frankly I haven’t seen a deal recently that would be really beneficial to the buyers. I am not saying that there are no deals out there that might work, but really it is a very opportunistic thing. If that opportunity arises, we have the resources to make the deal.{{HTR: As a proclaimed management company, what is your priority now?R.H.: }} We have to create an ever-increasing value proposition for people who own hotels and need them to be branded and managed by people like us. Our strategy going forward is to increase the compelling nature of our brands and at the same time to more fully develop the best management system we can.{{HTR: Is there still room for more improvement in the hotel management procedures?R.H.: }} In the hotel industry worldwide, no matter what the company, there is always room for major improvement. Simply because hoteliers considered themselves as professionals rather than business people, as artists rather than businessmen. All of that makes for great management of hotels but some business elements and methodology are lacking. I think the industry has a long way to go. The ones who will increase that efficiency and who will have the most compelling brand story to tell will gain the trust of owners around the world.{{HTR: Where do you stand on the I-cons programme to improve InterContinental’s brand recognition?R.H.: }} Unfortunately it has been more difficult to implement because of the big crash in the hotel business that occurred a couple years ago. But it has never stopped. It is a journey more than a destination. We recognised that part of the problem is a hardware problem. The InterContinental Group has wonderful hotels in wonderful city centre locations but unfortunately these hotels are legacy hotels. Some of them are well over 100 years old and require major investments to set them right. There is still a little more to go but the programme is almost complete. The biggest challenge now for InterContinental is to develop a resort capability. We need to follow our city centre clients when they decide to take their vacations and we don’t have adequate offerings at this stage. {{HTR: Where do you think InterContinental should go?R.H.: }} Anywhere there is sun, sand and golf courses between 25° South latitude and 25° North latitude, within an eight-hour flight from a major capital city. We are developing a golf resort in Spain right now, building an InterContinental on the Jordan side of the Gulf of Aqaba, but we don’t have any North-African resorts. In Asia-Pacific we have projects in Phukhet, and in the Maldives. We are building a fourth hotel in French Polynesia. We need more resorts in the United-States, especially in Florida and Hawaii.{{HTR: Does the perception of Holiday Inn as an upper market brand in Europe create a problem for developing Crowne Plaza?R.H.: }} The Holiday Inn brand was born in the fifties in the United States along with the interstate transport system. But when it came outside of the US, it was more of an aspirational brand, and my predecessors just took advantage of the market. In 1983, the more upmarket Holiday Inns in the world wanted to be called something different. So we created Crowne Plaza without a real brand plan. They were just better Holiday Inns. It is only since 1998, that we decided that Crowne Plaza should be a stand-alone brand. Since then, we have tried to get the right size hotel and to associate them with a place to meet. It is not a conventional hotel, but ideal for corporate meetings and seminars and we have been pretty successful in the positioning. In Europe, we have been aided with the new Crowne Plaza at Geneva Airport, the renovation at Heathrow, the new ones in Brussels and in Schiphol. The brand has rapidly been associated with airports. It has only been around for the past five to six years and the progress is good. We just have to maintain our present discipline to select the right locations.{{HTR: Overall, the fastest growing brand is Express by Holiday Inn…R.H.: }} We have almost 120 Express hotels in the UK, over 1,200 in the US, and we are developing a rolling plan in China and in Australia. We own 6 in Germany and 2 in Spain and they are really brand leaders and we will roll them up. It is a successful brand and it is extremely uniform here in Europe because they are all newly built.{{HTR: In France, some of them are even considered in the upper segment of the business…R.H.:}} Product-wise, we tend to be above our competitors, and our average rates and RevPAR are above our competitors as well. Even though the mid-scale market is by far a domestic market, we still have an international consistency to maintain, especially in comfort and safety.{{HTR: What about the brands that haven’t yet been developed in your area?R.H.: }} We are studying the launch of Staybridge, our extended stay product, probably in the new year. Indigo is a lower upscale– upper midscale brand that could suit some aspect of our development strategy by taking an old hotel and renovating it into an Indigo. Indigo is in the boutique hotel direction with a high fashion dimension to it, but we can bring the strength of our reservation system to it. We make no secret of its chain affiliation. It has attracted interest from our existing franchisees, but I would prefer to see more hotels open and in operation before I bring it over here{{HTR: Geographically, in which areas would you like to concentrate your efforts?R.H.:}} As I believe midscale is essentially domestic, we don’t want just to be the second largest brand in Europe, which we are, but to be the second largest or even the biggest brand in individual countries. Our philosophy now is to select countries where we can actually grow a big domestic presence rather than go out and sign deals everywhere. With Holiday Inn and Express, the distribution in the inner country is going to make a difference. In the UK, where we now have about 225 hotels, we suddenly have top of the mind awareness from the market. Holiday Inn is one of the top competitors in France, but it hasn’t reached the same level of awareness. We are now reviewing each country and assessing the potential of going large scale within a reasonable period of time and we will put our primary resources there. Germany, France, Spain and Italy are top on the list, and the big unknown is Russia.

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