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Essay: Intercontinental Hotel Groups (IHG)

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  • Subject area(s): Business essays
  • Reading time: 4 minutes
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  • Published: October 22, 2015*
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  • Words: 1,190 (approx)
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  • Intercontinental Hotel Groups (IHG)
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Intercontinental Hotel Groups (IHG) is one of the world’s most popular and leading groups of hotel and resort chains in the luxury 5-star segment category. Juan Trippe founded it in the year 1946. Since it’s foundation, Intercontinental has become one of the most recognized brands with over 6 years of expertise and it’s chains in more than 60 countries around the world. The IHG group has done responsible business over the years by using the IHG green engage system which is the online sustainability management system; helps in the consumption of energy, water and reducing waste; providing advantage to their hotels by using fewer resources.

Interpreting the Strength, Weaknesses, Threats and Opportunities of the company using the SWOT analysis tool will provide an in-depth knowledge of the company.

STRENGTHS

There are several strengths of the IHG group such as it has a strong management base resulting in the long-term growth and success of the company. They offer unique amenities and facilities in their hotels in different regions, which competes them with the other leading hotels. Intercontinental Hotel Groups (IHG) is also one of the most recognized chain with their brands include Intercontinental Hotels and Resorts, Crowne Plaza Hotels and Resorts, Hotel Indigo, Holiday Inn and Holiday Inn Club Vacations, Holiday Inn Express, Holiday Inn Resort, Stay bridge Suites, Candlewood Suites. This shows that they have a clear brand image. They also target variety of travellers from various countries and Holiday Inn hotel in China is one of the popular Hotels due to the growing economic conditions and the development of infrastructure in the country.

WEAKNESSES

There are also few weaknesses of the Intercontinental Hotels. Intercontinental hotels are solely focused on the luxury segment category. They also should focus on establishing their hotels in the mid-scale segment, which will not only increase their revenues, but also they will be able to prevent any economic downturns in the future. IHG group shows some weakness in its geographical positioning of its hotels. With most of its hotels located in the top 20 countries, most of the revenues are generated from the US hotels. This shows that they are very much dependent on the US market. In order to prevent this, IHG groups should invest in setting up new hotels in the developing countries.

OPPORTUNITIES

The opportunities are the dynamic growth in the emerging markets. The emerging markets are fast growing regions in the world, which includes improving the economy, developing the infrastructure and targeting the foreign tourism. Other opportunities are the heath and wellness appeal the customers would be receiving through the presence of spa’s and herbal products in their rooms. Creating a larger focus on the online service with faster access to the Internet for the benefits of the customers and minimizing the costs by improving the technology.

THREATS

The threats are the lack of confidence among the customers in the US markets which might have an impact on the potential travellers and customers mainly with the Intercontinental operations focused on it’s operations in North America. The significant rise in economy level hotels in the recent years will pose a big threat to the limited service hotels under the IHG group. Increase in the fuel prices of the airlines and economic downturns will have an impact on the air price tickets, which in turn will affect the foreign tourism resulting to the changes in hotel accommodation price as a whole. Intense competition from the major hotel chains such as Marriott International, Hilton hotels, Hyatt regency will also be a major threat in affecting their revenues.

According to the survey from previous years, it has been found that ‘IHG’s revenue grew from $1.538 billion in 2009 to $1.628 billion in 2010, 5.85% growth in revenue’. ‘Net income grew from $214 million in 2009 to $280 million in 2010, a 23.57% growth in net income’. Considering the revenues, 50% of its total revenues come from the United States. But in the current year it is reported ‘revenue was down 2pc to $1.85 billion, from $1.9 billion a year earlier and operating profit was 3pc lower at $651m’. The fall in revenues was mainly caused due to the sale of the InterContinental’s San Francisco hotel. Regarding the stock evaluation for the month of December 2014, the stock was hitting the lowest point of $37.4 USD and there has been upward and downward fluctuations from the month of January 2015 to March 2015 resulting in final value of $40.92 USD with a drop of -0.34 (-0.82%).

Richard Solomon, chief executive, said: “Looking into 2015, we face many macroeconomic and geopolitical uncertainties, but are confident that our strategy for high quality growth coupled with the momentum in the business positions us well for continued strong performance.’ We think that the analyst would not prefer buying the stocks from the IHG group due to the fact that there has been a drop in the stocks resulting in a negative value. From our point of view, we feel that the hotel should exit its ownership and look at the leasing options of the hotel in order to be more productive.

DEFINITIONS:

NOWC:

The Net Operating Working Capital (NOWC) is the difference between Operating Current Assets and Operating Current Liabilities. It is useful for the Intercontinental Hotels in measuring the company’s liquidity and overall efficiency of the company. It also determines the increase or decrease in the working capital of the company and the amount of debt to be paid within a year.

DEBT/ASSETS RATIO:

Debt/Assets ratio is the ratio of total debt to total assets. It is used by the hotel industry in accessing the percentage of debt used in financing the assets by measuring the leverage of the industry. The larger industries can add more debt with very low risk for the investors.

EBITDA COVERAGE RATIO:

EBITDA coverage ratio is used for determining a company’s financial durability in order to pay off the Interest Expenses by checking whether it’s least profitable.

This ratio is important for the company because it is used for determining the performance of the hotel industry and it gives the investors a brief knowledge of the operating and financial results over the various chains of hotels.

REFERENCES

1. ABOUT INTERCONTINENTAL HOTELS & RESORTS, (2013). Retrieved from http://www.ihg.com/intercontinental/hotels/gb/en/global/support/about-intercontinental?cm_sp=OSMAM-IC2-US-EN-HOH-AIX-SBL-About_IC.html
2. InterContinental Hotels revenue falls on hotel sales, (2015). Retrieved from http://www.telegraph.co.uk/finance/newsbysector/epic/ihg/11417135/InterContinental-Hotels-revenue-falls-on-hotel-sales.html
3. Intercontinental Hotels Group (IHG), (2015). Retrieved from http://www.wikinvest.com/stock/Intercontinental_Hotels_Group_(IHG)
4. IHG: INTERCONTL HTLS Stock Quote & Analysis – Zacks.com, (2015). Retrieved from http://www.zacks.com/stock/quote/IHG
5. InterContinental Hotels Group Plc -Travel and Tourism-World, (2009). Retrieved from
http://www.siimt.com/work/models/siimt/Resource/1098/intercontinental.pdf
6. FelCor Announces Agreement With InterContinental Hotels, (2009). Retrieved from
http://phx.corporate-ir.net/phoenix.zhtml?c=118512&p=irol-newsArticle&ID=808192
7. InterContinental Hotels : Revenue falls on hotel sales | 4-Traders, (2015). Retrieved from
http://www.4-traders.com/INTERCONTINENTAL-HOTELS-G-16869810/news/InterContinental-Hotels–revenue-falls-on-hotel-sales-19886846/

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