Holiday Inn 2009 Annual Report Download - page 11

Within the global market, just under half of hotel rooms are
branded; however, there has been an increasing trend towards
branded rooms. Over the last three years, the branded market
(as represented by the nine major global branded hotel companies)
has grown at a 3.8% compound annual growth rate (CAGR), twice
as quickly as the overall market, implying an increased preference
towards branded hotels. Branded companies are therefore gaining
market share at the expense of unbranded companies. IHG is well
positioned to benefit from this trend. Hotel owners are increasingly
recognising the benefits of franchising or managing with IHG which
can offer a portfolio of brands to suit the different real estate
opportunities an owner may have, together with effective revenue
delivery through global reservations channels. Furthermore, hotel
ownership is increasingly being separated from hotel operations,
encouraging hotel owners to use third parties such as IHG to
manage their hotels.
Other factors
Potential negative trends impacting hotel industry growth include
the possibility of increased terrorism and increased security
measures, environmental considerations and economic factors
such as the longevity of the downturn.
Our business model
IHG’s future growth will be achieved predominantly through
franchising and managing rather than owning hotels.
Approximately 641,000 rooms operating under Group brands are
franchised or managed and 5,800 rooms are owned and leased.
The franchised and managed fee-based model is attractive
because it enables the Group to achieve its goals with limited
capital investment at an accelerated pace. A further advantage is
the reduced volatility of the fee-based income stream, compared
with ownership of assets.
A key characteristic of the franchised and managed business is
that it generates more cash than is required for investment in the
business, with a high return on capital employed. Currently 87%
of continuing earnings before regional and central overheads,
exceptional items, interest and tax is derived from franchised
and managed operations.
The key features of our business model are represented in the
following table and charts.
Owned
Franchised Managed and leased
Brand IHG IHG IHG
Marketing and
distribution IHG IHG IHG
Staff Third party IHG usually IHG
supplies general
manager as a
minimum
Ownership Third party Third party IHG
IHG capital None Low/none High
IHG revenue Fee % of Fee % of total All revenue
rooms revenue plus
revenue % of profit
Total hotels 3,799 622 17
IHG global room count by ownership type
at 31 December 2009
IHG continuing operating profit* by ownership type
for the year ended 31 December 2009
* Before regional and central overheads, exceptional items,
interest and tax.
The IHG global operating system
IHG’s operating system is our means of driving demand to our
hotels. It comprises hotel distribution, brands, reservations
systems, web presence, our rewards scheme and other elements.
It is the largest such system in the industry and the engine of our
business, delivering, on average, 68% of total rooms revenue.
Franchised
Managed
Owned and leased
Franchised
Managed
Owned and leased
Business review 9Business review 9
Scale
4,438 hotels
over 130 million
room nights
per annum
System funds
Annual system
funds totalling
c.$1 billion
Loyalty
programme
Priority Club Rewards,
the largest in
the industry,
over 48 million
members
Brand portfolio
7hotel brands
covering all
major segments
Reservations
systems
10 call centres around
the world covering
29 languages
Sales force
Global sales team
of more than
8,000
professionals
Market coverage
Leadership
positions in 6largest
hotel markets, more
than any other hotel
company
Web presence
Network of global sites
across 13 languages
IHG’s system
delivers 68%
of total rooms
revenue
BUSINESS REVIEW