InterContinental Hotels Earnings: Demand Still Traveling Higher, While Economic Pressures Lurk

We plan to increase our $73 fair value estimate for InterContinental Hotels Group IHG by around $1 per share as we lift our 2023 forecast for revenue per available room to around 16% from 13% to account for stronger second-half sales. But while we have been steadfast on travel demand resiliency since the summer of 2020, we expect InterContinental’s revPAR growth to decelerate to about 2% in 2024, driven by mounting headwinds of lasting inflation and depleted consumer savings. With the shares trading near our planned upward revision, we believe investors can wait for a more attractive entry point.

Third-quarter revPAR was strong, at 113% of 2019′s level versus 110% last quarter, as the desire to travel remained resilient across the hotel industry. RevPAR was up 10.5% from last year, with room rates up 4% (reaching 115% of prepandemic marks) and an occupancy rate improving 4 percentage points to 72% (99%). All types of travel improved, with leisure sales up 3% (to 122% of 2019′s level), business up 6% (103%), and group up 16% (98%). Each key region reported revPAR growth, led by Greater China’s 43% lift, which equated to 109% of 2019′s level (101% year to date). Despite economic concerns in China, we think revPAR there can increase by a high-single-digit percentage in 2024 for the hotelier, as the area’s revPAR is just now back to prepandemic amounts on a year-to-date basis versus the low-double-digit improvement seen in the company’s other regions, and as the country’s air capacity increases from its current 45% of 2019′s level, allowing for more international travel.

Net unit growth was 4.7% (2.9% organic), with increases across all key regions and conversions representing 40% of total room openings. This signals to us that InterContinental’s narrow-moat brand is resonating with owners.