InterContinental Hotels CEO: Business travelers returning in "trickle, not a stream;" China to lead recovery

Here is InterContinental Hotels Group CEO Andy Cosslett's second blog post, written exclusively for Hotel Check-In. Cosslett started his day in London by announcing IHG's fourth-quarter and full-year 2009 results. In his own words (with my emphasis in bold)...

We announced our full year financials this morning and although we posted an expected drop in operating profit of 34%, mainly driven by a drop in global revenue per available room (revpar) of almost 15% ,we're ahead of where most of our shareholders thought we would be - and crucially ahead of the competition.

We opened 439 new hotel in 2009 - a record for us and a huge achievement given the state of the economy. And key for us, we removed 187 poorer performing hotels, really driving up the quality of our estate around the world, especially in our Holiday Inn brand, as part of our global relaunch.

The two big questions of the day have been: are we seeing an improvement in business travel and when do we think the downturn will become an upturn. So let me try my best to answer these.

Business travelers have been scarce throughout 2009. It's been the lack of business travelers that led to the drop in prices across the industry I spoke about yesterday. Now, we're beginning to see early signs that the business traveler is coming back. It's a trickle at this point, not a stream. But it's a start. On the downside, corporate companies tend to set travel policies on an annual basis, so even if the economy begins to pick up, the hotel industry will lag behind the recovery.

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On the upside, it's clear you can't manage people effectively through phone calls and teleconferences. Face to face contact, get togethers and meetings are the lifeblood of industry and this recession has again proven this to be the case. So, it's not a case of if the business traveler will return; it's a case of when. And I'm afraid I don't have a crystal ball, but the early signs are promising. As for the upturn, again, no crystal ball, but there are a few factors we can look at and I'll start with Asia.

Our revenue per available room for Asia Pacific in January is up over 11% compared to Europe down 3% and the Americas down 4%. So is Asia Pacific leading the recovery? Yes - and China is leading the charge. We'll open 40 hotels in China in 2010. Twice the number we've opened in any previous years, creating over 20,000 jobs. And the hotels are big. The average Holiday Inn in China has over 300 rooms compared to the US with 120.

So why does China need so many new hotels?

The answer is pretty similar to why the US needed so many new hotels in the 1950's - infrastructure. When Kemmons Wilson, the founder of Holiday Inn, grew the brand in the 50's, he followed the highway system. Only in the 50's Eisenhower laid 45,000 kilometres of freeway, connecting 44 cities with a population of more than 1 million. In China, they're currently laying 85,000 kilometres of freeway connecting the 120 major cities. And they're building 97 new airports and investing $200 billion in their rail network. These figures are staggering and support our view that with only 125 hotels open in China under our brands, there's plenty of room for growth.

And it doesn't stop there. China will overtake the US in the next 10 years as the biggest inbound tourist market in the world with over 180 million international trips a year going into China. And at the same time, outbound trips from China to the rest of the world will go from 20 million a year to over 100 million. So if you speak Chinese, the odds are we will have a job for you in places like New York, Los Angeles and San Francisco as we prepare for an influx of Chinese visitors over the next few years.

And what about the rest of the world? There are definitely early signs of recovery and in the US, markets like New York are picking up - but there is a long way to go and 2010 will be another tough year. The good news for business travelers is this means there are still lots of deals to be had. And with that, as a business traveler myself, I'll need to check out for the day. I'm now leaving London to make my way to snowy Manhattan. I'll update you tomorrow on how I'm getting on.