August 6, 2019 / 6:36 AM / 2 months ago

InterContinental plays down impact in China of growing trade tensions

(Reuters) - InterContinental Hotels Group (IHG.L) played down any hit from the trade standoff between Beijing and Washington, saying few of its business customers in China were from outside the country and it was anyway well spread globally to absorb any impact.

FILE PHOTO: General view of the Intercontinental hotel in Marseille, France, February 16, 2018. REUTERS/Jean-Paul Pelissier

The owner of brands such as Crowne Plaza, Holiday Inn and Hotel Indigo said on Tuesday its first-half profit rose 14% to $457 million, 11.7% ahead of analyst estimates according to Refinitiv Eikon data.

Revenue per available room (RevPAR), a key industry measure, inched up 0.1%, though in Greater China, where IHG operates around 400 hotels, the measure eased 0.3%, which it blamed on a dip in business travel and protests in Hong Kong.

IHG has so far been largely insulated from the bruising trade wars, with its operations in China focused on domestic travellers, limiting exposure to international conflicts, the group’s finance chief Paul Edgecliffe-Johnson said.

“It’s almost all Chinese travellers staying in Chinese hotels. We’re not seeing any current impact from foreign affairs policy,” Edgecliffe-Johnson said, adding that IHG’s geographical spread protected it from a major hit to any single market.

“Our expectations that it (China business) will continue to grow,” Edgecliffe-Johnson said. “Our ability to grow a business out there continues to be really very powerful.”

Such assurances contrast with caution among some competitors and an industry group who have warned that escalating trade wars and a slowing world economy were set to dampen spending on business travel and leisure, including in China.

GRAPHIC: IHG looks to China for growth as U.S. stagnates - tmsnrt.rs/2MIgEUO

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Analyst Sophie Lund-Yates at Hargreaves Lansdown noted spending on hotels is one of the first things to be scaled back in the face of economic turbulence.

“InterContinental have added another record number of rooms to the portfolio, with the global estate now made up of over 850,000 rooms. That’s certainly impressive, but does of course mean there’s even more rooms to fill,” she said in a note.

IHG has focused on affluent Chinese customers to lessen dependence on mature U.S. markets, while rebranding to compete against the likes of Marriott International Inc (MAR.O) and Hilton Worldwide Holdings Inc (HLT.N).

Last month, Europe’s largest hotel group Accor (ACCP.PA) predicted another record year after a strong quarter, but warned the trade standoff between Washington and Beijing made improvement in China difficult.

Hilton also predicted a weaker second half in China and cited the global slowdown as it cut its full-year outlook for a key revenue gauge.

FILE PHOTO: A Holiday Inn hotel is seen in Tbilisi, Georgia, June 8, 2016. REUTERS/David Mdzinarishvili/File Photo

IHG shares initially dipped to a one-month low after the results but recovered to be down just 0.7% at 5,251 pence by 1008 GMT. Russ Mould, AJ Bell investment director, said the early reaction was not surprising given the stock was up some 20% on the year.

“Demand for its rooms is still linked to the performance of a global economy over which there is mounting concern,” Mould said in a note.

GRAPHIC: Hotel Group IHG insulated against trade wars hit - tmsnrt.rs/2MIgzAo

Reporting by Tanishaa Nadkar and Noor Zainab Hussain in Bengaluru; Editing by Tomasz Janowski and David Holmes

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