Overview of Intercontinental Hotels Group

Authors Avatar

Economics Project on InterContinental Asia Pacific

Introduction

Almost everything in economics is controversial.  Economics is usually defined as the social science concerned with analyzing and describing the production, distribution, and consumption of wealth of the society.  Every citizen in the society takes part in the economics in different forms from individuals to business organizations.  The government, individuals, and business organizations all play major part in the economical growth of the nation.  The government, hoping to increase the National Gross Domestic Product (GDP), will try to increase the aggregate demand for the nation by encouraging more people spending instead of saving.  This will be influenced by the amount of money individuals have in hand.  Furthermore, the investments from businesses also act as a critical factor in determining the growth of the nation’s economy.

Hospitality industry is one of the largest industries that provide the most contribution to some of the nation’s GDP.  Since the demand of leisure travel is greatly depended on interest rate, exchange rate, level of income, tax rate, and also the decisions of the government’s intervention of the economy.  A large hospitality corporation such as the InterContinental Hotels & Resorts will pay close attention on the latest economical fluctuations in the society to forecast their sales and revenue.  The following context consists of an overview of IHG, and some of the economical factors they consider.


Overview of Intercontinental Hotels Group

History of Intercontinental Hotel Group

        The origins of InterContinental Hotel Group (IHG) can be traced back to the mid nineteen nineties.  It was founded by Pan American World Airlines and served not only as a quality hotel brand, meeting the international travelers’ needs but also taking care of the large number of airline crew and staff as they flew the airlines’ routes.  It enjoyed a reputation for exceptional facilities and meticulous personal attention.  InterContentinental Hotels, an upper upscale hotel had an important global position.

        The Bass Group was developed from a mere brewery in Burton-on-Trent to a leading domestic brewery. They actively participated in the consolidation of the industry, acquired regional companies, and eventually focused and directed its capital in international hotel businesses. Finally, the ‘Bass’ brand was changed to ‘Six Continents’ to reflect better the global spread of the group’s business. They acquired the InterContinental Hotels in the mid nineteen nineties and after Six Continents split into the hotel division and the brewery division, the hotel division was renamed as InterContinental Hotels Group or IHG.

The Intercontinental Hotel Group (IHG) is a group that focuses in providing their products and services in the hospitality industry.  In capturing the different segments of the market, the IHG offers various services and facilities to a range of clients, from the upper luxury segment of the market to the middle scale segment and also the more economical scale of the market.  These different hotels under the IHG are: Intercontinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn, Holiday Inn Select, Holiday Inn SunSpree Resort, Holiday Inn Express, Holiday Inn Garden Court, Holiday Inn Family Suites Resort, StayBridge Suites by Holiday Inn, and also Candlewood Suites.  Since the first acquisition of a small chain of hotels by William Bass in 1987, they made a significant move in the following year by acquiring Holiday Inn International.  Until today, the IHG offers more than half a million hotel rooms in more than 100 countries.  

According to IHG’s website, it is the most global hotel group and the second largest in the world by number of rooms. The Group consists of 30,000 employees, has more than 3,300 owned, leased, managed and franchised hotels and approximately 515,000 guest rooms across nearly 100 countries and territories. InterContinental Hotels itself are an upper upscale brand with more than fifty years of heritage. They have not only spread itself in prime locations in major cities but also provide high quality amenities which reflect the local culture.

Diversification of IHG

There are a lot of strengths the group has created in keeping itself competitive on the global market.  One of them is their strong brand image and broad extension of products along with the pursuit of delivering high quality customer services.  The wide range of products and services captures the hearts of not only the international business customers but also the leisure, yet more budget concern travelers.  In addition, IHG is also keen on selecting the key cities in developing their properties to try to expand their market share globally.  Furthermore, the IHG also indulges itself into diversification is acquiring the Britvic Group that it not only focus in the hospitality industry, but stretch itself into other industry with different market segments.  Thus, the main aim of the hotels’ strategy is to use the strength and recognition of the group in whole to continue to build high quality product and service levels by making a considerable amount of investment in training of its employees, locating itself in attractive venues and key markets and enhancing the returns from its assets by reallocating its capital over time.

        The group is distinguished by its vast brand portfolio that covers almost all aspects of an individual’s tourism activity. It accommodates both business and leisure travelers, those looking for more than a five star experience and at the same time, value-minded travelers.

Operating Profits/Losses of IHG

On the operating phase of IHG, The Group’s strategy has undertaken policies in reorganize its hotels business.  Management across the world is now concentrating on the key revenue and profit driver of the regional businesses while aiming at maximizing the benefits of the overall profits.  According to IHG’s 2003 Annual Report, The Group’s profits on ordinary activities before interest and exceptional items for the 15 months ended December 31st 2003 was ₤483 million, a decrease of ₤618 million for 12 months ended September 30th 2002.  Their new cash flow for the 15 months ended December 31st 2003 was an outflow of ₤22 million.  Cash flow from operations for the 15 months ended December 31st 2003 was ₤795 million, and 10.4% increase from the 12 months ended September 30th 2002.

In this research paper, we will focus on the Asia Pacific Division of the company’s upper upscale InterContinental Hotels & Resorts, as we consider Asia Pacific a very interesting area to study due to the predicted and experienced fast growth within the economic and social scene.  The potential development of the area is set to an all time high due to the consideration that Asia Pacific will be the world’s next “Hot Spot” and a hub for technological advancements and human capital resources.  Intercontinental Hotels & Resorts itself are more than fifty years of heritage.  They have not only spread itself in prime locations in major cities, but also provide high quality amenities which reflect the local culture.

Market Share

The market share is one of the common objectives used in business. Market share determines the proportion of the market that the firm is able to capture within an industry. According to QuickMBA (1999), Market share could be calculated as following:

Market share       =          Firm’s Sales             

Total Market Sales  

Although InterContinental’s own sales figures are available, the data of the total market sales are not available by online resources or any tourism association in Asia Pacific. According to report of Asia Pacific tourism report (Flaig & Shundich, 2000), the top 10 hotel groups in Asia Pacific shown as following:

Table 1 - Top 10 hotel groups in Asia Pacific

Source : Flaig & Shundich (2000)

We assume and calculate the market share of Bass Hotels and Resorts based on the figures above; and we use the number of hotels that Bass Hotels and Resorts owned in Asia Pacific (178 hotels) divided by total hotel number from the top 10 hotel group in Asia Pacific (821 hotels).  We also have to bear in mind that there are still a lot of local independent hotels and many Asian hotel chains which are also sharing the market that Bass Hotels and Resorts is competing against which have not been taken into account in this market share calculation.  The market share is only approximate estimated.

Bass Hotels and Resorts has 21.7% of market share in 2000, they were the largest international hotel group within the Asia Pacific region. Compared with French Accor Hotels (20.5% of market share) and Japanese Nikko Hotels (5.6% of market share), Bass represents in most of prime cities and key resorts and its brand has a high level of recognition, and they also won many awards, such as “the world’s best place to stay” by Condé Nast Traveler Magazine (InterContinental, 2004).  

Join now!

Market share is often associated with profitability. And increase market share could also increase its bargaining power for negotiating with suppliers, distribution channels and customers.  While InterContinental is seeking to increase their market share by increasing the sales, sometimes a higher volume sale could also lead to achieve economies of scale and develop a cost advantage.  

The rapidly growth in economic and disposal income in Asia Pacific region has brought a great opportunity to boost the intra-Asia travel demand. Several Asian countries have improved the destination image and destination marketing activities.  Moreover, most of the Asia Pacific ...

This is a preview of the whole essay