InterContinental Hotel Group (IHG) is launching a luxury leisure brand to boost its estate growth and increase market share in the aftermath of the pandemic, but this new venture is reliant on two important factors, the strong recovery of luxury travel and the willingness of independent hotels to be rebranded.
The strong recovery of luxury travel
The new luxury brand, which is currently unnamed, will be added to IHG’s portfolio of upscale hotel chains, including Six Senses and Kimpton. The hotel group is looking to convert properties that already have a unique identity and are potentially in established tourism destinations such as the US.
During the pandemic, GlobalData predicted that luxury leisure travel would be one of the markets that recover first. According to GlobalData’s most recent forecasts, total revenue for luxury leisure hotels in the US, one of the largest luxury hotel markets globally, is expected to grow by 147% year-on-year (YOY) in 2021. This percentage is three times larger than the expected growth in total revenue for budget leisure hotels in the US for the same period.
According to GlobalData*, when global respondents were asked if they were concerned about their personal financial situation, 15% stated that they were ‘not concerned’. Although this is still significantly less than the 31% that stated they are ‘extremely concerned,’ it means that potentially three in twenty of the global travel market could be financially unaffected by the pandemic and may have even become wealthier during this period. In particular, older generations will be driving the recovery of luxury travel. 43% of global consumers aged 65+* are currently ‘not concerned’ regarding their personal finances, even during the pandemic.
It seems as though luxury travel will be at the forefront of tourism recovery, which is promising for the success of IHG’s new hotel brand launch.
The willingness of independent hotels to be rebranded
Post pandemic, independent hotels may not be able to compete with major players in the industry that are already battling it out with each other for returning travel demand. If independent hotels do not wish to become affiliates of major chains, they may have to further rely on online travel agents (OTA) for their distribution. This would increase a hotel’s visibility but limits the revenue it can yield during its recovery period, as it must give a percentage back to the chosen OTA.
Due to the financial impact that the pandemic has created, independent hotels may already be falling behind in the adoption of best practices in areas such as brand marketing and technology applications. Joining a company the size of IHG will give rebranded hotels an opportunity to rebuild customer trust at a quicker rate whilst also taking advantage of the marketing power and large cash reserves of a multinational corporation.
These benefits of brand conversion could force independent luxury hotels’ hands, even if it is something they would have never considered prior to the pandemic.
Although it is still a risk to launch a new hotel brand during the pandemic, the two most important factors that IHG is relying on should come through, allowing the group to increase market share and accelerate recovery in the coming years.
* GlobalData’s Q2 2021 consumer survey