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'Checking In' with InterContinental CEO Andy Cosslett

We ask the chief of InterContinental--the company behind the Holiday Inn brand--10 questions about his outlook for travel and how the downturn has changed the industry.

Mentioned:

Holly Cook, Site Editor of Morningstar's U.K. Web site, recently spoke with  InterContinental Hotels Group (IHG) CEO Andy Cosslett. Cosslett became CEO of IHG in 2005 following a senior position at  Cadbury Schweppes (CBY).

1. How effectively has your company coped with the recession, and why?

Andy Cosslett: Initially we saw a decline in the number of people traveling and now, while occupancy numbers seem to be stabilizing, we're seeing rates come under further pressure.

We operate a fee-based model that is more stable in uncertain economic conditions and the good news is we're outperforming the competition and gaining market share. In the first half of the year we outperformed the U.S. market average by 3 percentage points. We're helped greatly by our leading position in the midscale price segment with Holiday Inn.

Despite a continued lack of financing in the lending markets, we're still managing to sign around one hotel a day into our development pipeline. And we're on track to actually open 400 hotels this year. Because we're opening hotels and growing our system, we're able to offset some of the rate decline per room on the overall revenue line.

2. How do you think your industry will change in the next 12 months, and what are your plans to take advantage of those changes?

AC: There will be a flight to brands by both hotel investors and guests. The majority of hotels around the world are still independently owned and operated. We're going to see more hotels converting to one of the big brands because hotel owners are going to need the backing that their systems provide. A reservations system like ours can act as a shield for owners because it drives more guests to their hotels.

Customers are also looking for the reassurance that the big brands bring, particularly in a downturn. Our loyalty scheme is the biggest in the world with over 44 million members. The scheme is very popular at the moment with points earned increasingly being used as currency.

3. What are your immediate priorities for dealing with the downturn?

AC: We're working hard to deliver more guests into our hotels on behalf of our hotel owners. To do this, we're investing in our front line sales force and online marketing activity, at a time when many competitors are cutting back.

We're also working hard to deliver the Holiday Inn relaunch. Relaunched hotels are delivering RevPAR (revenue per available room) outperformance and increased guest satisfaction. People look for more reasons to choose you during a downturn and investing in a global relaunch on this magnitude is attracting a lot of favorable comment and attention.

We're also focused on reducing our cost base--by making better use of our global scale. By the end of 2010 we'll have reduced our corporate overheads by 20%, so we'll be very well positioned when the upturn comes.

4. Can you describe in a nutshell what your long-term strategy is?

AC: To have great hotels that guests love under a range of brands, in all the major markets of the world.

5. Are acquisitions or divestments likely to play a part in your strategy and if so what area(s) would you be interested in?

AC: Acquisitions are not core to our strategy--we're focused on organic growth. As a franchised business, our growth is funded by third-party hotel owners and that's how we're able to grow more quickly. We currently have 1,600 hotels in our development pipeline--that's about $15 billion of other people's money.

6. What aspect of your company's current activities really excites you?

AC: The relaunch of Holiday Inn. This $1 billion program is the biggest the industry has ever seen, and we recently celebrated the relaunch of our 1,000th hotel. This marked a great achievement by the whole company.

We're relaunching over 3,200 hotels in total, and this is exactly the right time to be doing it. Combined with our new hotel openings and the ongoing removal of poorer-quality hotels, we will have thoroughly rejuvenated our biggest brand by the end of 2010.

7. Executive compensation is increasingly in the spotlight these days. What's your philosophy on rewarding your senior-level employees?

AC: For the company to succeed you need to reward behaviors that deliver business results. Pay and incentives should reflect the scope of your responsibilities, your individual performance and the overall success of the business. And for senior executives it should be tied to relative performance over a longer period.

8. What's been the high and low point of your time as CEO?

AC: The low point happened soon after I joined, when I went out to Phuket following the Boxing Day Tsunami. The devastation was overwhelming and something I'll never forget. But I also got to experience the wonderful response to the community from our people on the ground and have since seen that spirit and citizenship again and again with incidents like Hurricane Katrina and the London bombings.

9. If you lost your job tomorrow and decided to change careers, what would you do instead?

AC: I would write. It's something I really enjoy, but haven't been able to do enough of as part of my career.

10. How do you relax and what are your non-work interests?

AC: I travel extensively--so just being at home is relaxing for me. Other than that I enjoy sport and thrashing a guitar.

Holly Cook does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.