InterContinental Hotels

InterContinental Hotels Group's second-quarter revenue per available room increased 3.5%. Rooms grew 5%, driven by an 8% increase in openings. Operating profit increased 10%, driven by a 7% lift in fee sales compared with a 4% rise in expenses.

Why it matters: IHG's brands are resonating with travelers and third-party owners. This, along with US infrastructure spending and economic growth, supports our stance that revPAR can accelerate to about 5% growth in both 2027 and 2028 from 3% in 2026. IHG's 160 million loyalty members represented 67% of room nights, up from 50% five years ago. All regions saw revPAR growth in the quarter, with the Americas up 5.4%, Europe/Middle East/Asia/Africa up 3% despite a 19% decrease in the Middle East, and China up 0.8%. Owners are gravitating to IHG's loyalty, technology, marketing, and distribution scale edge, illustrated by the 6% and 11% room growth in the company's EMEAA and Greater China regions, respectively. We see room growth averaging 3%-4% during 2026-35.

The bottom line: We plan to increase our $125 fair value estimate for wide-moat IHG by about $5 to reflect higher intermediate-term profitability and the time value of money. Trading at 18 times 2026 enterprise value/EBITDA, the shares appear to be pricing in revPAR growth above the long-term average. We think cost savings from artificial intelligence, ongoing efficiencies, and 6% sales growth for 2026-30 can keep operating costs at 4% growth on average annually during this time. At a $150 share price, revPAR growth would have to average 4%-5% during 2026-35. We consider our 3%-3.5% estimate, which is the long-term average growth in the US, to be more reasonable.

Long view: Given that IHG controls the distribution of its supply, AI large language models will not be able to imminently bypass or displace its network, supporting its brand advantage.

Our fair value estimate is $129 per share, which implies a 2026 enterprise value/EBITDA of 15 times. The key drivers of our financial model are revenue per available room and unit growth for the company's Americas; Europe, the Middle East, Asia, and Africa; and Greater China regions.

InterContinental's second-quarter revenue per available room, or revPAR, increased by 3.5%. Rooms grew 5%, driven by an 8% increase in openings. Operating profit increased 10%, driven by a 7% lift in fee sales compared with a 4% rise in expenses. We think cost savings from artificial intelligence, ongoing efficiencies, and 6% 2026-30 sales growth can keep operating costs at 4% growth on average annually during this time. We see operating margins expanding to 28.0% in 2030 from 23.1% in 2025.

We think global revPAR growth can accelerate to 5% in 2027 and 2028 from 3% in 2026 due to ongoing economic and wealth creation. Over the next 10 years (2026-35), we forecast InterContinental's revPAR to average 3.3% growth, which is in line with the long-term performance of the US upscale hotel industry in which the hotelier primarily competes. Our annual revPAR growth forecasts for the next decade for the Americas, Europe, the Middle East, Africa, and Asia; and China are 3%, 4%, and 6%, respectively. The result is annual revenue growth (including reimbursables) of 6% over the next 10 years.

We forecast total annual room growth of 3.4% for 2026-35, driven by mid-single-digit unit growth in Greater China, a mid-single-digit lift in Europe, Middle East, and Africa as well as Asia, and low-single-digit growth in the Americas, supported by a pipeline that represents 33% of the company's existing room base.

When evaluating hotel operator moats, we review several key factors, including portfolio scale, management expertise, the strength of loyalty programs, success in extending the brand into new verticals and regions, and revenue share. Not only does InterContinental rank among the top companies in the hotel industry on these metrics, but it has shown evidence of expanding on its brand intangible asset while maintaining its strong switching cost advantage. As a result, we see InterContinental generating economic profits beyond the next 20 years and rate its moat as wide.

InterContinental’s owners are attracted to its brand since they are allowed to team up to spend around $2.8 billion annually toward marketing, reservation, distribution, and loyalty. This exceeds the outlay of narrow-moat peers Wyndham and Choice, buoying InterContinental’s brand intangible edge. Also, InterContinental’s portfolio scale offers its partners procurement and distribution cost benefits versus staying independent. InterContinental gets about 20% of its bookings from the higher-cost online travel agency channel, versus closer to 40% for the average hotel, and we believe it pays just a single-digit percentage commission rate compared with the 20%-plus paid by some independent hotels.

The brand’s enticement to third-party owners is also illustrated by InterContinental’s resilient and strong unit room growth, which averaged 3% during 2018-22 despite the renovation initiative of its largest brand, Holiday Inn, over this time, which we believe presented a temporary growth headwind of 1 percentage point. InterContinental’s unit growth was above the US industry’s average growth rate of 1%-2% during that time and speaks to the company’s strong brand advantage. We model InterContinental’s annual room growth at 3% over the next 10 years, as we believe InterContinental is positioned for market share gains over the next decade.

InterContinental’s strong development is driving by both franchisee and managed contracts. Owners choose to outsource management responsibilities to InterContinental due to its established brand and management team, which provides scale and expertise in reservation, advertising, marketing, and labor management, leading to strong revenue per available room, occupancy, and profitability. As a result, InterContinental managed 1,060 properties as of Dec. 31, 2025, near the 1,007 hotels managed at the end of 2019. It’s just one of a few worldwide operators that manage more than 100 properties.

InterContinental’s brand also resonates with travelers, evidenced by the industry’s third-largest loyalty membership of about 160 million as of Dec. 31, 2025, which has expanded from our estimate of around 100 million in 2019. Additionally, individuals in the program are engaged, representing 65%-70% of total room nights (up from about 60% a year ago), above Hyatt, Accor, Choice, and Wyndham, which average below 50%. We believe one of the reasons InterContinental sees more engagement from its loyalty members is that its complete price point offering allows those who might only be able to afford economy/midscale stays to earn points at those hotels and use them toward a special getaway at one of its many upscale/luxury properties in the future, an opportunity that doesn’t exist at narrow-moat peers.

InterContinental’s brand edge is buoyed by its expanding global portfolio across most price points. The company has grown its portfolio to about 20 brands and 7,000 hotels in 2025 from 12 brands and 5,000 units in 2015. Recent brand launches have focused on the midscale price point, illustrated by the launch of the Garner concept in 2023. In our view, such extensions are occurring for offensive versus defensive reasons. We believe the expansion into midscale allows travelers into its ecosystem earlier in their income-generation lifecycle, whom it can work to retain with its upscale and luxury offerings. InterContinental and its wide-moat peers Marriott and Hilton have the leading revenue share in the midmarket, with InterContinental holding the second spot at 7% in 2025 just behind Marriott's 7.2%. Meanwhile, InterContinental has maintained its 7% revenue share of the luxury and upscale market, placing it fourth behind Marriott’s 31%, Hilton’s 15.5%, and Hyatt’s 9.5%, according to Euromonitor. In our view, it is more challenging to replicate the luxury/upscale scale that InterContinental has built than to do so at lower price points, as travelers seek higher-end service that is reliable and consistent in these segments. Furthermore, replicating scale in the luxury segment is challenging, as a greater portion of independent hotels in this segment are unique and thus are able to garner high occupancy levels without the aid of a brand chain.

Owners are signing up for InterContinental brands, with managed and franchised contracts that are typically 20 years-30 years with options to renew for five years-10 years, providing a switching cost benefit. The length of contracts is above the 10-20-year deals struck by narrow-moat peers Hyatt and Wyndham and in line with Marriott and Hilton. Terminating these contracts requires significant expenditures to renovate and rebrand a property to meet the new brand specifications, resulting in disruption and revenue loss for the owner, as well as cessation fees that must be paid by the owner (typically around two to three years of average monthly management fees, plus the previous year’s incentive fee). InterContinental’s strong brand and management expertise, along with these meaningful switching costs, result in low attrition of its managed and franchised customer base. In fact, attrition averages 2% of its portfolio each year, below the mid- to high-single-digit percentage of narrow-moat peers, and this is usually InterContinental’s decision, as after 20 years-30 years the hotel’s design or location may become too undesirable to renew the relationship.

InterContinental's current mid-single-digit share of hotel industry rooms is set to increase as the company controls more than 10% of the rooms in the global hotel industry under-construction pipeline.

The company is well positioned to benefit from its increasing presence in the midscale segment through the Holiday Inn, Avid, and Garner brands.

InterContinental has a high exposure to recurring managed and franchised fees, which have high switching costs and generate strong ROICs.

Independent hotels and vacation rentals present a competitive threat, and the advancement of technology and its use by next-generation travelers could increase the access and awareness of these properties.

American hotels represent 52% of InterContinental's total rooms, exposing the company to an economic downturn in the US to a greater extent than competitors.

InterContinental faces competition for third-party franchisee and managed contracts from several other companies, a few which have a higher revenue share in some segments and regions.