Andrew Cosslett: Suite dreams for the future
The Business Interview: There is light at the end of the tunnel at last, the chief executive of Intercontintal Hotels Group tells Sarah Arnott
Thursday 26 November 2009
Andrew Cosslett is a well-travelled man, even by FTSE 100 chief executive standards. When we meet at the relaunched Holiday Inn at Heathrow, the boss of Intercontinental Hotels Group (IHG) has just arrived from Washington DC and is about to head off to Paris en route to Singapore.
"Because of the recession, this year has involved even more travelling than usual," he says, sipping a Coke in the steel-and-glass lobby bar that is central to the hotel's new look. "In difficult times the inclination is to bunker down, but that is when you most need to be out there saying: let's keep going, we can do this."
Since Mr Cosslett moved to IHG from Cadbury in 2005, his main task has been to knock a highly federated series of national businesses into the centralised, fast-growing corporation that IHG has since become. It has meant a great deal of getting out there and "making people feel like we're the best". But for someone whose career has been built on branding – from selling ice cream to Liverpudlians in the winter, via Unilever's frozen salmon division, to running the European arm of Schweppes drinks – the turnaround was never going to be just about the company's internal dynamic.
Cue the hospitality industry's biggest ever relaunch – a $1bn (£603m), four-year programme sweeping away the outdated 1950s-style Holiday Inn logo, the lobbies cluttered with local newspapers and the patterned bedspreads. Instead, new-style hotels like the one at Heathrow have slick, well-lit entrance halls, white bedspreads to emphasise cleanliness, and even specially designed scent dispensers to help establish the chain's identity.
So far 1,400 of the world's 3,200 Holiday Inn franchises have completed the transformation – with four new-style hotels opening every day. "It is going particularly well because the owners who moved early have seen the new style working and so are ambassadors for the programme," says Mr Cosslett, an imposing former rugby player who blames sport for failing his A-levels first time around.
Holiday Inn – which signs in three guests every second and welcomes 150 million visitors per year – is a huge chunk of IHG. But the group also owns the Crown Plaza and Intercontinental chains, giving it a total of 640,000 rooms, the largest in the industry. While Mr Cosslett has been racing around the world to keep spirits high, IHG's spread has also helped mitigate at least some of the effects of recession. The financial crisis has certainly hurt the hotel industry: high-margin business travel has been decimated and prices slashed as a result. In the first half of 2009, IHG's operating profits dropped by 40 per cent. At the worst point, the group's corporate travel business was down by nearly 10 per cent – on the all-important revenue per available room metric – and the industry average was 3 percentage points worse.
But the group is still opening 400 hotels this year, and although Holiday Inn's expansion is running at half its peak, there have still been 300-plus new franchises signed in 2009. Scale is part of the story. While recession-hit corporations were slashing travel budgets and downgrading to Holiday Inns, consumer travellers lured by bargain prices were upgrading to the higher-end brands – leaving overall occupancy levels down by "only" 5 per cent. Hotels are also helped by social changes. "People expected the travel tap would be turned off," Mr Cosslett says. "But people are making different choices now and travel has become almost essential. You will choose not to buy a fridge or change the car but you won't choose not to have a break."
That said, IHG expects prices to fall further – under pressure from meeting planners and corporate customers – and even with recent improvements, the troubled times are far from over. "We are very cautious about the near term – it will be a tough few months," Mr Cosslett says. "We are at the point where we can see the light at the end of the tunnel, but we're not close enough to see how far away it is."
One of the biggest problems is still credit. "There are small deals from local banks, particularly in the US, but the big stuff is still quite frozen," Mr Cosslett says. "There are a lot of people waiting on the sidelines but at the moment there is little incentive for big banks to lend."
Another problem is tax. Despite the Government's "remarkable effort" to boost liquidity and maintain economic stability, the slew of tax rises slated for 2010 threatens to squeeze hoteliers beyond endurance. The list of rising charges is certainly long – including national insurance, top-rate income tax, VAT, carbon commitments and reset business rates based on inflated 2008 property values.
And it is not just the small business of the typical Holiday Inn franchise-owner that is in danger. The knock-on effect on unemployment should be of concern to all. "It is a real shame because this industry is one of Britain's greater employment opportunities," Mr Cosslett says. "But if the Government kills it by taxing it out of existence then it is going to really slow growth."
At Westminster, the hospitality sector is far down the political agenda, in stark contrast to the situation in the US. "A small group from the travel and leisure industry had 45 minutes with President Obama recently, and things happened as a result," Mr Cosslett says. "In the UK, this industry is twice the size of the NHS in terms of employment and yet it is just not taken seriously."
Meanwhile, China's economic powerhouse puts everywhere else into the shade. IHG is already the biggest foreign hotel chain, thanks to an early start – the first Beijing outlet opened in the early 1980s. Now Mr Cosslett has re-arranged the group's management structure so that the person running China reports directly to him, rather than to the Asia-Pacific division. The changes reflect not only IHG's priorities, but also lessons learned about doing business in China – something with which new entrants often struggle. "If you want to do well in China, you can't take shortcuts like in the West," Mr Cosslett says. "The Chinese want to work with partners who have a strong commitment to the country."
The prize is enormous. "We have 3,000 hotels in the US because of the infrastructure-building in the 1950s, and that is exactly what is happening in China now." And the growth works both ways. Mr Cosslett predicts that it will not be long before Holiday Inns in the UK are employing Chinese speakers to cope with the massive influx of tourists. Either way he will be on the road for many years yet.
Andrew Cosslett: From ice cream to hotels
2005-present Chief executive of Intercontental Hotels Group
1990-2005 Cadbury Schweppes, starting as marketing director for Schweppes UK and ending as president of EMEA
1979-1990 Unilever, starting as graduate trainee ending as a marketing director
Graduated from Manchester University with a BA in Economics and an MA in European politics
Mr Cosslett is married and has two children
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