How our business works

We operate hotels in three different ways – as a franchisor, a manager and on an owned and leased basis. We focus on the upper midscale, upscale and luxury segments of the hotel industry and have a targeted portfolio of brands individually tailored to meet guests’ needs and occasions.

Number of open hotels as at 31 March 2017

Type % of hotels
Franchised (4,314) 4,314
Managed (853) 853
Owned and leased (8) 8

2016 Operating profit by business model

Type % of hotels
Franchised (72%) 72
Managed (25%) 25
Owned and leased (3%) 3

With our asset-light strategy, our business model predominantly focuses on franchising and managing hotels, with our business partners owning the bricks and mortar.

This strategy enables us to grow our business while generating high returns on invested capital. Using a franchised and managed business model means we can focus on growing our fee revenues and fee margins with limited requirements for capital.

We franchise and/or manage hotels depending largely on market maturity, owner preference and, in certain cases, the particular brand. For example, in the midscale segment in the US, which is a mature market, we operate a largely franchised business. By comparison, in an emerging market such as Greater China, our business is predominantly managed, meaning we are responsible for operating the hotel on behalf of our owners.

We operate in four regions: the Americas; Europe; Asia, Middle East and Africa (AMEA); and Greater China.

2016 Operating profit by region ($707m)*

Region Operating profit by region ($m)
Americas ($633m) 633
Europe ($75m) 75
AMEA ($82m) 82
Greater China ($45m) 45

*Before exceptional items. Includes: Central (-$128m)

2016 Group revenue by region ($1,715m)

Region Group revenue by region ($1,803m)
Americas (58%) 58
Europe (13%) 13
AMEA (14%) 14
Greater China (7%) 7
Central revenue (8%) 8

The key differences between our three main models are summarised below

Business model Hotel ownership IHG capital intensity Employees Brand ownership marketing and distribution
Franchised Third party Low Third party IHG
Managed Third party Low IHG and third party
Owned and leased IHG High IHG

Business models 

Franchised model

Franchisees want to be in business for themselves but not by themselves. Our franchisees can brand their hotel with one of our well-known and popular brands, and benefit from a powerful loyalty programme and strong reservation system. We also provide a comprehensive set of tools such as revenue management and marketing programmes to drive business and new demand.

Our franchise fee growth is driven by three levers – room growth, revenue per available room (RevPAR) and royalty fees. The franchise agreement is generally a standard contract, with some variation across the world. A sample contract would normally have a royalty fee of 5-6 per cent of rooms' revenue. However this can vary by brand and country.

Visit our Global Development website to learn more about the IHG opportunity, or get in touch with our team.

Managed model

Some third-party owners want their hotel managed for them, and expect a high standard of service which we provide across the world.

We manage the hotel but ownership of the physical building remains with a third-party owner. Typically, the senior management like the General Manager and the Financial Controller are IHG employees, who have oversight to build a successful team.

Management contracts can be bespoke but usually include two separate fees: base and incentive. The base fee is typically 1-3 per cent of a hotel’s total revenue. However, the percentage does vary by country and brand. The incentive fee is a share of profits, which is in place to align our interests with those of the property owner and to reward us for running the hotel profitably.

Visit our Global Development website to learn more about the IHG opportunity, or get in touch with our team.

Owned model

Since 2003 we have completed the sale of almost 200 hotels as part of our move to an asset-light business model. In a few instances, we do still own hotels through recyclable investments in order to drive the growth of our brands and expand our presence in key markets.

Developing with us 

Our global network of hotel owners is one of IHG’s greatest strengths. Our success lies in matching owners with the right brands and markets, and in working together to use our scale and resources to drive strong returns.

From meeting to discuss a new project, to planning every facet of a hotel's operations, to the opening itself, we focus on building businesses. Once open, we support owners with world class, brand specific resources that help drive hotel employee performance, improved guest satisfaction and increased revenues.

We also work closely with the IHG Owners Association, which represents the interests of more than 3,400 hotel owners and operators worldwide.

Whether owners choose to franchise with us, or opt for a management contract, we understand what it takes to build the successful relationships upon which long-term businesses are founded.

Want to put your hotel on the map? Visit our Global Development website to learn more about the IHG opportunity, or get in touch with our team.

The System Fund 

We manage a System Fund for the benefit of all hotels in the IHG® System with the objective of driving revenue. Total assessments and contributions paid by hotels into The Fund are spent on marketing, the IHG® Rewards Club loyalty programme and the guest reservation system. The System Fund is planned to operate at break even and does not result in a profit or loss for IHG.

Total assessments and contributions paid by hotels to the System Fund in 2016 were $1.7 billion.

Capital allocation  

Our focus on an asset-light business model is supported by a disciplined, long-term approach to allocating capital and reducing the asset intensity of the business. We seek to maintain an efficient balance sheet with an investment grade credit rating.

Our business is highly cash-generative, and we have three primary uses for this cash: Invest in the business to drive growth; maintain sustainable growth in the ordinary dividend; and return surplus funds to shareholders.

Since 2003, we have returned some $12.8bn to shareholders, including $2.1bn of ordinary dividends.