Strategic Report

Industry overview From growing consumer demand for branded hotels, to an expanding middle class and greater disposable incomes, we operate in an industry with growth potential.

The global hotel industry is a $525bn industry, made up of 18 million rooms. Overview of global hotel industry 54% of rooms are affiliated with a global or regional chain (‘branded’), up from Geography Branded hotels Segment 50% in 2012, and 46% are unaffiliated The US is the largest hotel The top five hotel groups The hotel industry (‘independent’). The top five hotel groups, market, whilst China have increased their can be categorised IHG, Marriott, Hilton, Wyndham and Accor continues to growa market share by 6%a by price levela account for 25% of market share, up from 19% in 2012, and for 58% of the global 2018 24.9% 6% 9% development pipeline of hotels in 2017 23.8% 19% planning or under construction. 16% 2016 23.2% In what is a fragmented market, % of room 40% 2015 22.7% 14% % rooms competitor pressures in the branded space revenue 2014 are intensifying as all major players pursue 51% 19.8% 23% 2013 growth strategies through acquisitions, 19.2% 22% organic growth or diversification. As the 2012 19.0% digital landscape has evolved, consumer Americas % rooms Luxury Upper choice of where to stay and how to book has Rest of the world Upper Midscale developed and hotel companies compete in Greater China Upscale Midscale an environment that includes Online Travel Upscale Economy Intermediaries and alternative lodging solutions, such as peer-to-peer home rental Hotel industry growth drivers: 10-year annual growth rate companies and serviced apartments. There are several metrics that recognise Global GDP Global household income Global corporate profits industry performance. RevPAR is an important indicator of the value guests % % % + b + b + b ascribe to a given hotel, brand or market and 2.5 CAGR 2.8 CAGR 4.2 CAGR grows when guests stay more often or pay Indicator of economic Growing consumer spending Good indicator of higher rates. Rooms supply is significant growth – hotel performance and leisure travel, supported business travel demand because it is reflective of the attractiveness correlates with GDP by cheaper air travel – continues to grow of investing in the hotel industry from an owner perspective and is influenced mainly by the profitability of a brand or market. Global hotel industry performance Driven by strong economic fundamentals, Global Industry RevPAR ($)a Global rooms supply (m rooms)a the global hotel industry has seen growth in RevPAR growth suggests Supply growth reflects the both RevPAR and rooms supply for the past solid lodging demand attractiveness of the hotel industry nine years as part of a larger travel and tourism sector. It also plays an important 2018 82.8 2018 17.8 role economically, accounting for 1 in 10 jobs around the world. 2017 79.8 2017 17.4 2016 76.7 2016 17.0 The hotel industry is cyclical; long-term fluctuations in RevPAR tend to reflect the 2015 75.2 2015 16.7 interplay between industry demand, supply 2014 71.9 2014 16.4 and the macroeconomic environment. In the short term, at a local market level, Hotel business models political, economic and natural factors such as terrorism, oil market conditions There are two principal business models • Owner-operated, asset-heavy model and hurricanes can impact demand used by branded hotel groups: –– Owned – operated and branded by and supply. • Fee-based, asset-light model the owner who bears all of the cost but benefits from all of the income. –– Franchised – owned and operated by parties distinct from the brand, –– Leased – similar to owned, except who pay fees to the hotel company for the owner-operator does not have the use of their brand. outright ownership of the hotel but leases it from the ultimate owner. –– Managed – operated by a party distinct from the hotel owner, who Asset-heavy business models allow tighter pays management fees and, if the control over hotel operations, whilst hotel uses a third-party brand name, asset-light models enable faster growth a Source: STR, Inc fees to that third-party also. with lower capital investment. b Source: Oxford Economics

8 IHG | Annual Report and Form 20-F 2018 InterContinental Shanghai Wonderland, China

Trends shaping our industry

Demand for branded experiences Diverse consumer needs Power of the cloud Growing consumer demand for branded The consumer landscape continues to evolve Data generation, storage and use has experiences requires hotel companies to – from millennials seeking increasingly unique never been as prevalent and important continue to find new ways to work with and authentic experiences, to baby boomers as it is today. Cloud storage has further owners and partners to meet expectations. with money and time to travel, both of whom changed the game, giving accommodation increasingly expect technology to aid, inform providers easy access to real-time diverse Owners recognise the strength of a branded and enrich their stays. data, that enables a more personalised offer, and in addition to traditional and efficient service. opportunities, are looking for ways to From intuitive booking apps, chatbots, and affiliate with a brand through light-touch mobile check-in/check-out, to smart artificial Operationally it allows providers to use conversions or low-cost construction intelligence assistants and seamless wifi, data to tailor guest experiences faster, and techniques, combined with features that today’s guests expect technology to be drive a more personalised relationship reduce operating costs. The recent addition integrated into many areas of the travel with them. With this trend comes a of multiple new brands by big-branded experience. To meet this trend, the ability of growing responsibility to handle data players illustrates the level of capacity in hotel companies to work in partnership with responsibly, respecting consumer the market and industry appetite. the right technology providers has become preferences and rights. increasingly important. Over the last decade, IHG has added our IHG is a pioneer in data-centric wellness focus brand, EVEN Hotels, a brand IHG has made good progress in this area: technology innovation, from loyalty to tailored to the Chinese consumer, HUALUXE, from bespoke online payment solutions to reservations and hotel solutions. See and following acquisition, expanded Artifical Intelligence Smart Rooms in some IHG Concerto™ case study on page 21 Kimpton in the global luxury space. We have of our InterContinental hotels, which allows for more details. also launched avid hotels in the mainstream guests to use voice commands to control segment, upscale brand voco, which is opening the curtains through to ordering principally focused on conversions, and room service; and the development of IHG acquired both Regent and Six Senses Hotels Studio with our avid brand, which allows Resorts Spas in the top tier of the luxury seamless direct casting of entertainment segment. This reflects a continued strategic from guest smart devices to in-room TVs. focus on offering more tailored experiences to a diverse guest base in the highest opportunity segments and markets.

20+a 46%b 90%c New brands launched in the the last decade Of predicted US business trip spending will be by Data in the world was generated in last two years by the top five hotel groups millennials, by 2020

voco™ launched in 2018 Artificial Intelligence Smart Rooms IHG Concerto™ a Source: STR, Inc b Source: Boston Consulting Group, Inc These pages should be read together with our principal risks on pages 26 to 30 c Source: Forbes Media LLC and risk factors on pages 182 to 186.

IHG | Annual Report and Form 20-F 2018 | Strategic Report | Industry overview 9