Skift Take

Reportedly unhappy with the airport’s passenger caps, this could mark the end of a 16-year investment relationship.

Matthew Parsons

Spain’s Ferrovial is looking at options for its 25 percent stake in London’s Heathrow, two sources told Reuters, and has held preliminary talks with external advisers on the future of its holding in Britain’s biggest airport.

The early stage discussions come amid interest in Ferrovial’s stake from private equity firm Ardian, which has held talks with its own advisers on a possible joint proposal with Saudi Arabia’s Public Investment Fund (PIF), these sources and another person familiar with the matter said.

Ferrovial has yet to take a final decision and the discussions may not result in a sale, all the sources said.

Ferrovial and Ardian both declined to comment on the Heathrow discussions.

PIF did not immediately respond to a request for comment.

Heathrow is worth about $25 billion, including debt, JPMorgan analysts calculated in May. By JPMorgan’s estimates, Ferrovial’s Heathrow holding has an equity value of $625 million.

Heathrow, which Aviation data firm OAG said was the world’s fifth busiest airport in July, was hard hit by coronavirus lockdowns, but raised its 2022 traffic forecast to 54.4 million passengers in June after a travel rebound.

Last month Heathrow, like some other airports in Europe, asked airlines to stop selling tickets for summer departures and capped passenger numbers to limit queues, baggage delays and cancellations as it struggled with pent-up demand.

Madrid-based Ferrovial, which controls Spanish transport infrastructure developer Cintra and has stakes in motorways in the U.S. and Canada, has been invested in Heathrow airport for 16 years and ranks as its single largest investor.

Qatar Investment Authority (QIA), which has a 20 percent stake in Heathrow, is the second biggest investor in the busy British airport, while Caisse de dépôt et placement du Québec (CDPQ), Singapore’s wealth fund GIC and China Investment Corporation also have sizeable holdings.

QIA, CDPQ, GIC and China Investment Corporation were not immediately available for comment.

Paris-based Ardian teamed up with Credit Agricole Assurances in 2015 to buy a 49 percent stake in 2i Aeroporti, one of Italy’s largest airport networks, with indirect stakes in Milan’s Malpensa and Linate among others.

A separate source who worked on the 2006 acquisition of Ferrovial’s Heathrow holding said that while the Spanish firm’s board had frequently reviewed its strategy over the years, it had never reached a consensus over selling the stake.

This source said Ardian made an initial approach for the Heathrow stake last year, but discussions did not advance.

Airport Bets

Ferrovial appointed aviation veteran Luke Bugeja to run its airports business last year, which one of the sources said could accelerate a strategic review of Heathrow.

Airports accounted for a third of Ferrovial’s proportional earnings before interest, taxes, depreciation and amortization (EBITDA) in the first half of this year, from 45 percent prior to 2019 before the industry was hit by the Covid-19 pandemic.

After a series of losses, Ferrovial pointed last week to a recovery in the airport business, thanks to an easing of restrictions as it posted a profit.

It also bet further on the industry in June with a deal to buy a stake in the consortium that will build and operate a new terminal at New York’s JFK International Airport.

But its Heathrow experience has been difficult and the chief financial officer of its airports business, Ignacio Castejon, said during last year’s third quarter earnings he was “very sceptical” about contributing further capital, citing a lack of recovery in its economic value and low equity returns.

Heathrow said last year it does not expect a full recovery before 2026, after airports globally suffered a huge drop in traffic when the Covid-19 pandemic grounded planes.

Ferrovial bought an indirect stake of 55.87 percent in Heathrow Airport Holdings in 2006. It sold 10.6 percent to Qatar Holding LLC in 2012 and eventually reduced its stake to 25 percent in 2013.

The firm openly criticized the British aviation regulator’s decision in June to set lower than hoped for caps on landing fees Heathrow can charge over the next four years.

While companies have eased off mergers and acquisitions as inflation rages and recession fears rise, the infrastructure sector clocked up one of this year’s biggest deals, a 58 billion euro take-private bid for Italy’s Atlantia.

(Reporting by Isla Binnie, Andres Gonzalez and Pamela Barbaglia; Editing by Alexander Smith)

This article was written by Isla Binnie, Andres Gonzalez and Pamela Barbaglia from Reuters and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].

Skift Take

IHG’s loyalty program has lagged behind its peers in quality. But CEO Keith Barr said the company had overhauled the program to turn it into a magnet for high-value travelers. Early results look encouraging.

Sean O’Neill

IHG Hotels & Resorts earlier this year fully revamped its loyalty program and in July launched its largest marketing campaign in a decade to support it. Executives said Thursday that these moves will speed up overall growth for the UK-based group, which runs 6,028 hotels under brands such as Holiday Inn and Kimpton.

In the second quarter, the company overhauled IHG One Rewards and saw enrollments rise 30 percent year-over-year. It added 11 million net loyalty members year-over-year. It didn’t specify the new total other than to say it had more than 100 million members.

The company said it expected ongoing gains as a result of the loyalty program overhaul.

“We’re getting about 50 percent of our room nights coming through our loyalty program,” CEO Keith Barr said in an interview with Skift. “We know there is more headroom in that number based on our consumer research and what our peers do.”

During the pandemic, the company had to choose how to invest for growth among multiple options.

“We made the decision to push a significant amount of our capacity into restructuring and transforming the loyalty program,” Barr said.

The hotel group touted how it had added tiers of membership and now offers members a choice of rewards after they reach certain levels.

“We believe it’s going to be one of the most compelling offers in the market for a selection of customers who will shift their share over time away from a competitor into IHG’s program,” Barr said. “We’ve got a lot of headroom between where we’re at today and where we could be at an end state.”

Rising engagement in the loyalty program will translate into “incremental revenue delivery” because the company’s loyalty members “are generally higher-value customers,” Barr said.

IHG’s loyalty members are nine times as likely to book direct, and direct bookings are a less expensive channel for owners than sourcing customers from online travel agencies. Loyalty members also spend 20 percent more than non-members on average.

The just-launched marketing push for IHG’s master brand may help boost its loyalty program, too.

Executives declined to say how much they would spend on the new marketing campaign out of its more-than-$1 billion annual budget to advertise its brand, masterbrand, and loyalty program. But they called the effort ambitious.

“You can see the scale of it if you walk into London Heathrow Airport right now, where you’ll see ads for IHG Hotels and Resorts everywhere,” Barr said. “You’re going to see the campaign across a number of channels, including using super highly data-driven targeted marketing via digital channels.”

Strong Year for IHG So Far

For the first half of the year, IHG reported an operating profit of $361 million on revenue of $1.79 billion.

The company said it is “very close” to global pre-pandemic revenue per available room, a key industry metric. It’s down only about 10.5 percent below 2019 levels, partly because of its exposure to China, which remains mired in Covid-related struggles.

IHG’s business in the U.S. and Canada is leading the way for a recovery. In the second quarter, revenue per available room for hotels in those countries was up 3.5 percent compared to the pre-pandemic level.

The staffing crisis and reduced levels of service, such as housekeeping, haven’t hurt guest impressions of the company, IHG said. Its “guest satisfaction index” on a rolling year basis through June 2022 was higher than the equivalent 2019 pre-Covid benchmark.

Pipeline Seems on Track

IHG has a global pipeline of 1,858 hotels that together will add about 278,000 rooms, representing roughly a third of its network.

The pipeline growth year-to-date was 2.7 percent. The company has said its aspiration is to have net unit growth of around 4 percent this year. Historically, the company has grown its network at a faster pace.

“There are headwinds facing all hotel companies, not just IHG, that are causing hotels to be delayed, such as some financing issues that are causing hotels not to break ground and the pandemic-related issues in China,” Barr said.

What’s changed for IHG in the past five years is that it has added or introduced a half-dozen brands that remain in the early phases of uptake with owners, the CEO said.

Its new Voco brand, for example, is meant to be relatively friendlier than many other brands in its stable to owners seeking to convert existing properties rather than build new ones.

“As the brands ramp up and we get out of Covid, our growth will continue to accelerate because we’re now able to compete in different segments with different owners than we used to in the past,” Barr said.

See IHG CEO Keith Barr on-stage at Skift Global Forum in New York in September.