Pound Pup Legacy

Faced with steep competition from Marriott, parent InterContinental Hotels tries to try to lure back business travelers. Upgraded hotels will sport a new logo, too.

If you noticed that the Holiday Inn you stayed at recently looked a little threadbare, you are not alone.

By BusinessWeek

http://articles.moneycentral.msn.com/Investing/Extra/DowdyHolidayInnToGetBillionDollarMakeover.aspx

InterContinental Hotels Group (IHG, news, msgs), which owns the iconic U.S. hotel chain, saw the problems five years ago and is about to embark on a $1 billion upgrade.

Gone are the tacky polyester flowered bedspreads to which many of its hotel operators still cling. Those fuzzy blankets, magnets for bacteria, are going, too. Replacing them is triple-sheet bedding that gets laundered daily. Bathrooms are being upgraded -- all the way down to the toiletries.

• Video: A facelift for Holiday Inn

The time had come, says the company's head of North American operations, Steve Porter. Indeed, the company each year is weeding out between 100 and 150 underperforming and substandard hotels, including the last of the motor-lodge-style hotels, while adding about 1,000 new properties in the next three years. "We haven't been as consistent property to property as we need to be," said Porter.

Holiday Inn is also getting a new logo, which will be evident on hotel signage as each property adopts the changes -- which extend to training for hotel staff. Consumers should look for the new sign if they want the new standards.

Holiday Inn has about 3,000 properties worldwide, with 85% of those owned by the local operator. The flowing script design on a green background logo, once featured on neon signs across America, will be replaced by a stylized white "H" on a green square.

Hotel operators are expected to invest about $150,000 in making the upgrades.

"It's about time," said Helen Travers, a Birmingham, Mich., corporate travel planner. "My clients haven't stayed in Holiday Inns in years; the chain hasn't kept up."

Porter says IBM Corp. (IBM, news, msgs), General Electric (GE, news, msgs) and the U.S. government have remained some of the hotel chain's largest corporate travel customers.

The market for midlevel hotels is strong in the United States and abroad, as business travel has remained brisk the past five years. About 65% of Holiday Inn and Holiday Inn Express' business is business travel. Principal competition for Holiday Inn are Marriott's (MAR, news, msgs) Courtyard by Marriott, Hampton Inn and Hilton Garden Inn. Courtyard began an overhaul in 2005, so Holiday Inn has catching up to do.

"Today we are at a crossroads," Porter told employees and hotel operators at a gathering in Dallas this week to introduce the changes. "Our relevance is at risk."

'Our relevance is at risk'

Dennis Keene, a Los Angeles-based marketing and design consultant, said Holiday Inn has been a "sagging brand." But, he added, it's not too late to change consumers' minds. "Hotels get a lot of business through third-party recommendations and pricing on the Internet, so if they execute an overhaul they can get back on people's lists very fast."

Holiday Inn, founded in Memphis in 1952, will have significantly higher revenue after the renovations, according to British InterContinental. The chain's U.S. sales growth has trailed the company's more upscale brands, such as Crowne Plaza. The first revamped hotels will open in the United States next year, with the improvements finished across the chain by 2010.

Holiday Inn's third-quarter U.S. revenue per available room, a measure of rates and occupancy called "revpar," rose 4.5% in the third quarter, compared with 5.4% growth for all InterContinental U.S. hotels. Crowne Plaza's revpar grew 7.7%, while the InterContinental brand increased 8.9%.

Shares of InterContinental have declined more than 20% in this year after gaining more than 50% in 2006.

This article was reported and written by David Kiley for BusinessWeek.