InterContinental Hotels, the world's biggest hotel group, said that it was benefiting from travellers trading down to its mid-market Holiday Inn chain, although overall the group experienced a 44 per cent drop in first quarter profits, in line with analysts' expectations.

The group also offered some hope that the market may not worsen when it said that it saw signs of stabilisation.

In Mexico, revenues fell by between 30 and 40 per cent following the outbreak of swine flu last month, although it stressed that the impact on its whole business was minimal.

InterContinental, which operates more than 4,200 hotels, said operating profit from continuing businesses was $69 million in the quarter to the end of March. This year it expects to achieve an extra $40 million of cost savings, helped by exchange rate moves. It has already set a target of cutting costs by $30 million.

Revenue per available room fell 13.6 per cent at constant currencies, and was down 19.8 per cent in April, exacerbated by Easter falling late this year.

But InterContinental's revenues outperformed its rivals with a 14.2 per cent drop in revenue per room compared with an industry average decline of 17.7 per cent.

Andrew Cosslett, chief executive, said: “Occupancy showed signs of stabilisation in the quarter but room rates, which held up well during 2008, declined under the pressure of a very competitive market. The outlook remains tough but we are taking decisive action on costs without compromising our ability to continue to grow market share.”

InterContinental is revamping its Holiday Inn brand and the 729 hotels that have been upgraded so far are showing a revenue outperformance of more than 5 per cent against a control group.

InterContinental opened nearly 100 hotels in the first quarter, adding 1,845 rooms.

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