You Have 3 More Free Stories (0 of 3)Join Skift Pro
Boosted by its $13.3-billion acquisition of Starwood Hotels & Resorts in September 2016, Marriott International has demonstrated strong global performance in its first quarter results with Starwood on board.
The Bethesda, Maryland-based company, now the world’s largest hotel company, beat Wall Street’s expectations both in terms of revenue and in earnings, posting earnings per share of $1.01 and total revenues of $5.56 billion, a 47.7 percent increase from the same period last year when Starwood wasn’t yet part of the company.
Net income was $365 million, up 67 percent from the same period last year. Marriott’s base management and franchise fees also grew significantly from last year’s $200 million to $629 million this year, thanks to the Sept. 23 acquisition of Starwood for some $13.3 billion. Marriott expects to collect anywhere from $3.21 billion to $3.23 billion in fee revenues for the full year in 2017.
Global revenue per available room (RevPAR), a performance metric often used by the hotel industry, was up 3.1 percent, and the company’s RevPAR performance in North America, Europe, Greater China, and Asia-Pacific was stronger than expected. The company added more than 17,000 rooms to its system in the first quarter as well, and saw a 2 percentage point increase in overall occupancy.
The company expects total costs related to its merger with Starwood for 2017 to come in around $100 million.
The Biggest Risk Involved in the Integration with Starwood
Even with such strong 2017 earnings numbers thus far, Marriott CEO Arne Sorenson said, “I think we’re off to a good start on the integration [with Starwood], but I think we are by no means declaring victory today. We have a got a lot of work ahead of us.”
That work includes tackling, perhaps, the biggest risk or threat to the success of Marriott’s integration of Starwood: figuring out the technology platforms that would link all of its more than 6,100 hotels worldwide, which Marriott hopes to complete by the end of 2018.
“I think if we identify one [risk] it’s going to be around technology,” Sorenson said during a call with investors and financial analysts to discuss the first quarter. “It takes longer and it costs more than any of us would like. … We have to make sure we are moving as quickly as we possibly can. These technology platforms will really allow us to drive the revenue lift we believe is available by having one reservation platform and one loyalty program and of course, secondarily, also allows us to deliver these technology platforms at lower costs for our owners, because we’ll be supporting one and not two.”
Sorenson noted, for example, that the company’s recent investment in PlacePass, a tours-and-activities metasearch platform, is one example of technology that Marriott wants to be able to link to its loyalty programs and all of its dot.com sites.
“Technology would be, probably, the thing that we are maybe most frustrated by the cost and time associated with it,” he added. “[We’re] maybe the most fearful about it, but also most convinced it will drive upside, longer term to the entire portfolio.”
Integrating all the technology systems involved throughout all of Marriott’s hotels and legacy Starwood properties would indeed be a complex feat. It remains unclear whether Marriott intends to transition all legacy Starwood hotels onto its older mainframe technology platform called MARSHA, which was originally developed in the 1970s.
In an opinion piece for Hospitality Net in 2016, former Starwood senior vice president of technology solutions, Israel del Rio, expressed concerns that Marriott is forcing Starwood properties to abandon their newer mainframe tech platform, Valhalla, for Marriott’s older one.
Whatever decisions Marriott ultimately arrives at regarding its technology platforms for reservations and for loyalty, it’s clear they will have an incredibly significant impact.
Airbnb: Still Not a Threat
Sorenson said he does not see Airbnb as a major threat to the hospitality industry.
When asked if he thought recent regulations on short-term rentals in cities such as New York and San Francisco were having a positive impact on Marriott’s business, Sorenson said, “Airbnb and the homesharing phenomenon have probably been less impactful to RevPAR numbers than folks might have first imagined. And less impactful today, given what’s happening with the regulations side. We will continue to analyze this data as much as we possibly can to understand it.”
Still, Sorenson noted, there are fundamental differences between guests who are booking Airbnbs and those who choose to book a hotel room: Airbnb customers are “skewed much more toward leisure” and “value-centric,” he said.
Asked if Airbnb could possibly be considered as another online travel agency or third-party intermediary for hotel distribution, Sorenson said he doesn’t see that taking place at the moment.
“None of our hotels has a single room on Airbnb — they certainly should not have a room at Airbnb,” Sorenson said. “We’re not looking at that company [Airbnb] today as an intermediary that’s similar to our relationships with OTAs (online travel agencies) around the world.”
No one questioned Sorenson about recently leaked documents from the American Hotel & Lodging Association that laid out the organization’s plans for combating Airbnb.
On Dealing With Online Travel Agencies
On the topic of dealing with the powerful online travel agencies such as Priceline and Expedia, Sorenson echoed comments made during Marriott’s recent investor day event, noting that the company’s legacy Starwood owners would benefit from renegotiated online travel agency contracts in the future.
A recent CBRE report on the U.S. hotel industry, however, seemed to suggest that the hotel industry overall is paying more to travel agencies, both online and offline, and meeting planners than they have in the past.
Sorenson noted that all U.S. legacy Starwood hotels are on Marriott’s online travel agency contracts and that other properties around the world will follow, leading to a reduction in commission costs.
When asked if he had any thoughts about the hotel association’s efforts to lobby Congress to clamp down on the two biggest online travel agencies, Sorenson said he wasn’t familiar with the initiative.
“I’m not sure what the AHLA is doing there,” he said. Sorenson did say, however, that in the past, the AHLA has attempted to combat the growth of sites that fraudulently sell hotel room reservations to unsuspecting customers. “That’s the thing we want to be most thoughtful about,” he said.
Marriott, including its peers, launched campaigns to push for more direct bookings in an effort to chip away at the market share of the online travel agencies last year and that drive, via offering discounted member room rates, will continue for the foreseeable future, Sorenson noted.
“I think member discounts are here to stay,” he said. “We are encouraged by what we’ve seen.”
Corporate Travel Is All Right (Maybe)
Sorenson remained a bit skittish about the overall outlook for corporate transient travel trends, even though there were some positive signs from the first quarter.
“We’re a bit more encouraged by corporate travel but let’s be careful about throwing all caution to the wind here,” he said. “I think you’ve got in the corporate travel landscape, lots and lots of different stories. The energy patch continues to remain relatively weak. We felt we had hit bottom. Today, we are a little less confident on that.”
He did, however, cite strength in Washington, D.C. and in western U.S. markets, as well as some companies reporting stronger than expected first quarter profits.
When asked about group business in the first quarter, Sorenson said it “modestly exceeded expectations” and the company saw a 7.7 percent increase in group RevPAR business. He also noted that planners are adding last-minute food-and-beverage and ancillary spending related to their meetings and events, and that because spaces are becoming more limited overall, planners are beginning to book their events further out, as well as considering more limited-service properties for their functions.
Yes, We’re Keeping All 30 Brands
Even with 30 brands in its portfolio, Marriott isn’t planning to dispose of any in the near future.
“We are thrilled by the number of brands we have and the range of choices we can give to our customers,” said Sorenson. “We can look at our 30 brands and 1.2 million hotel rooms and say, ‘That’s a lot,” but that’s nothing compared to the range of choices offered by third-party intermediaries. Offering more choices to our customers is a great thing. Our efforts will not be about getting to fewer bands; it’s emphasizing the distinctions between brands and driving compliance and consistency of product quality and service quality.”
The biggest example of that practice in driving compliance and consistency will no doubt be what Marriott does to transform the challenged Sheraton brand, especially within North America, something the company is already working on.