Marriott CEO: Don’t Expect Us to Play in the Midscale Space

At a time when its peers are using the midscale hotel category to add more brands to their portfolios, Marriott International would rather focus on the upscale to luxury segment — even if its pipeline is already dominated by limited-service hotels.

A focus on the high end of the market, coupled with the ongoing integration process following Marriott’s $13.3-billion acquisition of Starwood Hotels & Resorts in September 2016, is part of Marriott’s larger overall strategy as it heads into 2018.

“We’re not playing in the midscale space at all,” said Marriott CEO Arne Sorenson on a call to discuss the company’s third quarter 2017 earnings. “Even in our limited-service pipeline, 50 percent of those assets in the United States are really urban and much more complicated, but that also means higher-rated hotels than the prototypical suburban hotel that you might think of when you think of limited service.”

It was a strong quarter for the company, which beat Wall Street estimates. The company also raised its estimates for its full-year profits for the third time this year, including a new estimate of a rise in global revenue per available room in a range of 2 to 3 percent, versus an earlier forecast of 1 to 3 percent. Third quarter revenue jumped 43.7 percent to $5.66 billion and net income rose to $392 million, compared to $179 million in the third quarter of 2016.

Sheraton Remains a Work in Progress

Marriott’s work to turn around the troubled Sheraton brand, which Marriott inherited in its Starwood deal, is “making real progress” according to Sorenson. So much so that by the end of this year, Marriott will have seen 6,000 Sheraton rooms leave its portfolio, with another 4,000 rooms leaving in 2018.

“We are working to increase accountability, quality assurance, and capital investment while applying Marriott systems and programs to drive the top line and reduce costs,” he added. In the last 12 months, Sorenson said that Marriott has signed a total of 3,500 new Sheraton rooms to its portfolio.

Asia and China Are Bright Spots

The Chinese travel market, as well as the Asia-Pacific travel region overall, performed exceedingly well for Marriott in the third quarter. In Asia-Pacific, not including China, Marriott’s revenue per available room grew 8 percent and in the Greater China region, that growth was 11 percent.

Sorenson also said that Marriott’s partnership with Alibaba, often considered to be the Amazon of China, “is off to a great start.” That partnership, which was announced in August during Marriott’s second quarter earnings call, is going to provide “great lift” Sorenson said. He said the two companies are working together on loyalty, in getting “great sign ups with the kinds of Chinese consumers we want to have,” as well as on “technology tools that are essential to drive even better performance going forward.”

He later said, “Our index performance in Asia has been spectacular.”

Global Impact

While the three recent North American and Caribbean hurricanes — Harvey, Irma, and Maria — resulted in the closures of five hotels in Florida, five hotels in Texas, and the damage or closure of 18 hotels in the Caribbean, the net impact, at least in Texas and Florida, was positive.

“Fairly quickly, within days, recovery efforts began, and people looking for housing were filling up hotels,” he noted, referring to Houston, Texas, a market that has long been sluggish because of weakened oil and energy markets.

Sorenson also echoed statements he recently made in reference to the United States’ share of international travel arrivals of travelers outside of the U.S., as well as corporate tax reform.

Sorenson said that while a variety of sources are trying to determine just how much international arrivals to the U.S. have been in the past year, he said that “it does look like there was a modest decrease in 2017” which is “really not all that surprising.”

At the same time, however, he said that outside the U.S., there’s been an increase of 7 percent in the number of global international arrivals.

“The U.S. is losing share,” he said. “Does that change in 2018? You know we have to see. I would guess we have to see pretty powerful tailwinds which are driving growth in international travel.

“We would love to see the U.S., while focused on security which is perfectly appropriate, also continue to make sure that the rest of the world hears the voice that travelers are welcome to come to vacation here and do business here. Hopefully, the U.S. won’t continue to lose much share.”

Last week, he also said that Trump’s travel ban and rhetoric has driven group business away from the U.S. and into Canada.

Sorenson is hopeful that proposed corporate tax reforms will help create more cash flow for U.S. businesses, shifting their “cautious” approach to spending and leading to more hotel stays from corporate clients.