Marriott CEO Arne Sorenson spoke about what really happened when the hotel company’s website and mobile app were suddenly shut down by Chinese authorities last month — and what the company is doing about it.
Speaking to investors and analysts during Marriott’s fourth-quarter and full-year earnings call, Sorenson said, “We do not expect there to be a measurable impact to our financial results but, to be fair, that depends on our not making more mistakes in this space, which we are doing everything in our power to avoid doing.”
He said the events that led up to the shutdown involved the use of a third-party vendor who was hired to deliver an online customer survey. That survey listed Hong Kong, Macau, Taiwan, and Tibet as separate countries, which angered authorities in China, who see those destinations as part of China, and not sovereign nations.
“We should have caught it, even though it was provided by a third party, and we didn’t catch it,” Sorenson said. “We moved quickly to fix that mistake and we are moving as quickly as we can to look at all of the stuff we’ve got exposed out there online to customers in China and customers around the world to make sure we are not making similar mistakes in the future.”
Following the shutdown of Marriott’s site and mobile app in China, Sorenson immediately issued an apologetic statement. The company’s global social media accounts also went silent from Jan. 11 until Jan. 19. It wasn’t clear Thursday if the site was still shut down.
Sorenson said during the call that this was “not a geopolitical issue” but rather “principally, something Chinese social media is looking at.” Sorenson also said, “It’s not our position to really take a political position.”
“We’re going to do what we can in the future to avoid entering into those political conversations,” he said. “What we want to do is run those hotels the best we can in China for our associates, guests, and hotel owners, and we remain extraordinarily bullish about our prospects in China.”
Marriott has expressed a deep-seated interest in growing its market share in China. In August, the company formed a partnership with Alibaba Group, often thought of as the “Amazon of China,” to promote Marriott’s hotels to Chinese travelers. In the company’s most recent earnings, the company saw its revenue per available room in China grow by more than 9 percent in the fourth quarter of 2017.
Sorenson didn’t elaborate on when Marriott’s website and app would open up again in China.
Loyalty Is the Name of the Game
Like fellow hotel CEO Chris Nassetta did Wednesday during Hilton’s earnings call, Sorenson also espoused the importance of loyalty to Marriott’s overall global strategy, saying, “Loyalty is the name of the game for the future.”
He said that the company intends to “harmonize” its three loyalty programs — Marriott Rewards, Starwood Preferred Guest, and Ritz-Carlton Rewards — by the end of 2018.
“We are making great progress having virtually eliminated all restrictions to merging these programs into a single, unified program by the end of this year,” Sorenson said. He added that whatever combined program emerges will also be “materially more cost effective” for Marriott’s hotel owners, and noted that they should be pleased with the new branded credit card agreements that Marriott has recently made with Chase and American Express.
In total, Marriott reported that it had nearly 110 million loyalty members by year’s end and that more than half of its occupied rooms in 2017 were for member stays.
And when it comes to direct bookings, many of which are being made by loyalty members, Chief Financial Officer Leeny Oberg said that Marriott classifies 70 percent of its bookings as direct. She also noted that bookings from online travel agencies in 2017 were up very slightly — just 1 percent — to 12 percent, but noted, “We don’t see it growing any more quickly than before.” Digital booking accounts for 26 percent of total revenues.
Later this year, the company will undergo its first major negotiations process with a major online travel agency since closing the Starwood deal in 2016.
Sorenson noted that Starwood’s portfolio historically relied more heavily on online travel agency and third-party bookings but that “as loyalty gets stronger, and as the clarity of the benefits to loyalty become clearer, we feel really good about our ability to drive direct booking through the cycle.”
He added that despite “fairly anemic demand growth” there’s been a “great shift toward direct channels in the last few years.”
An Update on Sheraton
Sorenson also gave investors an update on the status of the repositioning of the Sheraton brand. He said that “work is well under way” in terms of turning the brand around, and that the company has “culled 5,000 Sheraton rooms in 2017” and plans to “cull a bit less than that in 2018.”
Sheraton, like Radisson, has been undergoing a repositioning to improve its branding, especially in North America. By culling, or removing the worst hotels in the brand, Marriott is attempting to raise the standards for the brand and improve its reputation
On International Inbound Travel
Sorenson echoed similar sentiments to what Hilton CEO Nassetta said Wednesday regarding international inbound travel to the United States in 2017. He said that while it’s hard to pinpoint exactly what the numbers are, he estimated that the data suggests that international arrivals to the U.S. were down approximately 4 to 5 percent in 2017, while international travel worldwide was up 7 percent.
“We’re losing share,” Sorenson said. He noted that in New York City, for example, Marriott’s hotels saw a drop in international arrivals by about 7 to 8 percent.
And he reiterated a point he’s emphasized many times: that security and border protection are crucial, but that those objectives can be accomplished while also welcoming international visitors to the U.S.
Last month, Sorenson penned an article in Skift that talked about his hopes for establishing a Known Traveler Digital Identity initiative.
Both the fourth quarter of 2017 and entire year were “better than expected” for the company.
“The numbers are the icing on the cake for a terrific year in 2017 for Marriott,” Sorenson said in the opening to his prepared remarks.
He said the company has seen record levels of occupancy and that the global travel industry overall “has never been more exciting or offered better opportunities.”
Marriott reported a 7.7 percent increase in fourth-quarter revenues, and its revenue grew to $5.88 billion in the quarter ending on December 31, up from $5.46 billion last year.
Global system-wide comparable revenue per available room increased 4.6 percent in the fourth quarter, and rose 3.9 percent in North America. For the full year, the number was up 3.1 percent globally and up 2.1 percent in North America.
In 2017, the company also added more than 76,000 rooms.
Sorenson also noted that the company would allocate a total of $140 million to investing in associate support programs for its employees, $70 million of which will be funded by the company and the rest coming from Marriott’s sale of procurement specialist Avendra.
While he didn’t say whether any of that money would come from recent changes to U.S. tax reform, Sorenson did note that the company’s effective tax rate should drop by eight points to roughly 22 percent and said there was a “stronger economic climate in the U.S.”