Alibaba does not deserve all of the credit for Marriott's sustained performance in China over the past year, but the partnership with the e-commerce company shows just how mutually beneficial these kinds of agreements can be.
Marriott International is faring better than its industry rivals in the increasingly important Chinese market, thanks to its Alibaba partnership and expanding market portfolio in the country.
While U.S. hotel chains Hyatt and Hilton, and Paris-based Accor reported declines in revenue per available room growth (RevPAR) in China in the second quarter, due to ongoing protests in Hong Kong and the nation’s trade war with the U.S., Marriott disclosed on Monday night positive results in both inbound and outbound Chinese travel.
RevPAR in China for the chain rose 2.6 percent for the period ending June 30, buoyed by the performance of manufacturing markets like Shenzhen and more corporate destinations, such as Shanghai, according to the company.
“When you look across the markets, you see that we have a really powerful luxury and full-service portfolio [in China]. We are also expanding in the select service space, but that has been much more recent for us,” said Marriott CEO Arne Sorenson, on an earnings call with analysts. “We’ve got strong brand familiarity, a strong loyalty program, and strong Chinese customer preference, so that we continue to take strong increases in our RevPAR index performance in China.”
Of Marriott’s 30 existing brands, 23 are available in China where Marriott is launching about one new hotel per week, Stephanie Linnartz, the hotel chain’s global chief commercial officer, said on stage at Skift Tech Forum in June.
The hotel chain is also encouraging properties around the world to have Chinese speakers on hand, along with Chinese cuisine and newspapers in “gateway cities,” where Chinese outbound travels are going, she added. Chinese outbound travel to Europe in the second quarter jumped 34 percent, with significant upticks in Chinese travel additionally witnessed in Malaysia, Egypt, and Mexico, Marriott said.
Marriott currently has more than 300 hotels in its China pipeline, accounting for more than 50 percent of the company’s total planned hotel openings in the Asia Pacific region. The hotelier will open a minimum of 30 hotels in China this year, it said in April.
Alibaba Partnership Pays Dividends
Another catalyst behind Marriott’s growth in China is the hotelier’s distribution partnership with Alibaba announced in 2018.
Under the agreement, Chinese travelers are able to book stays at all 7,000 of Marriott’s hotels worldwide through Alibaba’s travel site, Fliggy. The Alibaba joint venture aided the company in increasing its digital revenue bookings in China by 36 percent in the second quarter. Revenue bookings from online travel agencies worldwide concurrently decreased by 2 percent, Marriott said.
“I think the Alibaba partnership is off to a great start. We are about a year into it, and if anything, we’re seeing ramping performance and we’re very optimistic about the future,” said Sorenson.
He added that Marriott still has moderate expectations for China heading into 2020, despite RevPAR numbers that soundly beat the industry.
“RevPAR numbers in China were not as good as they were a quarter ago, and they were not as good as they were last year,” he said. “We’ve got very topical things right now, a trade war with China being one and Hong Kong, I think, being another example. Hong Kong performed fairly well in the second quarter, but obviously what’s happening in the streets in Hong Kong today is not a positive sign for traveling into that market.”
Marriott reported revenue of $5.3 billion in the second quarter, down two percent year-over-year. Net income also dropped 65 percent to 232 million. The company recorded a proposed $126 million fine by the U.K. Information Commissioner’s Office on its books in relation to its Starwood Hotels and Resorts breach, which increased costs, it said.
Results were additionally plagued by economic conditions in the U.S., where lodging demand only grew by 2 percent year-over-year, according to STR market research cited by Marriott. RevPAR increased marginally by 0.7 percent in the U.S. as a result, according to the company. Global comparable hotel RevPAR improved by 1.2 percent.
“The quarter we’ve reported came in a bit light compared to what we anticipated. But I would attribute 100 percent of that, or a very, very heavy majority of that, to economic conditions, demand conditions particularly,” Sorenson said.
Marriott revised down RevPAR growth expectations in 2019 to between 1 and 2 percent.
The company finished the second quarter with 1.3 million rooms available to customers, up 5 percent year-over-year, and a worldwide pipeline of 487,000 rooms. Marriott Bonvoy membership additionally grew to 133 million, with strong sign-ups in the Asia-Pacific region in the quarter. Bookings on the Marriott Bonvoy app rose 70 percent in the second quarter, it said.
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Photo credit: Shown here is a deluxe room at the Ritz-Carlton Xi'an in China. RevPAR in the country increased 2.6 percent, Marriott reported Tuesday.