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It’s the gut-wrenching question that countless businesses both inside and outside of the travel industry are grappling with — how many employees do you furlough or lay off, and how deep should the cost-cutting incision be?
Trim too little and the company might have to do it again? Lop off too much spending and then perhaps competitors will take advantage or the recovery will be too difficult.
In a special call with analysts Friday, after releasing a video message to employees detailing cuts, Marriott CEO Arne Sorenson said he’s losing sleep over whether the budget reductions will turn out to have been too severe.
Marriott is furloughing tens of thousands of employees around the world, and hundreds of managed and franchised properties are suspending operations. The chain expects to erase or delay one third of its previously planned $700-$800 million in investment spending in 2020, and forecasts reducing corporate and administrative spend by $140 million, among other belt-tightening measures.
But will other brands such as Hilton or Accor, let alone Expedia or Booking.com, leverage the coronavirus crisis to their advantage when travel presumably comes back?
“I’m also worried that we’ve — we are cutting so deeply that the rebuilding process will be more challenging than — maybe more challenging than we anticipated and maybe to some extent that we might regret having moved as aggressively as we’ve moved,” Sorenson said during a question and answer session with analysts.
It would be a nice problem to confront, Sorenson said, because that would mean Marriott would be rebuilding sooner or stronger than dire scenarios in play. He added that the chain will deal with that problem when it arrives.
“And I am hopeful that if we treat our people well and the crisis, the health crisis, goes the way that we expect it to go, that this will be an interlude” rather a more ongoing crisis, Sorenson said.
He argued that there will be “pent-up demand from our customer base” when the crisis fades. “It may not come back 100 percent, but it’s going to come back very substantially, probably quite quickly,” he said. “And we’ll deal with those issues.”
Direct Booking Campaign
Sorenson said in the video message to employees that it is ceasing TV and other marketing efforts for now. Over the past few years, Marriott has invested heavily in booking direct campaigns, with loyalty program members being able to book at discounted rates on Marriott’s websites.
It is likely that Marriott managed hotels and franchised properties will lean into online travel agencies such as Expedia and Booking.com to fill hotels when travel presumably snaps back. That’s how the playbook has worked during travel disruptions such as 9/11 and the 2008 financial crisis, although hotel direct-booking campaigns weren’t mature before these events.
Asked about the likely shape of its direct-booking campaign when the coronavirus pandemic is over, Sorenson argued that the technology tools and the Marriott Bonvoy loyalty program will continue to be the key drivers.
“I think if we manage the relationship with our customers well through this process, we should put goodwill in the bank, if you will, in those relationships, the way that will help us longer term,” he said. “And so I don’t see that as being difficult.”
In there interim, the chain has extended Marriott Bonvoy Points expiration until August 31; Suite Night Awards will not expire until the end of 2021, and Free Nights Awards won’t terminate until January 2021.
Is Marriott’s Survival at Stake?
Will Marriott still be in business when those points’ expirations take hold?
Sorenson addressed the issue. “That leave only one question,” he said. “Will we survive that long? I am confident the answer to that is yes.
He said Marriott’s business model is “sound,” are travel’s future projects, and “through management of our costs and balance sheet as to which we are taking aggressive actions, we will work our way through this.”
Businesses throughout the world are trying to work their ways through this, as well, with those in the best shape trying to calculate how deep to cut and when. Weaker companies don’t even that luxury.