Skift Take

Although Marriott's Anthony Capuano is adamant that the world's largest hotel company won't rest on its laurels, watch him explain why a major merger and acquisition deal isn't on the horizon for Marriott.

Marriott International CEO Anthony Capuano explained at Skift Global Forum in New York City why it’s unlikely his company will make a major merger and acquisition deal in the near future, what steps it’s taking to increase diversity in executive roles and and why the world’s largest hotel needs to innovate.

Capuano also touched on, during his conversation with Senior Hospitality Editor Sean O’Neill, why he’s optimistic about Marriott’s ongoing recovery in spite of a recession, the impact of the its new headquarters on attracting prospective employees, and the company’s plans for growth.

Watch the full video of the conversation below. You can read the transcript as well below.

Interview Transcript

Sean O’Neill: Thanks Tony for being here.

Anthony Capuano: I already passed the first test, trying to navigate this chair. Thanks for having me.

O’Neill: Yes, of course. I thought for this conversation, we would talk about why you’re optimistic, and then go on to innovation. Talk a bit about the brands and maybe end with a big picture question and any audience questions that you guys put into the app. So does that sound like an OK plan?

Capuano: Great.

O’Neill: OK. Why are you optimistic right now, given all of the macroeconomic uncertainty?

Capuano: Well, I might answer that two ways. I’m optimistic because we are a data driven company, and not withstanding all the very real headwinds in terms of inflationary environment, rising interest rates, sociopolitical unrest. We’re just not seeing the impact yet in the data. We’ve had a great first two quarters of the year. When I look at the forward bookings through the end of the year, the resilience of travel is born out in that data. Then intuitively, I am just a…

It shouldn’t stun you that I’m such an optimist about travel. I’ve told a couple people this story. When the pandemic started, many of us, I think, looked at that stack of books on our credenza and said, “Maybe I’ll finally have a chance to make my way through some of those books.”

And I was reading a book about ancient Rome and there was a quote in there that I was so taken by. I actually wrote it on a piece of paper and stuck it in my wallet. It was the ancient Roman philosopher Seneca. He said “Travel and change of place impart vigor to the mind,” and …

O’Neill: I like that.

Capuano: What I really liked about it, it’s not as if travel became appealing to the masses the day that Instagram was launched. The desire to explore new lands, immerse yourself in new cultures, try new foods, visit with friends and family, and make new friends has been part of a human condition forever. And that’s a lot of what drives my optimism.

O’Neill: That makes very good sense. That dovetails with what we heard earlier from Keith Barr at IHG. He’s also optimistic, but when you mentioned forward bookings, do you really have very much visibility? Is most of the bookings just a few weeks out?

Capuano: Yeah, the transient bookings, the window is still quite short.

O’Neill: OK

Capuano: The group booking window is lengthening although it’s not as long as it was pre-pandemic. But in July on a global basis group (revenue per available room) was back to pre-pandemic levels. It has been interesting to watch the evolution. In the early days of the pandemic, once people decided eventually we would get through this, the conventional wisdom was leisure would lead the recovery, then business transient, and eventually group would limp in across the threshold. Those last two have been inverted. Group has come back very strongly, and while we’ve seen sequential month over month improvement in business transient, we’re not yet back to pre-pandemic levels.

O’Neill: OK. That’s reassuring to hear. You’ve been on the road a lot internationally for the past few months. You rose up through doing a lot of corporate development deals. What is it that you hear about the hotel development market sort of right now?

Capuano: On the plus side of the ledger, we announced during our first quarter earnings call we had signed more transactions globally than in any first quarter in our history. Then we replicated that in the second quarter. In many ways, those votes by the wallet of our partners are the most telling indication of our owner community’s optimism about the pace of recovery. But anecdotally, when I talk to our partners, they still tend to find relatively constricted debt markets for new construction. Lots of debt capital available for existing assets. They are all firm believers that construction costs only go one of two ways — up or flat for a little while until they go up again. That has certainly born itself out in this trend.

So the ability to underwrite these deals … if you are short-term yield focused, you’re probably struggling to make sense of the numbers. Thankfully, the vast majority of our partners have a longer term investment horizon. And I think they look at starting a development deal today. They feel like if they can get it done, and there’s some supply chain challenges, but if they can get it done, they’ll open into the teeth of a recovery. And because so many existing owners by necessity had to dip into their (fixtures, furniture and equipment) reserves to survive, they may open not only in the teeth of a recovery, but a brand shiny new product, competing with products that still need to be renovated.

O’Neill: Cool. Let’s move on to innovation. Maybe if we can call a slide, excuse me, the video that we have. Yesterday you were in Bethesda, Maryland with the ribbon cutting of your new headquarters. It looks incredible. I did a tour of it last month. What is it going to help you with in terms of corporate talent?

Capuano: Well, our old building was our home for about 40 years. I think we moved in the mid or late (1970s). When that building was built, being in a suburban office park environment was very much in vogue. When we think about the future associates that we want to attract and retain, they want to be in a vibrant environment where they can walk to a wealth of amenities. They want immediate access to public transportation. You’re seeing the only time these are going to be used, by the way.

It’s like the old suburban swimming pool at a hotel. But I do think they want a compliment of amenities in and outside the building. They want cutting edge technology, and they want our headquarters to really be harmonized with the message that we share with our partners, that we are on the leading edge of technology that we’re innovative in terms of food and beverage. Our building allows us to illustrate that every day.

O’Neill: Cool. The building on the fourth floor, I think it is, you have an innovation lab, you brought it up from the basement in the old building.

Capuano: Yeah, it was an old, dusty legal storage room in the old building. This is purpose built space …

O’Neill: Purpose built space.

Capuano: Which is quite exciting.

O’Neill: And you can have plumbing and you can set things on fire if you need.

Capuano: But we actually, I’m sorry to interrupt … we did two things though. We built a functioning, working innovation lab in our headquarters building, but right across the pedestrian plaza, we have a new headquarters hotel we manage. It’s owned by a third party, but Marriott International leased a floor in that hotel. We’ll have 13 model rooms, but unlike in the old building where they were Hollywood sets, these are working rooms. You may check in and we’ll say “Sean, we see you’re here for three nights paying $1,000 a night. If you’d stay in our new prototypical residence in room and spend an hour with the brand team at the end of your stay, we’ll charge you $998.”

But it’s exciting for us because getting our guests and getting our loyal members into those rooms, as we’re toying around with what the next generation of a given brand might look like, is the best way to learn.

O’Neill: It’s not a gimmick? You’re actually …

Capuano: No, they are functioning operating rooms.

O’Neill: Rooms. That contrast is today, you’d actually build a prototype hotel and you’d actually have to wait to see what guest feedback is.

Capuano: Or we would do a mock up and we bring Bonvoy loyalty members through. But spending a half hour moving styrofoam furniture around is quite different than sleeping there three nights, determining whether it’s easy or difficult to plug in all of your devices, how does the lighting work for leisure and work time?

O’Neill: Cool. Maybe if we could bring the slide up that has an image of you, Tony with chairman emeritus, Mr. Marriott. Innovation, this was the 95th anniversary for the company. How did innovation sort of become a legacy because of Marriott?

Capuano: Well, there’s so much to love about Bill Marriott. Maybe at the top of that list, his humility. He came down for the opening and on the way up here, I dropped him off at his home in New Hampshire.

O’Neill: Fun.

Capuano: As he’s getting off the plane, he said, “Thank you so much for the ride,” which is a perfect illustration of his humility. But because of that humility, I’m not sure he really gets the credit he deserves as just such an extraordinary innovator for our industry. He was the first one to bring the notion of a loyalty program to lodging. He was the first to explore a multi-tier, multi-brand strategy. He was the one that called the head of revenue management at American Airlines and said, “I’d love to figure out if there’s an application for revenue management for the hospitality industry.”

He is… His favorite phrase is that “Success is never final.” But I think embedded in that phrase is this idea that we’ve always got to evolve, and change, and innovate. We can’t be self-satisfied even for a minute, because our guests aren’t.

O’Neill: Okay. Success is never final. Let’s probe some more innovation questions. Inspirato is a company, it debuted publicly earlier this year. They have an interesting model. You have clubs or subscriptions in order to stay at very high end. Is that something that Marriott just can’t really get into because there’s sort of a velvet rope phenomenon with that, and you are sort of supposed to be more happy for the crowd.

Capuano: Yeah. Every day we explore elements of our core lodging business and how we can continue to evolve and grow that business. Are there business adjacencies that we can continue to develop and grow? The first week of October, the first of several Ritz Carlton yachts will have its maiden voyage. About a year ago, we launched a travel insurance program with Allianz that’s in our booking path now. So we’re always looking at those options. If we were to explore something along the lines of what you described, we would only do it if we thought the value proposition really made sense for our members. Even when there was all this debate about resort fees and destination fees, we had and continue to have a very rigorous process for approving those. There’s got to be at least a four or five to one value proposition before we’ll allow …

O’Neill: That’s a high charge.

Capuano: To charge a fee. I think we’d have the same sort of lens that we would apply to that sort of program.

O’Neill: Airlines have code shares. I can book a British Airways flight through my American app, for example. Why doesn’t Marriott do more like co-marketing partnerships with other hotel groups?

Capuano: I think all of us — I know you had my friend Keith on earlier this morning — we all want to own that relationship with the guest. There are lots of intermediaries, lots of disruptors. When we think figuratively about the moat that protects us, it’s the ownership of the stay. And so I think we are hesitant to let somebody participate in that stay.

O’Neill: We have a poll that we’ve been taking, so maybe if we can bring up the results on that. So we asked whether people thought that out of the big six of you hotel groups that include Jin Jang, whether there’d be a merger activity in the next few years. Split decision in the crowd, roughly half and half. What would be your instinct of how likely that is?

Capuano: I think there’s probably one side of my brain that would vote yes, and one that would vote no. The strongest arguments in favor of those sorts of mergers, we believed when we acquired Starwood and continue to believe in the power of scale. Not just scale for scale’s sake, but if your objective is to capture as close to 100 percent of your guests share of travel wallet as possible, you want to have enough scale that they never need to look outside your ecosystem. It was part of the reason we launched Homes and Villas. Not because we thought we’d go head to head with Airbnb, but because for very specific trip purposes — multi-generational travel, for instance. We heard from our loyalty members that a full home multi bedroom experience better served their needs.

And so, I think the companies that you listed in the question, they also understand the power of scale. The reason I might vote no is it’s damn hard. We did one. It is complex. You’ve got to ensure that there is cultural compatibility. The regulatory obstacle course that you need to run is challenging. We’re probably at a window right now, whether it’s on an individual hospitality asset or a big global brand company, the gap between buyer and seller expectations is probably wider than you’d like it to be to facilitate a complex transaction like that.

What I will say though, is it won’t surprise me to see an acceleration of activity of smaller …

O’Neill: To bolt on?

Capuano: Bolt on. I think the smaller companies, one they’ve been rattled a little bit, like all of us have, by the events of the last couple years. Number two, I think they all reach an inflection point on technology and loyalty, where they say, “We have a decision to make. We’re either going to invest very significantly in those two spaces to try to go to the next level, which is complex and expensive. Or we think about a transaction to bolt onto somebody that’s already made and has the capacity to continue to make those investments.”

O’Neill: Some of those companies are asset heavy. Would Marriott International consider acquiring them, even though would that be a bar to…

Capuano: Well, so we have roughly round numbers — 8,100 hotels, we own 20 today. If anybody wants to buy any of those 20, see me afterwards. We clearly embrace an asset light model, but we have done transactions in the past where we temporarily borrowed balance sheet capacity — always with an eye towards selling those assets. Starwood is the biggest example. Poor Leeny Oberg, our (chief financial officer), we were almost divested of all of our real estate, and then we went and bought Starwood and she had to it over again.

O’Neill: It boomeranged back.

Capuano: If it made strategic sense, we would certainly at least take a look. But again, among the many benefits of scale, we don’t feel a burning need to do an (merger and acquisition) deal just for the sake of growth or the sake of scale. We have scale. If you look at Starwood appropriately dominates most of the headlines about our (merger and acquisition) activity.

But prior to Starwood, we had a pretty good clip of doing one or two small bolt on deals a year. All of those deals had common DNA. They filled a geographic gap where we had struggled to grow organically, and/or we thought it was a platform that we could grow regionally or even globally. When we bought Protea Hotels, we didn’t have a single operating hotel in sub-Saharan Africa. With the stroke of a $200 million check, we became the largest hotel company on the continent. It created a platform from which we could grow the balance of the portfolio across Africa.

O’Neill: That thank you for laying that out. There’ll be a lot of people in the audience who would be very interested in the growth plan. I’m wondering maybe, we talk a little bit about brands. EDITION, you’re I think opening your 15th in Tampa?

Capuano: We are. Yeah, I’ll be there mid-October.

O’Neill: The timetable on that brand seems to have been running behind a little bit, like that one was supposed to open in the spring. There’s the ones before it also seemed to run low. Is everything on track there?

Capuano: Well, our lead independent director, a guy named Larry Kelner, who served with wonderful distinction on our board for 20 years. Right after I was appointed CEO, he said “Take credit for good timing and blame bad timing on others.” I mean, our timing on the original launch of EDITION, a fledgling luxury lifestyle brand, could not have been worse. I think the great financial crisis started as we were cleaning up the champagne glasses from the launch event. So we had to relaunch, and I give the company a lot of credit and I give Arnie a lot of credit. We knew we had one more chance to launch right, and so we picked three global gateway cities here in New York with Clocktower, Miami Beach and the Berners Hotel in London. We did those three deals on balance sheet, so a little over $900 million for a company that’s allergic largely to real estate ownership, but it was the right thing to do.

They are complex projects. The design is very bespoke, so I’m not sure I necessarily think it’s not moving as rapidly as we would like. We always want things to go a little more quickly. But behind that 15 open hotels, there are another 12 to 15 signed under development projects. It’s not a brand that we’re going to have 1,000 hotels. I’m quite intrigued about Tampa because as I talk to development partners, they say “Well, that brand makes perfect sense in New York or Miami or London or Tokyo.”

I think that the physical product and what (Jeff) Vinick has created there along the Tampa waterfront is going to be pretty transformational. If it’s as successful as we hope, I think it will open a new set of markets to forward-thinking developers that will consider EDITION.

O’Neill: Cool. I had read an article in The Points Guy that said that Ian Schrager is sort of like wishy-washy about it now. Is he AWOL or is he on board?

Capuano: Well, I talked to him this morning and I could give you lots of adjectives. Wishy-washy would not be one of them. I have worked with Ian now for 12 or 13 years. I have such deep admiration, not only for his creativity, but his passion. He loves to create. He loves this brand. We did not renew our exclusivity with Ian, but again, we’ve got 15 active projects. Our teams are talking to he and his team every day, and he’s as engaged and passionate as he’s ever been.

O’Neill: Cool. I want to touch on diversity. It could be much better in hotel development. What is Marriott sort of doing on that?

Capuano: As you know, before I was appointed CEO, I ran our global development organization. I was appointed to that role in April of (2009). I inherited a global development organization that had zero female transactors. I just had a meeting of our diversity and equity council yesterday and we went department by department. Today, our global development organization is 33 percent female, and it’s not nearly good enough. We had set a goal in what we call our senior leadership. It’s basically (vice president) and above. About our top 800 leaders across the world, I inherited a goal of gender parity by 2025. It didn’t seem aggressive enough, so that goal has been moved up to 2023. I think we’re about 47ish percent today. I have every confidence we’ll meet that target.

O’Neill: I salute the company for that. We have some audience questions here. Ronan is asking, “Why have there not been any brand divestitures of size and scale from the Starwood purchase?”

Capuano: A few reasons. Number one, we love the breadth of choice that a 30-brand portfolio offers — but not just for our guests, for our development partners, as well. Our partners that believe in the power of our revenue engines, the strength of our loyalty program, they want to continue to grow with us and a portfolio that broad continues to give them ways to expand their portfolio with us.

Number two, it’s hard to sell a brand. It’s not impossible, but the question will be, “What exactly am I selling?” Again, all the hotels in that brand are owned by our partners. They probably own brands across the portfolio. And so am I going to them saying, “You woke up or you’ll go to sleep tonight attached to the most powerful engines in the system and the biggest loyalty program in the system, and tomorrow you’re going to wake up attached to something less prolific.” Am I going to give them contract flexibility?

Well, if I give them contract flexibility, what is the buyer actually buying? I think it’s easy to talk about “Let’s sell off a couple brands.” To actually execute that, I think is more complex than most folks consider.

O’Neill: That’s interesting, because that’s informative to me, as well. What in innovations this married feel be the most impactful and meaningful?

Capuano: Well, so right before the Starwood deal presented itself, we had started down a path of re-platforming all of our most important technology platforms. When Starwood came along, we knew that if we were going to integrate that effectively, we had to hit the pause button. We made that decision. I’d make that decision 100 times out of 100 times again. But I’m also frustrated because it slowed down that technology transformation by a couple of years. We’re up to our necks in it right now, and I think it is going to be transformative.

It’ll be transformative in terms of the tools we provide our associates. Sometimes when I talk about this, people say “Oh great, it’s a cost saving measure.” To be sure there’s a bit of that. I’m more excited about the capacity it’ll create for our associates to really engage with a guest in a way that our current platforms don’t allow. I also think it’s going to be transformative in terms of our ability to continue to build stickiness with our loyalty members because our associates that are interacting with our members every day are going to have a single pane of glass with every bit of information they need to make sure we’re doing the best we can to take care of those customers.

O’Neill: As a closing question, we had our reception last night at the Moxy Times Square, beautiful property.

Capuano: Thank you.

O’Neill: Yeah, the staff were great. I was talking with a couple of people in the audience here, Jens and Klaus. One thing that came up builds on the point that you were just making is there’s still a lot of general managers in the hotel industries that they put their finger in there and they use intuition for making operational decisions. What is it going to take to raise that, to have the same kind of decision making that you see in finance and in medicine and…

Capuano: Again, it’s another of the byproducts that we treasure about our scale, is the wealth of data we have. Our ability to understand in real time what our guests like, what they don’t like, how their wants and needs are evolving, and this deep pool of 170 million members that we can test some of our intuition and determine whether it makes sense. I was just down in Nashville — we have a beautiful new Moxy, right in the middle of all the honky tonks there.

As I was touring the hotel, the general manager said “Do you want to see any of the vampire rooms?” I said “I’m not sure.” But these are… The Moxy rooms are 140ish square foot rooms. These are rooms with no windows. They were programmed deliberately because the musicians that are out (until) five in the morning, they wanted this little sanctuary to come in. I learned more than I thought I would about how the performances work down there. You basically go to the equivalent of a union hall every morning. You say, “I’m a drummer. I want to perform tonight.” You get a call around 4 o’clock and they say “Okay, here’s your guitarist tonight, here’s your singer.” You do that every day and they’re exhausted at the end, so they wanted a place to go crash. That came from customer research in that specific market.

O’Neill: That’s awesome. I love it. Well, thank you so much for Tony and I really appreciate you having this time with us today.

Capuano: Oh my absolute pleasure. Thanks for having me.

O’Neill: Thank you very much.

Capuano: Good to see you.

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Tags: ceo interviews, hotels, marriott, sgf2022, skift global forum, Skift Global Forum 2022, video

Photo credit: Marriott International CEO Anthony Capuano at Skift Global Forum Neil van Niekerk / Skift

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