Why Marriott Thinks It Could Fare Better Than in Previous Recessions

Marriott International forecast that its fourth quarter would surpass 2019 in revenue per available room, a a closely watched number, underscoring the resilience of travel spending despite economic worries.

“We expect continued demand growth around the world in the fourth quarter and anticipate that global RevPAR [revenue per available room] could increase two percent to four percent compared to 2019,” said CEO Anthony Capuano on Thursday’s earnings call. Executives also highlighted why they will be stronger than in the past should a downturn hit the global economy.

The Bethesda, Maryland-based company — operator of more than 30 brands ranging from Ritz Carlton to Fairfield Inn — raised its annual profit forecast on Thursday, thanks to higher rates it has been able to charge during the global travel boom. The company predicted that its worldwide revenue per available room could come in closer to pre-pandemic levels than it had expected at between 2 and 4 percent above 2019 levels.

Forward leisure bookings for holidays, such as Thanksgiving and Christmas, look strong through year’s year — though the company’s clearest visibility is only a few weeks out.

Group bookings also look strong. Fourth-quarter full-service group revenue is currently pacing to be more than 4 percent of the comparable quarter in 2019. Relatively last-minute bookings have allowed for strong pricing so far.

Optimism About 2023

Marriott believed that several factors would allow it to perform better during a possible economic downturn next year than it had done in past downturns.

“We definitely see that we could perform relatively better than we have in prior recessions,” said Leeny Oberg, chief financial officer.

Oberg noted that the company is entering a possible downturn at a time when U.S. unemployment rates are relatively low. Also, the company’s portfolio is weighted toward premium brands, and consumers with higher levels of discretionary income remain heavily motivated to travel post-pandemic and still have extra savings, on average.

“We currently think 2023 global RevPAR [revenue per available room] could increase nicely year-over-year, driven by gains in both the U.S. and Canada and internationally,” Oberg said. “Each quarter could see growth compared to this year and particularly strong growth in the first quarter due to the easier comparison, given the impact of the omicron variant in early 2022.”

Group bookings for 2023 also are pacing strongly.

“When I look deeper into what’s on the books for 2023 [for group reservations], room nights are down [from 2019 levels] in the high teens, but ADR [average daily rate is actually up close to about 10% [above 2019 levels],” Capuano said.

Strong Quarter

In the third quarter, Marriott generated $630 million in net income — a measure of profit — from $5.3 billion in revenue.

In the U.S. and Canada — its largest market — the group reported that its third-quarter revenue per available room was $129, up 3 percent over 2019 levels. The region had an average occupancy of 72 percent — just 2 percentage points below the pre-pandemic level.

Expanding Beyond Premium Brands

Marriott International has mainly kept its portfolio to serve the upper half of the hotel market. In North America, 43 percent of its inventory is “upscale,” 35 percent is “upper upscale,” and 5 percent is “luxury,” according to room count categorizations by market research firm STR on Wednesday. The rest, 17 percent, is “upper midscale.”

The company hasn’t had economy or affordable mid-scale brands in the Americas, but that looks set to change. Earlier this month, Marriott said it would buy the City Express hotel portfolio in Latin America for $100 million. The deal gives it five brands in a new category — the affordable midscale segment.

“We are quite bullish on the moderately priced mid-scale space, which has meaningful growth potential,” Capuano said.

The company plans to scale up the brand, first in Latin America.

“We are not in the mid-scale segment in the U.S.,” Capuano said. “Certainly, this acquisition gives us the opportunity to evaluate whether it makes sense to enter mid-scale in any other market, inclusive of the U.S.”

Pipeline Steady Despite Financing Friction

As of the end of September, Marriott had about nearly 8,200 properties globally. Its worldwide development pipeline totaled more than 3,000 properties and more than 468,000 rooms subject to signed contracts.

Several investment analysts on Thursday’s call quizzed Marriott executives about whether the company’s hotel signings and development had stalled at all as interest rates have rapidly risen worldwide. The broad answer was no, except in China, where a mix of pandemic restrictions, complex projects, and other factors had caused a lot of friction on the development of its mostly upscale properties there.

As of September 30, the company said it had about 204,800 rooms under construction. The company hasn’t yet reached 2019 levels of construction, but the construction level remained at the average for the past 20 quarters.

“On the signing side, we continue to see strong development volume,” Capuano said. “We continue to see strong franchise application volume in most markets around the world. The construction we’re seeing in the developed markets for new construction, particularly here in the U.S., is lengthening the cycle even a bit longer in terms of getting shoes in the ground.”

“We see signs that the strength of our brands continue to capture a disproportionate share of what’s out there,” Capuano added.

Credit Card Record

Marriott arguably has the most-used hotel co-branded credit card in the world, and that has become an important tool for it in driving direct bookings and repeat business.

In the U.S., Marriott had record new cardholder acquisitions and record spending on its credit cards during the first nine months of the year. Fees were up 20 percent year-over-year. In September, it added two “mid-tier” cards to further drive growth.

The company similarly saw record growth internationally this year in new card members and total card spending, especially in China.

The company’s loyalty program reached 173 million members, the largest of any of the hotel rewards programs.

Watching Brand Standards

During the pandemic, some hotels procrastinated on doing renovations and other upkeep to maintain brand standards, and Marriott International looked the other way. But now some properties are looking shabby. That upsets owners who have kept their commitments when they see neighbor properties tarnish a brand’s reputation.

Marriott is responding carefully. It has resumed quality assurance audits of its brand standards. During the crisis, they gave owners and franchisees a measure of relief on requirements for the timing of renovations.

“We’re bringing those requirements back but with some pragmatic perspective on hotels that are doing a terrific job on service as evidenced by those quality metrics and giving them the ability to selectively extend some of those renovation cycles,” Capuano said.

Holding Online Travel Agencies at Bay

During the pandemic, Marriott International joined many other hotel groups in leaning into online travel agencies as a source for demand during desperate times. But during the post-pandemic boom, the company has returned to encouraging consumers to book directly.

In the third quarter, 38 percent of its bookings came directly. The contribution of online travel agencies to demand was only 12 percent of the mix — which was just 1 percent higher as a proportional share of the mix than in 2019.

“Our direct digital bookings … do help the hotel margins by coming through that channel rather than coming through the OTAs [online travel agencies],” Oberg said. “We’ve obviously worked very hard to make sure that we can make the most out of every revenue dollar that comes through the hotels.”