Marriott has brighter outlook on 2018 after strong Q1
 
Marriott has brighter outlook on 2018 after strong Q1
09 MAY 2018 3:11 PM

First-quarter performance was better than expected, and the factors behind it have Marriott International executives feeling confident about the remainder of 2018.

BETHESDA, Maryland—The performance of hotels in Marriott International’s global system exceeded expectations enough for the company to revise its 2018 full-year revenue-per-available-room growth outlook by 1.5 percentage points.

President and CEO Arne Sorenson told analysts during the company’s first-quarter earnings call the company is “very pleased” with the results of the first quarter.

During Q1, worldwide comparable systemwide constant-dollar RevPAR grew 3.6% year over year, according to the company’s earnings release, which breaks down to 2% in North America and 7.5% outside of North America. Net income increased 7% to $398 million. Adjusted earnings before interest, taxes, depreciation and amortization rose 8% to $770 million.

Marriott was hopeful to see a pickup in economic growth in North America during the first quarter, Sorenson said.

“Our hopes have been realized,” he said. “It’s time to take up the numbers a bit.”

Transient RevPAR increased about 2.5%, helped by the reduced corporate discounting in the legacy Starwood Hotels & Resorts Worldwide portfolio, better leisure demand, improved international arrivals and an overall strengthening of corporate demand, particularly in the oil and gas industry, he said.

Recent demand trends in the oil and gas markets are encouraging, Sorenson said. While Houston is still recovering from Hurricane Harvey and has a tougher year-over-year comparison because of the 2017 Super Bowl, RevPAR in the other 39 energy submarkets in the United States grew by 6% in the fourth quarter of 2017 and by 8% in the first quarter of 2018. The Canadian energy markets were even stronger, he added.

RevPAR from group business came in flat compared to Q1 2017, Sorenson said, which was stronger than expected.

“The performance is largely due to better-than-expected attendance at group meetings and stronger group business at limited-service hotels,” he said.

While the company’s economic outlook has improved, Sorenson said the labor market remains tight and wages are rising in many markets, adding pressure to hotel operating margins and lengthening new hotel construction timelines, particularly non-prototype and urban hotels in North America and Europe.

RevPAR grew nearly 6% in Europe, he said, consistent with prior guidance. Strong corporate and leisure demand helped performance in Eastern Europe, he said. While RevPAR in Turkey and France continues to rebound, London’s performance was flat because of weak demand from the financial services industry, likely because of Brexit.

The Asia/Pacific region saw stronger performance, Sorenson said, as RevPAR grew 10%, much better than the mid-single digits previously forecasted. Corporate and leisure demand helped push RevPAR in Greater China to nearly 12% growth, and travel during the Chinese New Year was better than expected. Marriott is bullish about India, where RevPAR grew 6% on strong corporate and leisure demand. Marriott also celebrated the opening its 100th property in India: the Sheraton Grand Bengaluru Whitefield Hotel & Convention Center.

Integrating Starwood
Marriott continues to make progress in its integration of Starwood, Sorenson said. So far, Marriott has combined their financial reporting systems, integrated the North American sales organization and recycled approximately $170 million in capital from asset sales and loan repayments, he said.

By August, guests should be able to see and book all of the company’s hotels through the Marriott and Starwood websites and apps, he said. They should also be able to use a unified loyalty program.

“We look forward to rolling into a single reservation system in stages,” Sorenson said, adding the first group of hotels will convert in fall 2018. “We expect owners will see significant cost savings as integration continues.”

Innovation
Marriott is testing out home sharing in London through its Tribute Portfolio Homes that works with the company’s loyalty programs, Sorenson said. The pilot program has a curated collection of homes with design, location and safety in mind.

The company has watched this space for a number of years, he said, and it didn’t immediately move into it out of concerns of how to comply with laws in different cities, states and countries. It has since figured out how to run such a platform in a way that follows the law and pays lodging taxes.

Sorenson said Marriott will take this program one step at a time, and he hopes to take considerable lessons from the experience of the next few months. If it goes well, the company will extend it to other cities.

“We want to make sure we’re delivering a high-quality service experience, and we’re delivering whole homes,” he said. “It’s at the higher end of the market, where branding can make a difference. We want to deliver an experience in service and quality we want our customers to have.”

Marriott also partnered with China’s Alibaba in a joint venture last year, Sorenson said, and now it has a redesigned storefront that features global inventory with localized mobile experience that is user-friendly. It is rolling out a new payment platform that allows qualified users to have a comprehensive, wallet-free experience during their stay, he said.

The company launched a new customer recognition program behind the scenes, Sorenson said. Marriott associates both on- and off-property can access guests’ portfolio, preferences and history to provide a “truly personalized experience” anywhere in the world.

Development
Marriott opened nearly 15,000 guestrooms in the first quarter, and the company’s pipeline totaled 2,722 hotels, comprising 465,000 rooms by the end of March. It is likely Marriott will open more rooms this year than it did last year, Sorenson said, just as it opened more rooms in 2017 than it did in 2016. In turn, he expects the company will open more rooms in 2019 than in 2018.

The development pipeline skews toward faster-growing international markets, he said, with one-third in international markets and half of the pipeline outside of North America. Nearly 60% of the rooms in the international pipeline are in the Asia/Pacific region.

As of press time, Marriott's stock was trading at $137.90, up 1.6% year to date. The Baird/STR Hotel Stock Index was down 0.2% for the same period.

1 Comment

  • Etravelweek May 10, 2018 11:42 AM Reply

    Where is the number of rooms sold? It’s as important as RePAR. I was asking myself from the start of reading to the end of it: was the growth caused by raised price? Inflation? Tax? Foreigen exchange? ... Maybe I should use a calculator. But when you gave both numbers of RePAR and rooms sold at a time, life got so much easier.

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