Tough year-over-year comparisons and calendar shifts hindered Marriott International’s RevPAR growth in the third quarter, and while the company is taking a more conservative approach to Q4 2018, top executives said they don’t anticipate any troubling trends continuing into 2019.
BETHESDA, Maryland—Everyone knew the year-over-year comparisons during the third quarter were going to be difficult, said Marriott International President and CEO Arne Sorenson during the company’s third-quarter earnings call, but the impact on performance was more significant than anticipated.
The company’s worldwide comparable systemwide revenue per available room growth reached 1.9%, missing the forecasted range of 2.5% to 3% for the quarter, Sorenson said. In North America, RevPAR grew only by 0.6%.
“While we anticipated a negative comparison to last year’s hurricanes, a decline in U.S. transient demand in September was more significant than we anticipated,” he said. “October looked better than September, with stronger transient demand and considerable group business on the books. We are nevertheless taking a slightly more conservative view as we enter the seasonally slow holiday periods, so we are forecasting North American RevPAR growth of 1% for the fourth quarter.”
The main disappointment in the third quarter was weaker-than-expected U.S. RevPAR growth in September, due to hurricane comparisons and the Jewish holiday shift, which had an effect on the company’s fourth-quarter projections, Sorenson said. However, its impact was not significant enough to change the company’s early guidance or ranges for 2019, he said.
RevPAR performance for the month was “better than two points worse” than what Marriott executives predicted heading into September, he said.
“When you miss by over two points, that’s a little bit sobering,” he said. “So we’ve done what we can to tease, test and sweat the data to see if we can figure out what happened.”
Some of September’s numbers, such as a slower transient pickup than seen in prior months, served as a cautionary tale, Sorenson said. October was a better month, and RevPAR numbers are heading back toward the prior trend line, he said.
There’s enough concern for the company to take a more conservative approach to November and December because they are weaker months, as there is less group business and more dependence on transient business, Sorenson said. But Marriott expects travel to resume at a stronger pace in 2019, and has solid reservations on the books already for next year, he said.
“The sky is not falling, notwithstanding the month of September,” Sorenson said. “We do think September was more an industry story than a Marriott story.”
Marriott has passed the two-year mark in its acquisition of Starwood Hotels & Resorts Worldwide, Sorenson said. The company is halfway through moving legacy Starwood properties onto Marriott’s system, and the process is going well, he said. Loyalty programs Marriott Rewards, Starwood Preferred Guests and Ritz-Carlton Rewards were fully merged in August.
Merging the loyalty programs was a complicated process because it essentially required the creation of a new loyalty program, Sorenson said. The loyalty and IT teams worked hard to make the process go as smoothly as possible, but as expected, problems did arise, he said. While the IT teams worked to correct the problems, the loyalty teams worked with program members on the phone lines. Wait times did at a point get too long, he said, but those have since returned to normal levels.
The Sheraton brand is about fair share for the first time in his memory, Sorenson said. Since launching its program to revitalize the brand, Marriott has been able to improve guest satisfaction scores by about three to four points, he said, calling it a “massive shift positive.” Developer interest in the brand is strengthening. It’s a multiyear challenge and a long way from completion, he said, but Marriott is proving it is making progress.
By the end of the quarter, Marriott’s worldwide development pipeline reached 2,790 properties, representing about 471,000 rooms, according to the company’s earnings release. Of those, 1,139 hotels are under construction, representing more than 212,000 rooms. The company also has 293 properties with almost 50,000 rooms approved for development but without a signed contract.
For the full-year 2018, the company expects the number of its rooms to increase by 7% gross while room deletions should reach almost 2%. The company projects gross room additions at a similar rate for full-year 2019, but room deletions to drop to about 1% to 1.5%, which is more in line with previous years.