Marriott International President and CEO Arne Sorenson sat down with Kathleen Matthews, global ambassador, World Travel and Tourism Council, at The Lodging Conference to talk about industry challenges, advice for investors, the future of travel and more.
PHOENIX—It’s been a busy, and at times challenging, year for Marriott International President and CEO Arne Sorenson, but with several tailwinds behind him and his company, there are plenty of reasons to be optimistic, he said.
Speaking on stage with Kathleen Matthews, global ambassador of the World Travel and Tourism Council, Sorenson updated attendees of The Lodging Conference on his health. He announced in May he was diagnosed with stage II pancreatic cancer, but told the audience everything is “going well.”
“I feel good. I’ve still got a significant surgery ahead of me in November, which both terrifies me and drives me to get it behind,” he said. “I’m glad I feel good, the doctors are optimistic … I keep working because I love the work that I do, but it’s also a very useful distraction.”
Sorenson also is navigating industry challenges, most notably the trade war between the U.S. and China. There’s questions of how business inside and outside of China performs for Chinese travelers, he said, pointing to a decline in Chinese travelers to the U.S.
“When you look at the current pace, one of the frustrating things about this is … it’s hard to pull that real-time data. It is crystal clear that Chinese travelers are still travelling abroad (but) they’re much less likely to come to the U.S. today than they were just a few years ago,” he said.
There’s a mix of factors, he said. Some of it is induced by the Chinese government, which has cautioned its citizens not to come to the U.S., and some of it is organic. Marriott won’t get back its share of Chinese visitors until “we communicate somehow that we want you to come, we’ll make it relatively easy for you to come,” specifically for travel, not immigration, he said.
Europe continues to see record numbers of Chinese visitors annually, he said.
Global economic jitters
Sorenson said economic anxieties are being caused by the U.S.-China trade war and also the prolonged economic recovery and expansion, which is approaching year 10.
“A number of folks say, ‘yeah, maybe this is the end,’” he said.
However, unemployment is low, while GDP and wages continue to grow, he said. During the fourth quarter of 2018, the U.S. lodging industry saw wage growth of nearly 5%.
The absolute performance of the economy is good, but not withstanding a sense, particularly in the U.S. corporate world, “that we’ve got to be cautious about what lies around the corner,” he said.
Cutting travel or focusing on discretionary spending is one of the first things corporations do, he said. Recently, he met with his principal owners and told them they need to “collectively be ready” for a recession or softer patch.
To prepare for that, he suggested hotel owners look at debt levels.
“Are they too high? Are they structured with long-enough terms and with terms that allow me to weather a weaker economic patch? One of the bits of good news … is as we’ve gone through these recessions … we have proven as an industry that asset values are really quite resilient,” he said.
The lenders and the valuations that are out there in the market should survive through this, he said.
Pricing of hotel rooms is broadly distributed across thousands of players, he said. And there’s a mentality that “because Marriott’s gotten big or Hilton’s gotten big … that there’s more pricing power in the industry,” which is not true, he said.
The bulk of his company’s rooms are priced by franchisees, he said. He advised franchisees to be careful not to fall into the race to the bottom, where owners cut rates to fill rooms. All that does is prompt nearby hotels to cut rates, too, moving the baseline back, he said.
“Collectively as an industry, we’ve got to make sure we have really clear thinking and say what do we do at the top line, what do we do at the bottom line and what do we do with our debt,” he said.
Keeping a large company happy
To ensure a good, consistent product is delivered to owners, staff and guests, Sorenson said Marriott follows three key principles.
First is being deliberate about company culture, which at Marriott follows an 85-year legacy that preceded Sorenson becoming CEO, he said. Invest in that cultural legacy is “hugely important,” he said.
Second, it’s key to pick the right partners, who have an affinity to the same type of culture, and are focused on people and opportunity in the long term.
Last, Sorenson emphasized the need to delegate authority, which is something he has “aggressively been pushing,” he said.
In the hotel business, he said, delegation of authority has much to do with ensuring GMs and executives at a hotel are held accountable for the way culture comes through on property.
“If (we) give them the tools and we give them the room to run—and you also emphasize the importance of the culture—I think there’s a way to navigate this, even with a company as big as ours,” he said.
Sorenson said today’s social and political climate sometimes creates challenges.
“We’ll have a group in one of our hotels that somebody else will think should not be permitted ... if we’ve got somebody that’s tied to the right or tied to the left … somebody’s going to complain about it,” he said.
He said so far the industry has navigated it.
“We are in the business of everyone—highly diverse work force, all around the world, all walks of life— welcoming everyone to our business,” he said.
On a rash of strikes in 2018 that hit multiple markets and hotels carrying the Marriott flag, he said “we’re not anti-union.”
What was stunning about the 2018 strikes, he said, was that each was called before negotiations.
“What does that tell you? It tells you they were fundamentally not about wages and benefits for our people. They were fundamentally about something else, and that was a hugely frustrating thing,” he said.
Future of travel
Almost everyone today wants intense experiences, he said, and that tailwind is massive. People now rank travel as much more important than previous generations have, he noted.
“That is a trend which I think has got very long-term legs and should be good for us,” he said.
At the same time, we are in a world in which big institutions are increasingly “not trusted,” he said. There also are many platforms, including technological, that allow people to advocate for change.
Navigating that requires the hotel industry to keep its focus on its guests. “Our customers are our customers,” Sorenson said.
Strong relationships with guests come through service and technology, which won’t be easy, he said. “But with the tailwinds behind us in terms of demand, I think there’s plenty of reason to be optimistic that we can succeed—all of us can,” he said.