Marriott CEO more optimistic about travel resurgence
 
Marriott CEO more optimistic about travel resurgence
10 AUGUST 2020 3:43 PM

The slow-but-steady increase in travel demand since the lows of April have Marriott International executives more confident in the overall recovery of the hotel industry.

BETHESDA, Maryland—Marriott International President and CEO Arne Sorenson’s outlook for the U.S. hotel industry has improved in the weeks since he told The New York Times he was less optimistic than he had been 30 days prior.

During the company’s second-quarter earnings call, Sorenson said despite the persistence of the pandemic, he’s more optimistic about the recovery of travel and the hotel industry given improved performance in July.

The number of COVID-19 cases surged at the beginning of July while the Fourth of July holiday brought increased demand among leisure travelers, he said. After the holiday, demand paused for a few days, but as the month continued, occupancy grew each week by a point or a point-and-a-half in the U.S., indicating American travelers and consumers are in need of some return to normalcy, he said.

In the company’s earnings report, Marriott reported comparable systemwide constant dollar revenue per available room dropped year-over-year by 84.4% during the second quarter. Worldwide RevPAR has grown from being down 90% in April to being down 70% in July, with 91% of the company’s properties open worldwide.

Only 9% of Marriott properties remained closed as of the call, compared to 25% in April, Sorenson said. Since April, occupancy levels have increased each month in every region of the world at varying rates. Global occupancy reached 31% in July for all hotels, an increase of 19 percentage points from April.

“There’s still no visibility around when RevPAR could return to 2019 levels,” he said. “However, the global industry trends experienced over the last couple of months give us confidence that people will continue to increase their travel. We are optimistic that the second quarter will mark the bottom, and that the worst is now behind us.”

Increasing domestic demand
In North America, 96% of Marriott’s hotels are open, and there has been a steady recovery across all chain scales, Sorenson said. Leisure demand has been strong in resort areas as well as secondary and tertiary drive-to markets. Pace of recovery has been fastest for extended-stay properties.

“In 2019, domestic travelers accounted for 95% of North American roomnights, a benefit for the current environment,” he said.

New bookings in North America have been building, led by near-term leisure transient reservations, he said.

Historically, leisure travel has made up about one-third of Marriott’s total roomnights in North America, Sorenson said. The monthly variance of this percentage is quite small. In 2019, leisure travel made up 36% of roomnights over the summer months and only dropped to 32% in September and October.

“We expect that solid leisure demand will continue through Labor Day in North America and could continue into the fall as employers and schools alike operate remotely,” he said.

Business transient and group demand in North America, while lagging, are showing signs of improvement, Sorenson said. Group bookings outside of Marriott’s caregiver and first responder programs tend to be smaller, such as weddings or traveling sports teams.

Groups that had near-term business on the books deferred more than they canceled, he said. New bookings, however, are less robust as organizers are less likely to commit until they have greater clarity.

Group business on the books for 2021 is down about 10%, compared to groups that had booked by August 2019 for 2020. Marriott expects the first half of next year to be meaningfully worse than the second half of 2021 in terms of group business, Sorenson said.

“Ultimately, when we get to the point where it looks like group meetings can be held safely, we will see both less deferral of business already on the books and new business come in,” he said.

Pipeline growth
The pace of new signings has slowed in most regions around the world, primarily due to a lackluster lending environment and owner uncertainty, Sorenson said. Marriott canceled one of its monthly deal-approval meetings during the spring, reducing signings year to date.

“We are having productive conversations with owners and franchisees who want to move forward,” he said. “Some are hoping to see lower construction costs … for new builds while others are interested in conversions to our brands.”

Based on prior economic cycles, conversion volume tends to step up in weaker environments when transaction volume is up as well, he said.

“By and large, while there is an increasing number of hotels out there under some pressure, we haven’t seen many transactions take place yet.”

Marriott’s pipeline totaled approximately 510,000 rooms at the end of the quarter, Sorenson said. More than 230,000 rooms were under construction, amounting to about 45% off the pipeline. Overall, the company’s pipeline fell 1% since the end of the first quarter because of slowed signings and more projects being put on hold than normal, he said.

While construction activity has resumed in most parts of the world, Sorenson said he expects some openings will be delayed, partly due to supply chain issues related to the pandemic.

“There is uncertainty surrounding future worldwide rooms growth, but given current trends, we could see net rooms growth between 2% and 3% in 2020,” he said.

As of press time, Marriott’s stock was trading at $97.78, down 35.5% year to date. The NASDAQ Composite Index was up 20.4% for the same period of time.

Click here for more news about public hotel company performance, including information about the Baird/STR Hotel Stock Index, which tracks 20 of the largest market capitalization hotel companies publicly traded on a U.S. exchange.

1 Comment

  • Jose Alvarez August 11, 2020 11:32 AM Reply

    Arne is putting a good spin on things. While leisure business will come back due to pent up demand business transient and business group will take much longer than Arne or other CEOs are forecasting. Companies are telling shareholders that the current reductions in travel are likely permanent. S&P Global CFOs and other firms are echoing these comments. Companies have not only figured out how to work remotely but also to conduct meetings without the need to travel. No company is going to take the risk of a group meeting until 2022 at the earliest. Until then its going to be a long road for Arne, Chris, Mark and the others. Perhaps the CEOs know this but have to put on a brave face. Its going to be ugly for a long long time.

Comments that include blatant advertisements or links to products or company websites will be removed to avoid instances of spam. Also, comments that include profanity, lewdness, personal attacks, solicitations or advertising, or other similarly inappropriate or offensive comments or material will be removed from the site. You are fully responsible for the content you post. The opinions expressed in comments do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please report any violations to our editorial staff.