• Marriott hails ‘tremendous’ integration

Marriott International saw its share price rise by 6.4% after announcing that it was making “tremendous progress” on the integration of Starwood Hotels & Resorts.

The company raised its full-year Ebitda guidance and said that hotels were seeing the benefits of better agreements with the online travel agents.

President & CEO Arne Sorenson told analysts: “Demand for our brands remains high and we are on track to deliver 6% net unit growth in 2017. Throughout the company our teams are making tremendous progress on the Starwood integration”.

Sorenson said that the group had converted Starwood owned and managed hotels in North America to the Marriott International procurement system and was reviewing and renegotiating vendor contracts to leverage purchasing power. It had also already migrated all US Starwood Hotels to Marriott’s OTA contracts, with hotels in other continents to follow soon.

Sorenson said: “We have spent a lot of time analysing our relationship with intermediaries. We are interested in having those relationships work for us. That is about of negotiating our relationships with them regularly and it’s about making sure we’ve got a loyalty programme that gives us the power to have a relationship with a huge percentage of our transient guests.”

The group is on track to unify its financial reporting infrastructure in early 2018, and to realise a common technology platform for reservations and loyalty programmes in late 2018.

Sorenson said that the combined company would continue to use the loyalty programme to drive bookings, commenting: “I think member discounts are here to stay. And that is because we are encouraged by what we’ve seen. We want to make sure that through the loyalty programme, we have the relationship with customers that doesn’t require them to sit down and do a spreadsheet calculation to figure out whether it’s in their interest to be members of our loyalty programme”.

When asked about the impact of Airbnb, Sorenson said that the impact of the sharing platform had been “less impactful to the revpar numbers that we’ve posted the last number of years than folks might have imagined.

“They are serving a different customer than what we serve at Marriott. They are skewed much more towards leisure. They are skewed much more towards a value-centric customer in the bulk of their business, and if their business is under pressure because of a regulatory environment, I’m not sure necessarily that that customer immediately pops up and shows up in our hotel suites.”

On the potential of Airbnb as a distributor, he added: “None of our hotels has a single room on Airbnb. They certainly should not have a room on Airbnb so we are not today looking at that company as an intermediary in a way that’s anything similar to the relationships we have with other OTAs around the world.”

The company added more than 17,000 rooms during the first quarter, including around 3,300 rooms converted from competitor brands and 6,400 rooms in international markets. At the end of the quarter Marriott’s worldwide development pipeline reached more than 430,000 rooms, including roughly 36,000 rooms approved, but not yet subject to signed contracts.

Sorenson said that, when splitting the pipeline along Marriott International and Starwood lines, it was 65%/35%, “which would suggest the Marriott pipeline is a little bit bigger, which is not really that surprising. Marriott had many more brands playing in this select service place in the US than Starwood did”.

The CEO said that the company was currently in discussions with 80% to 85% of the owners of the bottom-performing Sheraton hotels, a brand the group is seeking to overhaul. At nearly half of those 50, he said, renovations are already underway.

The group reiterated the intention of selling over USD1.5bn of real estate by the end of 2018, with CFO Leeny Oberg commenting that she was confident of further asset sales in 2017. The balance of owned hotels in the Starwood portfolio was around 5,200 rooms in North America.

The comments came as the company reported adjusted Ebitda up 10% and raised the full-year guidance to an increase of 4% to 7%, up from 3% to 6% in February, “to reflect higher fees, lower general and administrative expenses and stronger profitability of owned and leased hotels”.

The first quarter saw revpar growth of 3.1% and the company said that it expected to see full-year growth between 1% and 3%.

 

HA Perspective [by Katherine Doggrell]: When Marriott International agreed its takeover of Starwood Hotels & Resorts, the price handily pushed higher by some Chinese intervention, there were sharp intakes of breath at the USD13bn paid, the immense brand stable and whether there weren’t, in fact, cheaper ways out there to achieve scale, but enthusiasm is currently running high. Morgan Stanley was even prepared to increase its price target and support 2% to 3% revpar growth, warmer than Marriott’s own.

Driving all this is the scale-begets-scale argument, which has, as the company pointed out, seen a flock of conversions and a healthy boost to the pipeline. Probably best not to point out that hailing select service and then saying Airbnb was no concern because it was a value position is a bit of an eyebrow-raiser.

Sorenson maintained that the company would be keeping its 30 brands, although did not repeat past comments that he wouldn’t turn down his nose at adding more. The group has instead invested elsewhere, investing an undisclosed amount of money in the in-destination, metasearch service known as PlacePass.

The move means that guests will soon be able to choose from an additional 100,000-plus “authentic local experiences” in 800 destinations worldwide when they book direct on Marriott.com or SPG.com or their respective apps. These include a tour of the real Downton Abbey and wrestling with a retired sumo wrestler in Tokyo.

The company is not leaning back on its laurels when it comes to building the weight of its loyalty programme.

 

Additional comment [by Andrew Sangster]: At the time of the Starwood acquisition Hotel Analyst commented that the price looked a bargain given that the deal was earnings enhancing almost from the start. M&A has a history of destroying shareholder value but this does look like an exception.

The conference call for the first quarter results supported the notion that Marriott has made a great buy. Fears about owners causing a big fuss have proved unfounded. Even owners of Sheraton-branded properties are not yet reaching for their lawyers.

What is happening at Sheraton is that owners are being asked to find money for improvements. Out of the bottom 50 Sheratons, defined by Marriott via guest surveys and similar, about half are already undergoing renovations. Sorenson said that about 60% of the bottom 50 are seeing change with around two or three from that 60% likely to leave the Sheraton brand. What the plans for the other 40% are was not made clear.

The notion of there being too many brands was given short shrift: “We can all look at our 30 brands and our 1.2 million hotel rooms and say that’s a lot, but it’s nothing compared to the range of choice that’s offered by the third-party intermediaries, and offering more choice to our customers is a great thing.”

Also coming out of the call was Sorenson’s view that select service growth in North America will be more subdued this year than at its peak in 2015. Only a significant boost to economic growth would change this, he added. Select service growth was expected for Europe, particularly West Europe, and also for the Middle East.

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