• Marriott looks out from the US

Marriott International said that it was leaning on the international markets to drive revpar expansion, with organic growth in the US having peaked.

And the company says that it is now able to enter the homesharing market in a way that complies with the law.

CEO Arne Sorenson was confident that its homesharing trial in London was the correct route into the segment, commenting “it’s one thing for a start-up to engage in a business that really does not comply with law, it’s another thing altogether for a 90-year old company like Marriott to step into a business which is fundamentally illegal”.

The company has started a six-month trial with UK-based home rental company Hostmaker to offer over 200 homes in London through the group’s Tribute Portfolio. Sorenson said: We wouldn’t have made the test unless we felt like it was likely to lead to a positive outcome”, with the group likely to move forward with homesharing.

Sorenson said: “It’s a place where branding can make a difference. It’s a place where we can deliver an experience both in terms of service and quality that we want our customers to have. And it’s a place where we can feel really good about connecting it to the loyalty programme.

“One of the reasons we didn’t jump into this quickly is we thought this is a business that is not made for us. We have now figured out that we can run this business in a way that does fully comply with law. It will include payment of lodging taxes, so that it’s a level playing field with the hotel business. It will very much include complying with local regulatory requirements on number of nights homes can be let in this way and make that work.”

In the group’s traditional hotel business, Sorenson commented on the tightening of both construction and labour markets, which were pressuring hotel operating margins and lengthening new hotel construction timelines, particularly in North America and Europe.

The CEO said that the group’s development pipeline skewed toward faster growing international markets. With one third of open rooms in international markets, over half of the rooms in the company’s pipeline were located outside North America, and of our international pipeline, nearly 60% of the rooms were in the Asia Pacific region.

He added: “Organic industry growth in the US in terms of new signings probably peaked in 2015 to 2016. Obviously, we’ve got some new brands…which should give us the ability to compete better than the industry as a whole.”

The company opened nearly 15,000 rooms worldwide in the first quarter and the pipeline at quarter end approached 465,000 rooms. Marriott signed just under 20,000 new rooms in the quarter, 10% more than in the first quarter of 2017. Sorenson added: “And I suspect the odds are that next year we’ll open more rooms than we open in 2018.”

Commenting on the company’s recent move to cut group commission from 10% to 7%, he said: “This change will not have a material impact on Marriott International’s results, but the commission change should make a meaningful difference to hotel owners, particularly those where group business is a significant share of their overall occupancy. The change in commission rates triggered a considerable number of new group bookings in the first quarter largely for meetings taking place in 2020 and beyond.”

Sorenson also described “good stickiness” with efforts to drive direct bookings. He said: “I think as the loyalty programme gets stickier and stronger with the credit card programme, we should continue to see that those customers grow and those customers are much more inclined to book directly.

“And that’s the case almost no matter what happens with the search algorithms or approach that some of these platforms are taking. If the customers know that it is clearly in their interest to book direct, they’re going to find a way to book direct.”

The company recently launched a new customer recognition platform which will allow Marriott associates globally both on- and off-property to deliver better service by accessing guest portfolios, preferences and history to, the CEO said, ensure every guest anywhere in the world can receive truly personalised service.

The comments came as the group reported worldwide revpar growth of 3.6%, beating the top-end of our guidance by 60 basis points. London revpar was flat year-over-year, reflecting, Sorenson said: “weak demand from the financial services industry likely Brexit related”. Ebitda for the quarter was up 8% on the year, to USD770m.

Looking ahead, the group expected worldwide revpar to increase by between 3% and 4% in both the second quarter and the full year. Adjusted Ebitda for the full year was expected to increase by 10% to 12% on the year to reach between USD3.4bn and USD3.5bn.

HA Perspective [by Katherine Doggrell]: Sorenson would appear to still be smarting somewhat from last year’s run in with Airbnb, which included such unedifying correspondence including the platform asking the CEO to explain “your industry’s habit of taking billions of dollars from taxpayers to subsidise the construction and operation of your hotels”. Marriott, for its part, had things to say about Airbnb being aggressive and, as we heard on the Q1 call, a certain fluid approach to legality.

So, the pair don’t seem to have made up, but the approach now is: ‘if you can’t beat ‘em, do it better’. Curation, service and loyalty programme appear to be the key battlegrounds and Airbnb has made forays and whispered of future plans where are all concerned (while also looking to lure hotels onto its platform) in recent months.

But nuances aside, the sharing platform was one which Marriott had to be in, following the lead of Hyatt Hotels Corporation and AccorHotels, both of which have seen it as a rounding-out of their portfolios. With the group now looking away from its domestic market to overseas, where it has less influence, it is harnessing its expanded brand stable to attract owners and every little bit helps. Marriott has now moved from ‘talk’ to ‘action’ with Airbnb and we will watch how well it competes with interest.

Additional comment [by Andrew Sangster]: Marriott might be leaning on international markets to help boost its revpar growth but it remains a very North American hotel company. Even with all the hype about overseas expansion, half of its pipeline is still in North America.

And, despite absorbing the more international Starwood, North America accounts for more than 60% of all fee revenue. The next biggest contribution comes from Asia Pacific but this is less than 15%. Europe is just 7%.

This means Marriott has scale in North America but not in other geographies. With its current pipeline, Marriott is not radically going to change this.

This brings us to Marriott’s flirtation with the sharing economy. As noted in our report, Sorenson has made much in the past about the illegality of existing platform players. He is now entering that same market as a self-proclaimed paragon of virtue.

Were I on the Marriott compliance or public affairs teams, I would be having sleepless nights. It is very hard to see how the Wild West market of such accommodation platforms will not create massive elephant traps for Marriott completely disproportionate to the potential reward.

But perhaps Marriott is being brave rather than stupid. It is a taking a necessary risk to ensure it remains competitive and can demonstrate that its 90 years of brand building will matter in such markets.

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