Marriott International said that opening delays in North America and the Middle East would mean that room openings were more “modest” than earlier guidance.
The company was confident in its global performance, with revpar growth in China ahead of its rivals, as well as an increase in outbound guests from the region.
The group said that, for 2019, it expected worldwide rooms’ distribution to increase by around 5% to 5.5%, net of 1% to 1.5% room deletions. In May the group had forecast growth of 5.5%, with
rooms deletions of about 1% to 1.5%.
Arne Sorenson, president & CEO, told analysts: “We have not seen project cancellations for 2019 openings. Over the past few years, lengthened construction periods reflect labour shortages, a larger proportion of room and properties and increasing number of new projects using multiple brands.
“When you look at our US portfolio, what we see is even in the limited-service segments, a bulk of what we’re doing is non-prototypical work. We’re not talking about a suburban Courtyard that looks the same from market to market. We’re talking about an urban Courtyard or an urban AC or an urban Aloft or an urban Moxy that is very much a custom job. And in the tight labour and tight construction cross-markets, exacerbated a little bit by the modest revpar market, we’re seeing the construction timelines increase.
“While construction delays have moderated our near term rooms growth in 2019, our under-construction pipeline totalled 213,000 rooms in quarter-end. Based on hotels under construction and projected earnings data, we can see that the openings in 2020 and in the couple of years beyond should accelerate meaningfully from what we’re experiencing in 2019.”
Sorenson said that the group was monitoring 3,000 projects in that development pipeline, with the US accounting for around half of those, which the CEO said were “disproportionally” select-service hotels. He said that around two-thirds of the impact was in the US and one third in the Middle East and Africa.
The company added more than 16,000 rooms during the second quarter, including nearly 3,500 rooms converted from competitor brands and approximately 7,500 rooms in international markets. At the end of the quarter, Marriott’s worldwide development pipeline totalled roughly 2,900 hotels and more than 487,000 rooms, including approximately 40,000 rooms approved, but not yet subject to signed contracts. Roughly 213,000 pipeline rooms were under construction at the end of the period.
Adjusted Ebitda was up 1% on the year to USD952m, with revpar up 1.2%. The company saw revpar up by 2.6% in the quarter in greater China, with Sorenson acknowledging a slowdown, but telling analysts that he was “optimistic about the future” given the group’s partnership with Alibaba, now a year old, as well as the group’s portfolio in the region, which he described as “principally Chinese business, even in a market like Shanghai”.
Ahead of the results saw Marriott launch an all-inclusive platform, signing management contracts with hotel developers who plan to build five new all-inclusive resorts, expected to open between 2022 and 2025 in Mexico and the Dominican Republic.
Sorenson said: “The all-inclusive market is growing rapidly and our Marriott Bonvoy members would like to see us in this space. We expect to expand our all-inclusive portfolio in popular, leisure destinations in the Americas, Europe, and Southeast Asia with both new build projects and property conversions, leveraging our well-established full service and luxury brands.
“Broadly Caribbean basin is the biggest market in the world for it, but you’ve got growing markets in the Mediterranean area, as well as Asia-Pacific.”
The CEO said that the company had considered acquiring an all-inclusive company, but decided on organic growth. The group plans to build its platform using: The Ritz-Carlton, Luxury Collection, Marriott Hotels, Westin Hotels, W Hotels, Autograph Collection and Delta by Marriott.
Looking ahead, the company has forecast worldwide systemwide revpar up 1% to 2% in both the third and fourth quarters, with 1% to 2% revpar growth for the full year. Adjusted Ebitda in 2019 was expected to be USD3.586bn to USD3.626bn, a 3% to 4% increase on 2018.
HA Perspective [by Katherine Doggrell]: As performance it’s-a-waning, there has, as we have seen at IHG where Holiday Inn is a dominant force, a fleeing to the belief that size matters. And this is what Marriott has been banking on; come the tricky times, come the owners.
This is what Bonvoy was created for and, sure enough, those developers quoted at the launch of the all-inclusive platform were all about the loyalty programme. And Marriott was all about feeding it with more leisure-friendly properties. Too much? The company said that it Marriott Bonvoy point redemptions were running ahead of expectations in as members “explore the new locations and experiences offered by the significantly improved programme”.
As a result, the company expected the net cash impact of the loyalty programme would be “a few USD100m more negative in 2019 than we expected at the beginning of the year, but should improve significantly in 2020”, when the group expected it to “calm down”.
Should enthusiasm remain high, owners may start to feel less calm about the cost.
Additional comment [by Andrew Sangster]: Marriott produced a solid set of numbers in what was a slowing global market overall, and particularly in the US.
As always, a company’s results have to been seen in the context of the market overall. Morgan Stanley summed up the situation by cutting EBITDA estimates by 2% for 2019 and 2020 but it raised the share price target by USD2 to USD125 as the stock market investors rerated hotel companies upwards. It’s slowing but it’s probably worse in other sectors.
Marriott said that bookings via OTA channels dropped 2% globally with the US being in the vanguard of that strength. CEO Sorenson said: “We are working with our OTA partners to make sure that we are getting business from them when we most need it and not necessarily taking it when we don’t”.
It was clear, however, that Sorenson does not think that the OTA share will necessarily keep declining. He admitted that the strength of the overall economy was a key factor in how much OTAs are used.
The other disruptor that Marriott is keeping a weather eye on is the so-called sharing economy. Marriott has just 2,500 homes in its own listings, in its own words a “tiny” share. But of the luxury market, where Marriott is focused, its relative presence is much stronger. Sorenson said the assurance of Marriott quality meant it was winning customer preference by taking out the “crapshoot” aspect of whether or not a stay would be good. About 95% of the homes listed had two or more bedrooms, which made them complementary rather than substitutional to hotels.
One final thing to pick out from these numbers and the discussion around them was Marriott’s comments on the Indian market. Sorenson said that India’s hotel market was still very small with 175,000 rooms which compares to the more than two million rooms in the US which are owned by Indian expats.
Sorenson added he was bullish on the Indian market and believed Marriott had a leading market share both in terms of hotels open and also hotels coming into the development pipeline