Marriott 2Q17 Earnings Call Notes

Arne M. Sorenson – Marriott International, Inc.

Europe hotels benefitting from greater US demand

“our Europe hotels are benefiting from improving economic growth and greater U.S. demand, driven by the stronger dollar. As a result, Europe’s RevPAR rose 7% on strong transit performance in the second quarter. Constant dollar system-wide RevPAR in the U.K. increased 8% with London up 12%. RevPAR in Spain also increased 12% as the economy has rebounded and U.S. demand has increased. ”

Even though corporate profit growth has been strong, GDP has been anemic

“I think GDP probably is still a better reference point for assessing demand than corporate profits are. Obviously, they’re both averages of lots of economic activity and lots of participants in the economy. But GDP is a broader measure. Obviously, GDP has been quite anemic. The numbers that have been reported initially for the second quarter feel a little bit better at 2.6%. And if they really are meaningfully better, that will ultimately show up in demand. But GDP has been fairly anemic.”

Radical transparency may impact our ability to move prices

“Second, I think, is that the occupancy, you look at the quarter numbers are fabulous. System-wide across North America, we’re nearly 80% for the full quarter, which is a pretty impressive kind of number. And so, you would expect a little bit more pricing movement. But, I think underneath that, you’ve got relatively more strength in leisure, which is more price-sensitive than the corporate business is. And I think one of the things we need to keep in mind is, while there are a few iconic companies in the lodging space, it sometimes looks like the industry is fairly concentrated, you’ve got to remember that we have thousands of franchisees who are pricing their own hotels on a day-to-day basis. And it is a market with radical transparency in pricing. And that may have some impact on our ability to move rates in this cycle compared to prior cycles.”

Some companies are spending like they’re having a party, others are being cautious

“when you look across that segment, you’ll see that there are companies in there that are being very cautious about travel and very cautious about managing expenses, and others which seem to be spending as if they’re having a great party. And that pops up in different ways in different markets. But, I think generally, it leads to a sort of anemic corporate transient business. Especially corporate, which tends to be the bigger accounts, is weaker than sort of what we would call corporate rack rate transient.”

View on select service market

“The corporate environment is probably, in some respects, less relevant to the select-service brands than to the full-service brands. It’s not irrelevant. Obviously, you’ve got individual business travelers that are staying there, particularly midweek. But the portfolios are broad. They tend to be a bit more sub-urban, they probably tend to be more in energy markets than the full-service brands would be, and energy, obviously, is an industry that’s tough. So, there’s some dynamic of this which is about the distribution of that product. Could there be a supply piece to it, too? Of course, I mean, the supply growth which is occurring in the industry is disproportionately in upscale, not in upper upscale. And so that has an impact. But generally, our view is the sky is by no means falling in the select-service space. These are hotels that are performing quite well and are quite profitable, and when you look at what’s happening on the development side, you see that our development partners want to do more of them, not less.”

Don’t under appreciate the optimism that seems to exist

“To me, it feels comparable to last year’s negotiating session on special corporate rates, maybe actually a little bit better. Don’t under-appreciate the optimism, which still seems to exist in the market and in corporate America these days. And compare it to the point of view last August, September, and October, you’re talking about a pre-election time. I think there was not a sort of robust optimism. Economy seemed to be producing, again, fairly anemic GDP growth. And I think in some respects, while that fairly anemic GDP growth has continued into 2017, there is still some optimism. You can see it reflected in certainly the equities markets and other places. That will flavor a little bit those sorts of conversations.”