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.”

Marriott 3Q16 Earnings Call Notes

Marriott International (MAR) Q3 2016 Results

NA demand continues to moderate

“Clearly, North American demand growth continues to moderate. In the third quarter, hotels with the weakest RevPAR were generally in oil and gas markets, or in gateway cities affected by continued weak international visitation, or impacted by new supply.”

Group business has been worse than anticipated

“Yeah, I mean, I think it’s faster than we would have expected. If you go back to the full year, I think we started – and Laura can maybe pull this out as we talk – but I think we started 2016 with group business up almost 10% for 2017 compared to where we were at the first of 2015 for 2016. And I think we cautioned folks that that was not likely to hold because as we got farther into the year, we would see that we could book less because we had less capacity. And so we expected that we would tail down towards the maybe mid to high single digits. But I think the experience in the last quarter or so going from roughly 7% to roughly 2% is worse than we anticipated.”

Companies are cautious probably reflect the anemic GDP growth environment that we’ve been operating in

“I think there are a couple of – one positive thing that can be said next to that, when you look at bookings done in Q3 for all future periods, we were up about 8%, if memory serves. So people are still making commitments on group business and there’s good growth. But when you look at the near term, when you look at group bookings in the year for the year, or you look at group bookings for the next 12 months, we see less robustness there. And to us that’s a sign of some caution by corporate customers probably particularly who – in the sense that’s where group business gets most like corporate transient business too. And there I think we’re seeing companies be just a bit cautious and probably reflect the sort of anemic GDP growth environment that we’ve been all operating in.”

30 brands post starwood

” We’ve said a couple of things here that are sort of obvious. I think if we had not merged with Starwood, would we be trying to build 30 brands from scratch? I think the answer is probably not. At the same time, having done this deal, the 30 brands all exist. They all have substantial capital that has been invested in them, particularly by the hotel owners who have made deliberate bets about which flag they put on their hotels. And we don’t have the power to, nor the desire to, try and convince them that those bets have not been good bets.”

Going to market with brands as a portfolio

“I think the other thing that’s really important to recognize here is the biggest expense from a brand perspective, in theory, is about marketing the brands. And, obviously, that’s the most expensive when each brand has to be marketed on its own. And in that context, you would want as much definition as you could have between brands. And it would still be expensive to go out and market each one alone. I think in many respects that’s no longer our model, if it ever was. I think the principal model today is we go to market through our loyalty platform, through our dot com site, through our app. And those things allow us to essentially market a portfolio and offer through that portfolio an incredible range of choice to our customers, which drives, actually, conversion from looking to booking that much higher and makes the economics of each brand better, not weaker. And so you put all that together, and I think that’s why we conclude that we’re going to keep these brands and we’re going to continue to grow them. I don’t really think that there are material incremental costs to having a brand given that that’s the business model that we have.”