In advance of reporting
first-quarter earnings on April 20, Marriott International lowered its North
American revenue per available room expectations to a 5 percent to 6 percent
increase, down from prior projections of a 6 percent to 8 percent increase. Marriott
CFO Carl Berquist in late March addressed this shift while speaking at the J.P.
Morgan Gaming, Lodging, Restaurant & Leisure Management Access Forum in Las
Vegas. He also discussed the potential impact of world events on group and
business travel and outlined Marriott's global growth plan, including a joint
venture with Madrid-based AC Hotels. An edited transcript of his remarks
follows.
What prompted you to drop first-quarter revenue per
available room expectations?
Carl Berquist: It's a lot of little things, but you can look at four markets where we
have significant presence—Orlando, Atlanta, Washington, D.C., and New
York—where we saw some changes that we had not anticipated. In New York City, a
lot of supply came on. We were expecting that supply, but it came on at rates
that were lower and weaker than we had anticipated. We were the rate leader in
New York, where we had pushed rates first and had been aggressively moving our
rates up. As this supply came on at lower rates, it slowed that process down.
New York also had weather—quite
a few snowstorms—that slowed the pace down. In Washington, D.C., you had a
little bit of noise for about a month on the government shutting down. We have
a lot of government contractors in Washington, D.C., and they slowed down their
meetings and some of their transient travel as they waited to see what's going
to happen. Atlanta had some weather.
In all those markets, we
have several large, big-box hotels, 1,000-room hotels, and the pace of
in-the-quarter, for-the-quarter small group bookings did not materialize at the
same level we were expecting. We saw good group bookings in December and
January, and we used that as our basis for the first quarter. Although February
came in good, with group bookings up 15 percent, it was not at the levels we
thought it would be as we set our guidance. That's why we thought it was
important to bring it down to 5 to 6 percent.
Are transient business travel levels meeting
expectations, and have you experienced any marketshare loss because of a push
for corporate negotiated rate increases?
Berquist: Transient
is fine. When you look at our select-service, which is largely business
transient, it's coming in where we thought it would be. If you adjust for
renovations, our market share is pretty much flat. You would have seen a
dramatic drop in market share had [a loss of transient business because of rate
increases] been the case. Our corporate negotiations were no more difficult
than they have been in the past. It wasn't an adversarial-type thing that would
have driven someone somewhere else.
Have you seen rising oil prices affect travel
patterns?
Berquist: Not
right now we haven't, but if airlines either start boosting their ticket
prices, taking capacity out because of it or both, then that's going to have an
effect on business travel, and ultimately, you could see that effecting a
slowdown in the economy. The hotel business tends to follow GDP. We're assuming
a 3 percent GDP growth in 2011. Anecdotally, as those ticket prices to
particular cities go up pretty quickly, people will consolidate trips. So,
instead of traveling to New York three times, they'll travel two times, but
they'll stay longer. By and large, we haven't seen oil prices affect the
business today, but we've got to watch it.
Do you expect much of a business impact from Japan's
tsunami and earthquake and turmoil in the Middle East?
Berquist: We
have very little presence in Japan. We have about 10 hotels there, so it's not
a big effect to us. What we have seen is business, meetings and things that
were going to happen in Japan, move out of Japan and into Beijing, Shanghai,
some into Singapore and a little into Thailand. We have about 30 hotels in the
Middle East, so we don't have a big footprint there, either.
What's your growth plan?
Berquist: We
talked about adding 35,000 rooms this year, and we're on target to do that. Nine
thousand of those are AC Hotels, which includes 80 in Spain, where we had very
little representation. It's the same with Italy, and more importantly, it's a
model we can hopefully roll across Europe as well as South America. In 2010, we
added 13 full-service hotels through our newly created Autograph brand and
those hotels are doing extremely well. Their revenue share has grown 30 percent
since they became part of the Autograph Collection. We just announced four
Autograph hotels in Europe. We actually see Europe as a much bigger opportunity
for Autograph, because there are a lot of independent hotels there. In Asia, it's
a lot of new-build [properties]. That seems to be the opportunity. As we look
at China, we've been concentrating on the coastal regions, and now we'll start
moving into the secondary cities. In South America, we're adding select
service, not only with AC, but we've announced a fund with a construction
company in Brazil through which we're going to open a number of Fairfield Inns,
so there's a lot of growth opportunity around the world.