Though Marriott International's third-quarter average daily
rate and occupancy growth was tepid, CEO Arne Sorenson nevertheless said the
hotel behemoth's top executives have never been more optimistic.
Perhaps unsurprisingly, the company's acquisition of
Starwood Hotels & Resorts last year is driving that optimism. Sorenson said
Marriott has identified more synergies and opportunities than anticipated. CFO
Leeny Oberg said those include savings on online travel agency agreements,
maintenance agreements, procurement and insurance rates and improved
benchmarking and revenue management.
Revenue for the third quarter increased 44 percent year over
year to $5.7 billion. ADR rose 0.7 percent to $157.02 and occupancy grew 1.1
percentage points to 76.6 percent. Hurricanes Irma and Harvey in Florida and
Texas lifted third-quarter results; Texas, in particular, had been weak for hotel
companies in recent years. Marriott revised its full-year revenue per available
room outlook from 1 to 3 percent to 2 to 3 percent.
Sheraton Shuffle
Sorenson said Marriott, in a typical year, removes 1 percent
of its rooms from the system. That sort of turnover is common among hotel
companies, which aim to keep room inventory updated and at brand standards. Now,
however, Marriott anticipates removing as many as 1.5 percent of rooms in each 2017
and 2018. That bump owes to 6,000 Sheraton rooms exiting the system by the end
of this year and another 4,000 Sheraton rooms exiting next year. "We have
launched a full-court press to improve the Sheraton brand," Sorenson said.
"We are working to increase accountability, quality assurance and capital
investment while applying Marriott systems and programs to drive the top line
and reduce costs."
Sorenson said it's still early but "we believe we are
making real progress and owners are noticing." Marriott signed 3,500 new
Sheraton rooms over the past 12 months.
Corporate & Group
Business
Sorenson anticipates that North American special corporate
rates, which are still being negotiated, will increase "at a low single-digit
rate." Corporate volume is likely to remain flat year over year, barring a
significant acceleration in economic growth. Corporate demand "is not weak
in absolute terms," Sorenson said, "but I think there is a bit more
focus on costs across the average corporate customer today than might have been
the case in past economic recovery cycles."
Group booking pace at full-service hotels in North America
is up almost 2 percent for 2018, which Sorenson believes "is a fair
estimate of how group will perform."
Pricing Power Gains?
One analyst on Marriott's third-quarter earnings call
questioned Sorenson about pricing-transparency apps like Yapta and Tingo. "We
obviously are taking a very careful look at the continued evolution of a number
of these apps," Sorenson said. "Obviously, we live in a world with
radical transparency in pricing, where prices are available for every hotel at
an instant's notice." One measure Marriott already has taken is to push
its penalty-free-cancellation window from 24 hours to 48 hours, a move that
Hilton quickly matched.
He said the core platform for Marriott, however, is its
loyalty program, which continues to gain share of Marriott room nights. "That's
a powerful thing, and obviously some of these other booking platforms are not
conducive to loyalty members because they will not earn points associated with
them." He said the company is examining the redemption formulas for
loyalty programs. The way Marriott has traditionally reimbursed properties for
room nights redeemed by guests using loyalty points has incentivized properties
to drop rates at the last moment. That's because the compensation the hotel
receives is tied to occupancy thresholds; reach a higher threshold, get more
money back. Changing those terms could lead to fewer last-minute price drops.
"Stay tuned on this," Sorenson said, "this is something that
will develop in quarters and years ahead."
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