Marriott International is not a hotelier lacking for news
developments. Speaking to investors from Shanghai on Monday, executives touched
on Marriott's new joint venture with Alibaba Group Holdings, corporate rate
negotiations, the Starwood Hotels & Resorts integration and Marriott's new
cancellation policy.
China & the
Alibaba Deal
Marriott president and CEO Arne Sorenson provided additional
color on its partnership
with Chinese e-commerce behemoth Alibaba, saying the deal probably wouldn't
have happened had Marriott not acquired Starwood. "When the Starwood
transaction was announced, Alibaba was one of the companies that saw it and
said, 'We are very intrigued by the size of this portfolio,' particularly with
luxury and lifestyle and sort of the aspirational kinds of hotels that are in
our portfolio," Sorenson said. "Working together, just the two of us,
we can accomplish a lot that's good for us and they can accomplish a lot that's
good for them."
Marriott last year worked on a targeted marketing program
with Alibaba in which it signed 600,000 Marriott loyalty members in eight
weeks. Bringing more guests into Marriott's loyalty system not only lowers
customer-acquisition costs but also provides additional customer data, which
Marriott can use to enhance its marketing. The JV does the company one better
by allowing Marriott to leverage Alibaba's massive IT and marketing
infrastructure and offering a link between Marriott's and Alibaba's loyalty
programs.
Year-to-date, Marriott has opened a dozen hotels in China,
and it has more than 170,000 rooms across 500 hotels open or under development there.
The market represents 8 percent of Marriott's rooms and 17 percent of its room
pipeline.
Starwood Integration
Sorenson said Marriott's integration of Starwood is "on
track" and results are encouraging, even if it's still early.
"In full candor, I worried that there could be some dip
in top-line performance in the quarters immediately following the close,"
Sorenson said. He feared the uncertainty of how and when the transaction would
proceed would negatively impact group demand in the quarters leading up to the deal's
close. "We're performing right through that in a way that's extremely
strong. Part of that may be that we are, in fact, taking more share from our
customers because of the bigger portfolio here."
Speaking to BTN last month, Marriott global sales officer
Brian King said the Starwood sales team and the Ritz-Carlton sales team merged with
Marriott's global sales organization prior to the start of this year's
corporate rate negotiation season. "If accounts switched from sales manager
to sales manager, we had a process in place to switch all of that account
information so the customer didn't have to repeat themselves to a new sales
manager," King said. The company notified customers of the change via
digital communication and phone calls.
Marriott also moved the entire sales force over to its
proprietary RFP system, which was the first major system the company merged
following the Starwood acquisition, according to King.
Marriott still expects to unify the Marriott and Starwood
loyalty programs in 2018.
Corporate Rate
Negotiations & Segment Performance
Corporate profits
may be on the rise, but Sorenson thinks GDP is a better predictor for corporate
travel hotel demand. And GDP, he said, "has been quite anemic." Though
GDP growth improved in the second quarter to 2.6 percent, there's still a sense
among hoteliers in talking to customers that corporates are managing their
travel spend cautiously.
Some analysts on the
call conveyed concern about how Marriott will fare in the 2018 corporate rate
negotiation season, owing both to the industry's weak corporate transient performance
so far in 2017 and to the sense that hoteliers are losing pricing power.
"[This year] feels comparable to last year's negotiating session on
special corporate rates, maybe actually a little bit better," Sorenson
said. "Don't underappreciate the optimism, which still seems to exist in
the market and in corporate America these days. … When we get into those
negotiations, we will, obviously, start with, 'We're running high occupancies
and your profits are good,' and talking about the terms that are a part of
those contracts. I suspect we'll sort of end up in the kind of range we
negotiated last year, although we'll have to see."
As for whether any
one industry has accounted for weak corporate demand, Sorenson said it varies
across markets and industries. "There are industries like oil and gas, the energy environment, which are
much tougher than others," he said. "But even if you go to the
technology space, for example, technology ranges from companies that have
existed for many, many decades to companies that are just a few years old. 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."
Group business in
North America also has proved softer in 2017 than was anticipated a year ago,
according to Sorenson, while the pace for 2018 is "up modestly."
Sorenson attributed the weakness to a lengthening of the booking window—which
impacts in-the-year, for-the-year group booking growth—as well as tough
year-over-year comparisons, high occupancy and weaker corporate business.
According to TravelClick's 12-month outlook for the period between July 2017
and June 2018, group bookings in North America are up a tepid 0.8 percent from
this time last year.
Transparency Bad for Pricing Power?
While Airbnb and
providers like it are popular scapegoats for hoteliers' diminished pricing power,
rate transparency also is playing a part, according to Sorenson. "With
each passing year, it becomes simpler and simpler to know the rates at every
single hotel, quite simply, within our own system," Sorenson said. As
franchise owners use that transparency to set prices that serve the needs of
their own individual properties, it "may have some impact on our ability
to move rates in this cycle compared to prior cycles," Sorenson said.
There are two factors
at work here: brand proliferation and revenue management. Brand proliferation has
played a significant part in hotel industry growth, particularly in recent
years. A wide portfolio of brands, as Marriott has, meant having multiple
franchised hotels in one market is not seen as a problem as long as they're under
different brands.
But, now that revenue
managers are assigned to every individual hotel and rates are more visible than
ever, intense price competition can occur both across and within companies, according
to Bjorn Hanson, a clinical professor with the NYU School of Professional
Studies Jonathan M. Tisch Center for Hospitality and Tourism. And while Marriott
may have 30 brands, it isn't the only hotelier with this problem, Hanson said.
Cancellation Policy
In June, Marriott rolled
out a 48-hour cancellation policy. The response has been encouraging, Sorenson
said. "Nobody likes incremental restrictions on the flexibility of
reservations, but I think most customers understand that we've got a need to
manage our inventory and avoid walking people and doing those sorts of
things," he said. In fact, Marriott hadn't anticipated much blowback. The
company conducted beta testing in some markets to measure customer response
before broadly deploying the policy, according to Sorenson.