Business travel demand from small and midsize accounts has fully recovered to 2019 levels, Marriott International executives said Thursday during a third-quarter earnings call, but demand from larger accounts, particularly in the tech sector, continues to lag and the rate of their recovery has slowed.
The company is “encouraged by the sequential quarter-over-quarter improvement in business transient,” Marriott CEO Anthony Capuano said during an earnings call. While Marriott’s third-quarter U.S. and Canada business transient demand increased to 11 percent below 2019, compared with 13 percent down in the second quarter, “small- and medium-sized companies, which are about 60 percent of those [business travel] room nights are fully recovered. And in fact, in Q3, their room nights were up about 10 percent.”.
Larger companies, though, remain behind 2019 demand levels, especially technology companies, which in the third quarter were down 29 percent from 2019.
“We do look for continued improvement and think it will ultimately get back to where it was, but the exact timing of that hard to say,” Marriott EVP and CFO Leeny Oberg added during the call. "The reality [is] that we have seen it moderate in terms of its rate of improvement as we've moved into Q3, and I would expect to see that moderation continue."
Meanwhile, Capuano said that in-progress negotiations for 2023 herald higher corporate rates. "After two years of holding rates steady, the early results look positive for at least high single-digit year-over-year rate growth," he said.
Third-quarter group travel continued to increase. “In the U.S. and Canada, full-service group revenue for the quarter showed continued growth, ending up 3 percent over the same quarter in 2019,” Capuano said.
Group revenue on the books for 2023 is “currently pacing down about 11 percent relative to 2019,” Capuano stated on the call, while noting “the short booking window on transient, a similarly short booking window on group.” Still, Capuano said Q4 group bookings are “up 4 percent, and we think that will likely improve through the quarter, given the strength of short-term bookings and the trade that many of our customers are making for flexibility and they're willing to pay a higher rate.”
Additionally, group business is being booked with short turn-around times. “About 50 percent of the group business we've seen year-to-date in 2022 was booked in the year, for the year. That's about double what we saw pre-pandemic,” Capuano noted.
Q3 Metrics
Marriott third-quarter global revenue per available room increased 1.8 percent over 2019 levels—a first since the pandemic—and the company projects an increase up to 4 percent going in Q4.
Marriott’s third-quarter worldwide RevPAR in Q3 2022 reached $120.60, a 36.3 percent year-over-year increase. Occupancy reached 69.2 percent, up 10.8 percentage points year over year. Average daily rate reached $174.19, a 15.1 percent increase year over year—and 10 percent over 2019 levels.
“Compared to pre-pandemic levels, worldwide RevPAR in September reached a new monthly high watermark, increasing more than 4 percent—or nearly 7 percent, excluding Greater China” Capuano said.
“RevPAR compared to 2019 improved sequentially from the second quarter in every region around the world,” Capuano said.
Marriott's operating income totaled $958 million during the quarter, nearly doubling its Q3 2021 operating income of $545 million, according to the company.
As for development and growth, Marriott reported a pipeline of more than 3,000 properties and 502,000 rooms, “including roughly 33,300 rooms approved, but not yet subject to signed contracts.”
“Approximately 204,800 rooms in the pipeline were under construction as of the end of the 2022 third quarter” the company added.
“This is actually the 20th straight quarter where we’ve had more than 200,000 rooms under construction globally,” Capuano said, while acknowledging the growth in Greater China is disproportionate due to the region’s renewed zero-Covid policy and restrictions.
Capuano also noted the company’s pending acquisition of its City Express brand will mark Marriott’s “entry into the affordable midscale segment” in the Caribbean and Latin America, and “this acquisition gives us the opportunity to evaluate whether it makes sense to enter mid-scale in any other market inclusive of the U.S.”
Slow Recovery in China
Marriott noted challenges across the board in the Greater China region due to “stringent travel restrictions.” These challenges are felt across RevPAR (down 23 percent compared with 2019), occupancy (down 11.4 percentage points) and ADR (down 8 percent), but especially in terms of development and growth as the region is “quite a volatile environment,” Capuano said.
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