Though Marriott International is only a couple weeks into its pilot of home rentals in London, CEO Arne Sorenson said during the company's first-quarter earnings call on Wednesday that it's "off to a great start."
Sorenson said the plan for Marriott's home rentals business is to learn as it goes, ensuring that the company is delivering a high-quality-service experience renting out "whole homes"—no spare bedrooms or air mattresses here. "Within a few months, we should be able to learn considerable lessons from what we're doing in London," Sorenson said. "If it goes well—and we're quite optimistic it will—we'll be extending that to other cities."
Marriott, along with the rest of the hotel industry, has been keeping an eye on the home rental market during the past few years. Some, including Choice Hotels International and Wyndham Worldwide, leveraged vacation rentals to gain a foothold, while others like Hyatt Hotels Corp. and AccorHotels have bought or bought into existing home rental providers. But Sorenson said players who entered the market early, i.e., Airbnb, did so illegally in some countries and cities. "It's one thing for a startup to engage in a business that really does not comply with law," he said. "It'd be another thing altogether for a 90-year-old company like Marriott to step into a business which is fundamentally illegal."
Sorenson said that in waiting to enter the space, Marriott has figured out how to begin renting homes in a way that complies with local laws and regulations and doesn't skirt local taxes like occupancy tax that hotels are required to pay. Marriott, essentially, is entering this space after Airbnb has spent years battling local regulators to loosen or lift laws around home rentals and to secure the right to collect or remit occupancy taxes on behalf of Airbnb hosts. It's worth noting that Marriott, as a prominent member of the American Hotel & Lodging Association, also helped to make those battles more difficult for Airbnb.
Marriott's move into home rentals also comes after Airbnb announced plans this year to roll out category-driven portfolios and loyalty programs. Sorenson thinks Marriott can do branding better. "As some of these platforms have grown into millions and millions of units, there is almost a paralyzing array of choices," Sorenson said. "The lack of branding and the lack of attributes around quality and service of product makes this an area where we think we can bring our brands, we can bring our service and product focus, and deliver something that is simply a better product."
Other Q1 Highlights
Marriott saw better-than-expected group business during the first quarter, driven by stronger-than-anticipated attendance at group meetings and increased group business at its select-service hotels.
Those factors kept first-quarter group revenue per available room flat year over year despite the shift of the Easter holiday into the last weekend of the quarter. Food and beverage revenue per group room night increased 6 percent year over year. Hilton reported similar better-than-anticipated group business during the first quarter. CEO Christopher Nassetta attributed the results to increased optimism and spending among corporates.
Asked by an analyst whether Marriott's recent cut to group and meetings commissions, now in effect in the U.S. and Canada, were leading to greater margins, Sorenson said the impact likely wouldn't be seen until 2019, as the cuts don't impact group business booked prior to March 31.
RELATED: IHG Slices Meetings Commissions
Marriott's first-quarter comparable systemwide constant dollar RevPAR grew 3.6 percent year over year, driven by an ADR increase of 1.5 percent to $159.92 and an occupancy increase of 1.4 percentage points to 69.8 percent. Hotels outside North America reported a 7.5 percent year-over-year RevPAR gain, while North American RevPAR grew 2 percent. Sorenson said a recent increase in demand in oil and gas markets in the U.S. and Canada is a welcome about-face from the slump of recent years.
During the quarter, the company added almost 15,000 rooms to its portfolio, 5,800 of which were in international markets. As of March 31, Marriott's global development pipeline totaled 465,000 rooms across 2,700 properties.
First-quarter reported net income increased 7 percent year over year to $398 million.
RELATED: Marriott's Q4 and Full-Year 2017 Earnings