Though corporate rate negotiations are still underway,
Marriott International CEO Arne Sorenson said early data suggests corporate
rate increases will be in the mid-single digits for next year.
Sorenson said in spite of declining revenue per available
room growth, occupancy rates at the company's hotels remain very high, "particularly
on nights and in markets where business travel is significant."
"If you look at Monday, Tuesday, Wednesday, Thursday
nights, we're running chockablock," he said. "That means even in a 0
to 2 percent RevPAR environment, we're not without some position in discussion
with our customers to make sure that we're being fairly compensated for that
occupancy."
The request for proposal season is a bit different for the
hotelier this year, given its recent merger with Starwood Hotels & Resorts.
That transaction
closed on Sept. 23, and the third quarter marks the first time Marriott
reported combined earnings, though the third-quarter figures include only eight
days of Starwood performance, given that the quarter ended on Sept. 30.
That mid-single-digit estimate from Sorenson comes only from
like-for-like Marriott legacy accounts, and he said the company has plenty of
work to do to understand the new clients they're adding from Starwood.
"Are they at the same rates? Are they at higher rates because they're
smaller? Are they in different markets?" Sorenson said. "All those
things will have to get worked out."
In terms of third-quarter results for the corporate segment,
Sorenson said corporate customers are clearly cautious, a sentiment Hilton
Worldwide CEO Christopher Nassetta also
expressed a couple weeks ago. During Marriott's second-quarter earnings
call, Sorenson mentioned that RevPAR among Marriott's 300 largest corporate
customers in North America grew 4 percent year over year during the fourth
quarter of 2015, 2 percent year over year during the first quarter of 2016 and
less than 1 percent during the second quarter. During the third quarter of 2016,
RevPAR for those same customers was flat year over year. "Higher demand
from professional services retail and healthcare firms was offset by lower
demand from technology, financial, energy and manufacturing companies,"
Sorenson said.
Not including Starwood results, systemwide average daily
rate increased 0.8 percent year over year during the third quarter to $151,
while occupancy rose 0.3 percentage points to 76.7 percent. Third-quarter
revenue, including $168 million from Starwood's eight days under the Marriott
umbrella, totaled $3.9 billion, up from Marriott's $3.6 billion for the third
quarter of 2015.
Q4 & Beyond
Looking ahead to the fourth quarter, Marriott estimates year-over-year
RevPAR to be flat or grow by 1 percent in North America and worldwide. The pace
of RevPAR growth for group business at full-service legacy Marriott and Starwood
properties is down about 5 percent, Sorenson said, "reflecting tougher
holiday comparisons combined with weak near-term corporate bookings."
For 2017, Marriott expects RevPAR to be flat or grow 2
percent both in North America and worldwide. That figure is more conservative
than key competitor Hilton, which set its 2017 RevPAR growth outlook in the 1
percent to 3 percent range. "We obviously don't know how they came to the
range they provided when they released earnings," Sorenson said,
responding to an inquiry from an analyst about the difference between Marriott's
and Hilton's stances. "We expect GDP to continue with the anemic numbers
that have been posted in 2016 into 2017 and beyond, and it sounded as if one of
our largest competitors was expecting a rebound of some sort in GDP. ... We hope
they're right."
Sorenson said Marriott's estimate did not reflect pessimism
about its performance now that Starwood properties are part of the portfolio
and that the outlook would be the same "if we were just legacy
Marriott." Hilton, for its part, did catch some grief for the more bullish
RevPAR outlook.
"A slowing economy and geopolitical events
have made forecasting this metric difficult for about a year," Barclays
analysts Felicia Hendrix and Anthony Powell stated in a recent report. "As
such, we believe [Hilton] management should have erred more on the side of
caution with their forward outlook. … A RevPAR forecast of 0 to 2 percent
growth would be more appropriate in this environment."