Marriott International is bullish on corporate rate growth
even as the company moderates its performance expectations for hotels outside of
North America.
In Marriott's June-quarter earnings conference call,
president and CEO Arne Sorenson said the company would be seeking rate
increases in the high single-digit percentages in upcoming negotiations, noting
that corporate rates remain "meaningfully lower than they were in
2007." While rate discussions have begun only in the "softest, sort
of preliminary way," said Sorenson, the company has started informing its
corporate customers of the expected dynamics for the negotiations.
"Our special corporate customers by and large know that
demand has come back and has come back reasonably strong and, as a consequence,
the power in the negotiations has shifted a little bit," Sorenson said.
"None of our special corporate customers likes to pay more than they have
to pay, so this will be negotiated very carefully."
Sorenson credited strengthening group business and increased
corporate travel for driving up rates and occupancy in North America during the
quarter, with revenues from each up 8 percent. Rates increased by 4.3 percent
compared with the prior quarter—including a 3.9 percent increase in
full-service and luxury rates, and a 4.5 percent increase in limited-service
rates—and occupancy increased by 1.6 percentage points to 74.4 percent. Several
brands had rate gains greater than 5 percent: Ritz-Carlton (6.2 percent),
Renaissance (5.8 percent) and TownePlace Suites (5.8 percent).
Weak results from Washington, D.C., stunted results
slightly, and although the district has stronger group bookings in the second
half of the year, the company is closely monitoring as the General Services Administration considers cuts to its per diem rates for the 2013 fiscal year,
Sorenson said.
"Depending on how aggressive they are, they may be
pricing at a level where [government travelers] will not be able to stay at
full-service hotels, and they certainly will not be able to stay at
full-service hotels in city centers," he said. "Quite possibly the
government will push too hard and hear from folks that it doesn't work."
Outside of North America, rates in U.S. dollars for the
quarter were up 3.9 percent, and occupancy was up 1.9 percentage points to 70.2
percent. Rates increased the most in the Caribbean and Latin America (5.3
percent) and were up more modestly in Europe (2.9 percent) and Asia/Pacific (3
percent). Rates decreased by 4.7 percent in the Middle East and Africa.
Occupancy was up across those four regions, though only by
0.1 percentage points in Europe. Sorenson said that increased travel from the
United States, Russia and China kept Europe buoyant amid the continent's
economic uncertainties.
For the rest of the year, Marriott projects that revenue per
available room growth in North America slightly will outpace growth outside of
North America. Demand growth will be slower in the Middle East and Asia in the
coming months, especially for luxury hotels, according to Marriott.
Marriott's net income for the quarter was $289 million, up
13 percent from 2011 levels.