Marriott to 'slug it out' for growth in 2017

(Marriott Brussels)

If you came to Marriott International's fourth-quarter call geared up to hear about all the new things the company had implemented and synergies achieved via its Starwood acquisition, then you hung up the phone a tad disappointed. We will all have to wait a little longer to see the true value of the tie-up.

What is clear is that the hotel industry is past its proverbial performance peak, is grinding out profits and, as Marriott International CEO Arne Sorenson put it, "Slugging it out in a low-growth GDP environment." 

To be sure, this is not the optimal operating environment, so owners, operators and brands are being forced to be as shrewd as they can in a sluggish RevPAR environment. 

A prepared statement by Sorenson belied mounting macro concerns. “Looking ahead, we’ve never been more optimistic about our long‐term prospects," he said, alluding to new room growth (Marriott brands reportedly represent nearly one in four hotels under construction) and happy customers. 

The question is: How far out are Marriott's long-term prospects? RevPAR for the foreseeable future is not cooperating. Sorenson called worldwide RevPAR growth predicted for 2017 as "flattish." Marriott said it expected worldwide RevPAR to increase .5 to 2.5 percent in 2017. 

In Q4 2016 fourth quarter, worldwide RevPAR increased 0.8 percent. North American RevPAR increased 1.1 percent and international RevPAR increased 0.2 percent. 
percent (a 1.4 percent decline using actual dollars) for the same period. For full-year 2016, worldwide RevPAR increased 1.8 percent. These sluggish numbers can be attributed to such events as political unrest in some world pockets, tougher markets, including oil and energy, an increase in new supply and even a hangover from Zika.

As Sorenson added, "2017 is a bit noisy." And while driving top-line growth will be tough, Marriott is growing its rooms and pipeline. During the twelve months ended December 31, 2016, Marriott and Starwood together added more than 68,000 rooms, including roughly 11,000 rooms converted from competitor brands and approximately 31,000 rooms in international markets. At year‐end, Marriott’s worldwide development pipeline increased to more than 420,000 rooms, including nearly 34,000 rooms approved, but not yet subject to signed contracts.

Marriott said it expected a 6-percent uptick in room growth in 2017. 

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But concerns remain, particularly in oil and energy markets and a market you'd expect to thrive in, New York, where Sorenson said, "We remain cautious," but that it has nothing to do with the perceived impact from Airbnb. "New York in Q4 was slightly negative on the top line," he said. "2017 [will be] ever so slightly negative."

New York's biggest enemy is itself. Developers and brands all seek to grow and push the boundaries in the city, which leads to larger supply spurts than other global markets. Sorenson pointed to 5-percent YOY supply growth in the city, that is somewhat blunted by demand keeping up. Still, he said, "The last few months of last year, these were historically soft periods."

Starwood Stuff

While Marriott's Q4 call didn't give much update on the Starwood merger, Sorenson reiterated the company's intention to keep all 11 brands that came along with the Starwood buy. "We are going to keep them all," he said. "If we had a plain piece of paper, we wouldn’t start with 30 brands, but they all have strong distribution. We will work over time to crystallize the brands to draw distinctions."

What's been bandied about before is the state of the Sheraton brand—what were Marriott's plans for it? It was discussed during a Marriott meeting with U.S. owners in late November. From what can be gleaned, some Sheraton properties will remain and some will shuttle out based on their ability to meet brand standards—though Sorenson did not mention how or if they will change. "We are defining standards now," he said. "Those that don’t meet standards will move with due speed to get out of the Sheraton brand or bring them up."

But the movement of that will take some time. "We can't publish a brand standard then have an execution of it a month later," Sorenson. "[Owners] need to have some time. But in 2017, some of the hotels that are most obvious at bottom end of the brand—that didn’t meet standards—will see some renovations or they will leave the system."

As for the merge of Marriott Rewards and SPG, don't expect an all-new rewards platform or program until at the earliest late 2018.

RELATED: Hilton's Q4

Travel Ban

Sorenson saved his harshest censure for President Trump's travel ban, which has since been stayed. While Sorenson said he didn't see "a lot of data saying this is a big deal," since the seven countries on the list—Iran, Iraq, Libya, Somalia, Sudan, Syria and Yemen—are not places where there is a lot of travel to the U.S., there is the personal story and the perception.

"By its terms, it's not a massive deal, but you have individual stories, and it's no bigger story for them. The broad sense is that the executive order is a big deal and the symbolism is wrong—that you are not welcome here or will have difficulty getting in. It has motivated the stories. Now, international groups might not take the risk of coming, since the whole group might not get it."

Sorenson did say that some groups had, indeed, reached out to Marriott and said instead of looking at U.S. hotels, it would look at Canada properties or somewhere else. 

In November, Sorenson wrote an open letter to then President-elect Trump. A letter that has since not received a reply.