Marriott sheds revenue alongside unnecessary hotels

The Shanghai Marriott Hotel City Centre. Photo credit: Marriott International (Marriott missed its anticipated revenue numbers last quarter amid a push to remove under-performing hotels from its system.)

Marriott International touted strong performance throughout Q2 2018, but a lower-than-expected forecast for revenue per available room rates saw shares in the company tumble more than 4 percent earlier this week.

When talking about Marriott’s performance during its Q2 2018 investor call, company President and CEO Arne Sorenson voiced a familiar refrain: “Steady as she goes.” While systemwide RevPAR was up 3.8 percent worldwide, the company’s real gains were felt outside of North America where RevPAR rose 5.7 percent compared to a 3.1-percent increase domestically. The company is now forecasting a 2-percent to 3-percent increase in North American RevPAR for the rest of the year.

In addition, Marriott’s net income rose to $610 million in second quarter 2018, a significant increase over the $489 million recorded over the same period last year. However, Marriott’s revenue missed Wall Street’s estimate of $5.84 billion, recording $5.35 billion. This was attributed to a 5.6-percent reduction in fees received from hotels the company owns or leases.

Marriott's loss of fees can be toggled to the number of rooms the company has been cutting loose. Last quarter, Marriott removed nearly 14,000 rooms from its system. And while Marriott remains net positive considering the 23,000 rooms it opened during this period, the culling of rooms' inventory was still substantial. However, Sorenson maintained this is actually a lower level of room deletions when compared to previous quarters, with Q2 room deletions coming from a total of 18 hotels, 20 percent of which the CEO said were the result of contract expirations.

“The core question to address is what this says about our partners who want to affiliate hotels with us,” Sorenson said. “We also added 40,000 new rooms to our pipeline. That’s 241 hotels…almost a new hotel every nine hours.”

Cutting Weight

A number of these deletions are a result of Marriott’s merger last year with Starwood Hotels & Resorts Worldwide, such as the ongoing rework of the Sheraton brand. Sorenson elaborated that the opening of the 23,000 rooms in second quarter resulted in overall room growth of 5 percent. By the end of the quarter, Marriott’s worldwide development pipeline totaled 2,740 properties, consisting of approximately 466,000 rooms. Roughly 11 percent of this pipeline consists of luxury hotel development.

And while Marriott seeks to add new properties to its system the company is not finished working on its existing portfolio.

“We have Marriott, Sheraton, Westin, JW Marriott and Delta all in the upper-upscale, full-service segments,” Sorenson said. “They are now all a part of us, so how do we target these brands to minimize customer confusion? That’s what our brand teams are hard at work at. We talked about Sheraton the most because [it] needed the most work."

Sorenson also revealed the final merger of the Marriott Rewards, Ritz-Carlton Rewards and Starwood Preferred Guest loyalty programs is almost done, with all slated to operate in a unified manner on Aug. 18.

“We won’t get to a one-name loyalty program until some time in 2019, but we will have one program in operation August 2018,” Sorenson said. “Guests previously had to earn status in one platform or the other, and points earned and redeemed will need to be transferred. Lastly, customers who arrive on our site will see our whole portfolio through the combined programs.”

Winning on the Road

Internationally, however, the story is different. The FIFA World Cup in Russia led to what Sorenson characterized as “considerable last-minute demand,” and he pointed to countries like France and Turkey as markets where Marriott will thrive in the next two quarters.

During a question-and-answer session at the end of the call, when Sorenson was asked how potential trade wars may impact Marriott’s performance in the coming months, he remained positive. He said there are currently no signs the trade conversation is impacting the brand’s performance in China, neither on occupancy nor development.

“What we have seen on the development side is…comforting,” Sorenson said. “There is clearly an appetite for Chinese development. Of the hotels we have open in China, I can think of one that is not owned by a Chinese company.”

This may come as a relief for those seeking international development deals. Sorenson’s concerns, however, were reserved for impact that may be felt at home.

“My fear is what a trade war could do to GDP growth and trade materials costs in the U.S.,” he said. “This has not manifest itself yet, but it probably has manifest itself in some materials used for construction.”