Marriott International said that it was too early to estimate how coronavirus would affect openings this year.
The comments came as the company reported full-year figures and said that it was continuing to lean on its luxury and upper upscale hotels, with use of its loyalty programme “meaningfully higher” on the year.
Commenting on the group’s openings schedule, CFO Leeny Oberg said that, because of the time taken for a newly-opened hotel to ramp up, “the year-one impact of fewer openings is not meaningful”.
Commenting on the impact on performance of the outbreak, Arne Sorenson, president & CEO, said: “Given the fluid nature of the situation, we have not reflected the impact from the outbreak in our base case outlook for this year. For full year 2020, our base case outlook assumes comparable systemwide revpar on a constant dollar basis will be flat to up 2%, with revpar growth in North America around the middle of that range. We assume net rooms additions of 5% to 5.25% in 2020.
“Given those assumptions, our base case assumes gross fee revenues in 2020 could total $4bn, a 5% increase compared to 2019. However, assuming the current low occupancy rates in the Asia Pacific region continue, with no meaningful impact outside the region, we estimate the company could earn roughly $25m in lower fee revenue per month, compared to our 2020 base case outlook.”
The group has 90 hotels closed because of the outbreak with revpar down 90%. The group said that greater China represented 9% of global rooms. In 2019, gross fees earned in Asia Pacific were $477m, 12% of global gross fee revenue. Greater China generated around half that, with 6% of fees and total Ebitda.
Oberg told analysts: “This is an extremely fluid situation, how it affects other continents remains to be seen. The virus will run its course and when it does the impact will not be long-lasting.”
For the full year, the company reported worldwide comparable systemwide constant dollar revpar up 1.3%, with fourth quarter revpar increasing 1.1%. The group reported full-year Ebitda of $3.58bn, up 3% on the year. For 2020, Marriott International said that adjusted Ebitda could reach between $3.7bn to $3.8bn, a 3% to 6% increase on the year.
The CFO commented on the impact of the loyalty programme, where there had been “meaningfully higher” redemptions than the previous year. “In 2018 we saw the loyalty programme be net cash positive, this year it was several hundred million of a net cash user, as a result of the introduction of Bonvoy. There was some pent up demand from our customers, there were also some marketing expense. You saw a fairly unusual pattern for the programme, we are confident it will be much less of a cash user in 2020. Introducing peak and off peak will help manage the programme and get it to where it behaves more like it has in the past.”
The programme had 141 million members at the end of January, which Sorenson described as a “key competitive advantage”. Member share of occupied rooms was 52% in 2019, 58% in North America, with, the CEO said, “solid growth from co-branded credit cards. More of our guests booked direct” with, he said, worldwide sales accounting for three quarters of room nights and direct digital bookings accounting for one third.
Sorenson added: “There’s not reason the loyalty programme won’t get back to being a positive cashflow generator. As we grow our portfolio we will issue more points than are redeemed. We are more pleased than disappointed. Penetration is higher in North America and higher in select service hotels but we are seeing higher penetration in full service and resort hotels.”
At year-end, Marriott’s global lodging system totalled more than 7,300 properties and timeshare resorts, with roughly 1,380,000 rooms. The company’s global pipeline totalled 3,039 properties with approximately 515,000 rooms, including 1,207 properties with over 220,000 rooms under construction and 133 properties with roughly 23,000 rooms approved for development, but not yet subject to signed contracts.
The company has forecast global room growth of 5.0% to 5.25%, net of 1% to 1.5% deletions for full year 2020.
The CEO said that luxury and upper upscale hotels comprised over half of the group’s distribution globally, with 45,000 rooms signed in these tiers in 2019. He said: “Year-end our luxury and upper upscale hotels under construction are more than our three closest competitors combined.”
Insight: Marriott International shares jittered as the results were released, but, at the time of writing, were up by 3% as the market appeared satisfied with its comments on the impact of the coronavirus. For Marriott International, as at the other global operators, China remains a future story, not a current one. The fear is that the virus will spread to more mature markets and there will be a more serious impact. But as Sorenson told analysts: “We know one thing with confidence. This will pass.”And, if Sars is anything to go by, usually within one quarter.
Away from the unforecastable to the loyalty programme, where, after Host Hotels & Resorts’ lavish enthusiasm last week, observers were all ears. Initial signs showed that usage had indeed increased and to the benefit of bookings, but at a cost. This cost, it was hoped, would come down and revert to much the same pattern as the old programme - although of course the company wants it to be bigger, faster, better than the old programme.
So it will need to ensure that growth outstrips usage. This title spoke to one owner this week who had just signed Marriott International for a resort and much fun was anticipated. On its radar were redemptions and how to manage them, something which had featured heavily in negotiations. Lawyers with specialised knowledge, set your fees now.