Marriott International was high on its fourth-quarter numbers while promulgating its going-low strategy.
The largest lodging company in the world by number of rooms reported a strong Q4 that included net profit of $673 million, 43% more than at the same time a year ago. Global revenue per available room in the quarter increased 29% compared to the fourth quarter of 2021 and 5% compared to the same period in 2019, driven by a 13% increase in average daily rate.
Among other momentous nuggets recounted during an earnings call, and a propitious trend for the entire hotel industry, is the improvement in group business. “It’s a bright spot for us,” Capuano said. Marriott group pace, or what’s on the books for 2024 as of January 1, 2023, is around 5% ahead of the year prior.
At the same time, corporate transient business is on the up and up, at now a 90% recovery to 2019, according to Marriott. Moreover, as the blurring of work and leisure continues, Marriott said that the average business length of stay has risen by more than 20% compared to 2019.
LOWDOWN ON A NEW BRAND
During the call, Capuano underscored the importance and future value of its 2022 acquisition of the City Express brand portfolio, which marked Marriott’s entry into the “affordable midscale segment.” The portfolio is currently comprised of around 152 hotels across 75 cities in Mexico and three additional countries in Latin America. According to Capuano, Marriott could use the brand as a stepping stone into a segment that has long been the domain of lodging companies including Choice Hotels International and Wyndham Hotels & Resorts, to name two. In January, Marriott’s main competitor Hilton sunk its teeth into what it calls the “premium economy” segment with the launch of Spark by Hilton, which CEO Chris Nassetta touted as becoming Hilton’s largest growth engine, accounting for as much as 30% of future development.
“Time will tell,” Nassetta said, “but this will be the most disruptive thing we’ve done in terms of brand space because it is very ripe for disruption.”
Capuano declined to comment on “a competitor,” but was adamant that the City Express brand is something that could potentially be built out globally. “We’re excited about the opportunity to expand in this segment,” he said, noting further continued growth in the Caribbean and Latin America.
“What we hear from our guests and owners is at the right level of quality, entry into midscale is of great appeal,” Capuano said. “We expect to grow that brand aggressively and we are evaluating the applicability of that brand in other markets around the world. We’ve not made definitive decisions about when and if we will roll out City Expresses in other places, but you can rest assured those evaluations and discussions are going on as we speak.
“If you look at our track record on acquisitions, many of those acquisitions either strengthened our leadership position or gave us a meaningful foothold in a region where we weren’t growing as quickly as we’d like organically. Then, over the passage of time, we look for opportunities to grow that platform more broadly. The same strategy will apply to City Express.”
With regard to overall development, conversions continued to be a mode of growth to succor the blow of less new construction due, in part, to the current higher-interest-rate environment. “Momentum in conversions continues,” Capuano said, noting that conversions represented nearly 20% of room signings and 27% of room additions for full-year 2022.
In sum, Marriott added 394 properties last year across its more than 30 brands, representing more than 65,000 rooms. Marriott is forecasting gross rooms growth of around 5.5% in 2023.
Further for the year, though Capuano acknowledged uncertainty about the global economy, “We have not seen signs of demand softening,” he said. In China, too, which continues rouse from its COVID sleep. “We saw tremendous leisure demand associated with the Chinese New Year and are really pleased with the overall pace of demand that we’re seeing there,” said Marriott International CFO Leeny Oberg.
Development in China still has its obstacles. Marriott’s signings in China last year were down around 15% from 2021 and down a little more than a third from where we were in 2019. “As the borders open, we expect to see meaningful positive impact, certainly on demand patterns, but also on the health and the outlook of develop and we would expect an acceleration in deal volume,” Capuano said.
As an asset-light company, Marriott is continuing its capital recycling program. This year, it is spending some $160 million to renovate the W Union Square in New York, with plans to then sell the asset. Marriott acquired the hotel in 2019 for more than $200 million.
On the operational side, cleaning rooms is still under the microscope, something born out of the pandemic when most hote guestrooms went without daily cleaning due to safety protocols. “When we make these sort of operating protocol decisions, we are guided by both the evolving expectations of our guests and the economic realities of our owners and franchisees, weighing most of those sets of expectations and needs,” Capuano said.
Housekeeping protocols are now set by tier quality, as Capuano outlined. Marriott’s luxury hotels are now essentially back to pre-pandemic daily housekeeping; upper-upscale hotels have a daily tidying — not a full cleaning but making the bed and changing the terry, emptying the trash, etc — select-service hotels have an every-other-day tidy. “This blended approach captures a lot of the economics that we created during the pandemic for our owners and franchisees,” Capuano said.