Marriott International, like its peer group, is seeing leisure travel demand flatten out, but, serendipitously, business travel and group business are filling the void.
The largest lodging company in the world reported its third-quarter numbers on Monday and though global RevPAR was up 3% YOY (led by international markets), Marriott reported that its net income was some $168 million less than at the same time a year ago. Still, the company’s development pipeline is humming with 3,800 properties and 585,000 rooms, including roughly 34,000 pipeline rooms approved. More than 220,000 rooms in the pipeline were under construction as of the end of the third quarter. Marriott International CEO Tony Capuano said that net rooms grew 6% year-over-year.
Group business was the standout. RevPAR in the segment rose 10% YOY for the second quarter in a row, with increases in both room nights sold and average daily rate, noted Capuano, though adding that at the end of September, global group revenues were facing roughly flat for the fourth quarter, primarily due to negative impact from the U.S. election, but up 8% for full-year 2024. Increases in group business disproportionally benefits Marriott due to its large volume of convention-style hotels, “at nearly double the number of rooms of the next closest peer,” Capuano said. Group revenue for 2025 at Marriott is pacing up 7% at the end of the quarter on a 3% increase in room nights and a 4% increase in average daily rate.
On the same solid trajectory is the global business transient segment, which Marriott said experienced another quarter of sequential growth, with third-quarter RevPAR rising 2% YOY. (Leeny Oberg, Marriott’s CFO and EVP of development, mentioned that GDS bookings were marginally up, a reflection of the continued return of larger corporations doing their bookings.) Leisure transient RevPAR, meanwhile, was flat against the same period a year ago.
Though post-pandemic RevPAR increases were most pronounced in the select-service, midscale segment, at Marriott the tables have now turned. “RevPAR growth at luxury and full-service hotels outperformed select-service properties and weekdays surpassed weekends, reflecting strength in group and business,” Capuano said.
At the same time, Marriott is digging deeper into the midscale space. In October, it announced its City Express by Marriott brand name as its new transient midscale product in the U.S and Canada, with what Capuano called its “highly effective operating model and outstanding value proposition.” Though higher segmented business is seeing bigger growth, Capuano remains resolute in Marriott’s pivot to midscale. “If you look at fees per room for RevPAR-related fees, pulling out the non RevPAR as they tend to grow faster, both in 2024 and 2025, we see average fees per room growing, which might seem a little counterintuitive, given our push into midscale.” He said there are two principal behind it: strong momentum in the luxury tier, “which drives outsized fees” and strong growth in incentive management fees.
In the third quarter, conversions represented more than 30% of room additions and more than 50% of signings. Expect conversions to continue to fuel growth. “The teams are much more focused on removing friction from the conversion process and we’ve got dedicated resources in each of the continents that are singularly focused on driving conversion volume,” Capuano said.
In August, Marriott announced a multiunit conversion deal with Sonder for 9,000 existing rooms and a few 1,000 more in the pipeline. “This deal expands our portfolio of longer-stay accommodations in key global markets, including New York and Dubai,” Capuano said.
As the investment community awaits the next Federal Reserve decision on interest rates—a decision that likely will come on Thursday and could include a 25-basis-point cut—Capuano noted the importance, but said other factors hold even more weight than where interest rates rest. “The availability of debt and an elevated construction-cost environment are bigger impediments to driving the sort of construction start volume we saw pre-pandemic than the current level of interest rates,” he said.
Key money is also playing more of a role in more segments, according to Oberg. Key money is an upfront payment to an owner to secure a deal or to fill a particular part of the capital stack. “Over a number of years, we’ve seen a bit more key money across more tiers,” she said, adding that key money is involved in some form or fashion in around a third of Marriott deals.
China Distress
With most regions benefitting from sustained travel, Greater China continues to be the outlier, despite government-backed economic stimulus in the country. Greater China RevPAR declined 8% in the third quarter, with Capuano pointing to “macroeconomic pressures” that led to weak domestic leisure demand and restricted pricing. Severe weather and higher-end guests traveling to other regions also impacted results, Capuano said.
In a response to a question from an analyst regarding China’s stimulus package and its impact, Capuano said that most of the stimulus has not been to the direct benefit of the consumer. “We’re not seeing any sort of immediate and material impact on performance metrics,” he said, the most interested bit, he added, being the lack of stimulus support for the property sector, “which is obviously under quite a bit of duress.” Despite China worries, Capuano said signings and openings in the country remained strong, due, somewhat, to what he called a “real acceleration” in select-service brands, which are “marginally easier to get done from a capital-stack perspective.”
There are glimmers of a China comeback, noted Oberg. “Looking at Q3 and Q4 at the margin, Greater China RevPAR has been slightly better than we expected a quarter ago,” she said. “We are starting to see a slight pickup in cross-border travel into tier-one cities.”
Generating Efficiency
A major point highlighted during Marriott’s call with analysts focused on G&A costs. Marriott announced an initiative to enhance effectiveness and efficiency across the company with expected resultant savings of $80 million to $90 million annually beginning in 2025, with the work delivering cost savings to owners and franchisees. Capuano gave no further color on how it would achieve this other than stating that “it felt like the right time to look across the enterprise and figure out what adjustments we can make to enhance and improve our efficiency.”
These G&A costs are not confined to the corporate level of Marriott but to its individual hotels and owners. “We’re looking at efficiencies and savings that we think will have clear benefits to the owners,” Capuano said.” We’re looking at every facet of our engagement with them, and we expect to have some tangible saving opportunities identified for them in the very near future.”
Marriott, like its peers, is focused on selling owned real estate, a strategy that allows it to further strengthen itself as an asset-light business that derives revenue through fees. Marriott is ostensibly, if not openly, shopping the W Union Square in New York after its completed renovation, along with its Elegant Hotels portfolio in Barbados, seven hotels it acquired in 2019. “We would look to take advantage of what we expect to be very strong performance on the part of that portfolio and that hotel,” said Oberg. “Depending on the financing environment and the appetite between buyer and seller, we will take advantage of that.”
Marriott Bonvoy members totaled 219 million members at the end of the quarter.