Marriott International is going low to stay atop. That was one of its sentiments during a third-quarter earnings call, presided over by CEO Tony Capuano and CFO/EVP of Development Leeny Oberg.
The largest hotel company in the world by number of rooms has become increasingly focused on and active in the midscale segment of the hotel industry, with two notable brand launches, in StudioRes and Four Points Express by Sheraton, and one acquisition, in City Express, which it acquired in 2022, giving it heightened exposure in the Caribbean & Latin America region.
It is a point Capuano underscored during a call with analysts, referring to the “value-driven” consumer, which “we were not capturing before” as part of the impetus to dive deep into the midscale tier. “We were priced out of capturing it in the past,” he said.
StudioRes, positioned in what Marriott calls the “affordable midscale extended-space,” focuses on a streamlined, minimalist operating model to maximize return on investment for owners. Of Four Points Express by Sheraton, positioned as a brand for the midscale segment in Europe, the Middle East and Africa, Marriott said it will “satisfy an increasing consumer demand for affordable and reliable lodging options.” City Express, meanwhile, instantly makes Marriott a huge player in the CaLa region. At the time of the deal, Capuano said, “We’re excited to enter a new lodging category — the popular affordable midscale segment where we see significant potential.”
Overall, Capuano signaled that travel demand remains robust — both on the leisure and group side, with corporate transient continuing its comeback. In reference to Marriott’s midscale moves, he noted the company is seeing a “little bit of trading down.”
It was a strong quarter for Marriott. RevPAR increased 8.8% worldwide versus the same period a year ago, with a large jump in international markets, where RevPAR grew 21.8%. A jolt of cross-border travel a major source of the growth, Capuano said.
“Cross-border travel continued to strengthen, helping drive RevPAR growth in the third quarter,” he said. “Asia-Pacific again saw the most meaningful, orderly increase in international visitors, aided by global events like the Women’s World Cup and improved airlift.”
According to Capuano, the percent of global room nights from cross-border guests was about one percentage point below 2019 levels of approximately 20%. “The most upside is still expected to be Asia-Pacific,” he said, “as international airlift to China improves.” International airlift to Greater China was roughly 50% of 2019 capacity at the end of the third quarter, and it’s expected to move to around 60% by the end of the year,” Capuano further noted.
BY THE NUMBERS
Third quarter net income totaled $752 million, compared to reported net income of $630 million at the same time a year ago. The company added approximately 17,200 rooms globally during the third quarter, including roughly 13,000 rooms in international markets and more than 4,900 conversion rooms. At the end of the quarter, Marriott’s worldwide development pipeline totaled more than 3,200 properties and nearly 557,000 rooms, including roughly 40,300 of pipeline rooms approved, but not yet subject to signed contracts. Approximately 238,000 rooms in the pipeline were under construction as of the end of the third quarter.
Like some of its peers, with capital markets tight, making it harder and more expensive to build new hotels, conversions have been a focus, as hotel companies concentrate on them for net unit growth. “Strong interest in conversions continues, including multiunit opportunities,” Capuano said. Conversions represented 20% of signings in the quarter and nearly 30% of openings, Capuano remarked, adding that the most constriction in the the availability of financing for new construction is in the U.S. and Europe, both regions where developers have traditionally relied heavily on conventional debt financing. And, according to Oberg, Asia-Pacific developers are less dependent on debt to get deals done.
She added, “We’ve got some basic strong fundamentals, slow supply growth for several years, which looks to continue going into 2024. And that’s reflected in our higher percentage of conversions.”
On the development side, Marriott expects full-year 2023 net rooms growth of between 4.2% and 4.5%, which is higher than its previous expectation, Capuano said, excluding the additional 37,000 rooms via its licensing deal with MGM Resorts. Marriott had expected 37,000 MGM rooms to be added to its inventory in late 2023, but it’s now been postponed until 2024.