Strong markets, groups power Marriott’s Q1 growth
 
Strong markets, groups power Marriott’s Q1 growth
10 MAY 2017 8:50 AM

Marriott International revised its 2017 full-year RevPAR growth guidance up on the heels of a strong first quarter. 

BETHESDA, Maryland—Marriott International’s growth trajectory is continuing in 2017, in revenue per available room gains, net room growth and even in the company’s forward-looking guidance.

In a news release announcing first-quarter results, the company revised its worldwide full-year RevPAR guidance to 1% to 3% year-over-year growth—up from its previous guidance of 0.5% to 2.5% growth. This takes into account the company’s expectation of North American RevPAR growth of 1% to 3%, and 2% to 4% growth outside North America.

Driving this shift were better-than-expected RevPAR gains in the quarter, due in large part to stronger group attendance and higher-rated business transient demand, said Marriott President and CEO Arne Sorenson on a conference call with analysts Tuesday to discuss first-quarter earnings.

North American and worldwide comparable systemwide RevPAR rose 3.1% in the first quarter compared to the same period in 2016.

Sorenson attributed much of the North American growth to some particularly strong markets.

“Hotels in the Greater Washington, D.C., area benefited from the (presidential) inauguration and Women’s March—systemwide RevPAR there increased 15% in the first quarter,” he said. “Hawaii also exceeded expectations,” due to high transient demand from U.S. and international visits, leading to 7% RevPAR gains.

RevPAR from group business also played a part, he said.

“Across the North American region, group RevPAR rose 7.7% year over year (in North America), benefiting from the events in Washington and the shift in Easter holidays to the second quarter,” Sorenson said. “Group RevPAR modestly exceeded our expectations due to strong attendance at group meetings, while meeting planners continued to add last-minute food, beverage and ancillary spending.”

For the rest of 2017, group revenue booking pace in North American full-service hotels is up 1.6% over what Sorenson called “a strong 2016 group year.”

Group business should slow down in the second quarter, Sorenson said, largely due to the Easter holiday shift.

On the transient side, he said that business “exceeded our expectations” as well in the first quarter, notching nearly 2% growth.

As of press time, Marriott’s stock was up 6.36% year to date. The Baird/STR Hotel Stock Index was up 24.86% for the same time period.

Around the world
Asia Pacific: First-quarter systemwide RevPAR increased 5%, Sorenson said, and the company expects strengthening transient demand in this region throughout the rest of the year.

Europe: Again, Sorenson used the term “exceeded expectations” when referring to Europe’s 7% year-over-year RevPAR growth in the quarter, due to “solid transient and group demand, and strong international arrivals.”

Middle East: “Geopolitical unrest, low oil prices and lower government spending continued to depress hotel results” in the Middle East, leading to flat growth for the quarter, Sorenson said. He pointed out Africa as a bright spot, notching 18% RevPAR growth, largely due to Egypt.

Caribbean/Latin America: Sorenson said RevPAR in the Caribbean and Latin America declined 2% year over year in the first quarter, while Mexico’s RevPAR increased. Lower leisure demand, shifting holidays, economic sore spots and oversupply were some of the trends he cited as contributing to the region’s performance, though he said RevPAR should increase in the second quarter and for the full year.

Pipeline
“Today, one in three hotels under construction in the U.S., and one in four worldwide, are associated with one of our brands,” Sorenson said. “Our development success is impressive, given the development climate in North America.”

In the first quarter, Marriott’s development pipeline rose to more than 430,000 rooms, including 166,000 rooms already under construction.

“Demand for our brands remains high and we are on track to deliver 6% net unit growth in 2017,” Sorenson said.

Around the world, Sorenson pointed to construction financing challenges in North America and project delays due to skilled contractor shortages, while conversions have picked up in China and India. Limited-service development interest continues to grow in Europe and the Middle East, he added.

Starwood integration
Sorenson said that integrating Marriott’s operations and systems with those of Starwood Hotels & Resorts Worldwide has been an encouraging process, with a lot accomplished and a lot still to be done.

“We’re off to a good start on the integration, but I think we are by no means declaring victory today,” he said. “We have a lot of work ahead of us. The team has performed extraordinarily well; they’re incredibly energized by what’s been accomplished … but there are plenty of risks,” he said.

In particular, he pointed to technology.

“It takes longer (to integrate technology), and it costs more than any of us would like,” he said. “That’s not unique to Marriott or the hotel business.”

However, he said the company has converted all Starwood-owned and -managed hotels in North America to Marriott’s procurement system, and has migrated all U.S. Starwood properties to Marriott’s negotiated contracts with online travel agencies.

“In April, we transitioned over 100 company operated Starwood Hotels in the U.S. to our above property shared service model for finance and accounting,” he said. “We are on track to unify our financial reporting infrastructure in early 2018, and to realize a common technology platform for reservations and loyalty programs in late 2018.”

When asked by an analyst whether the company’s full roster of brands would remain, Sorenson again reiterated that Marriott has no plans to drop any brands.

“We are thrilled by the number of brands we have and the range of choice that we can give to our customers,” he said. “We can all look at our 30 brands and our 1.2 million hotel rooms and say that’s a lot, but it’s nothing compared to the range of choice that’s offered by the third-party intermediaries.”

This summer, Sorenson said the company plans to publish what he called “harmonized global brand standards.”

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