Article Summary: Marriott International executives believe the industry saw the worst effects of the pandemic on hotel performance in April and as restrictions ease, the demand for travel should slowly return.
Marriott International executives believe the industry saw the worst effects of the pandemic on hotel performance in April and as restrictions ease, the demand for travel should slowly return.
Primary Category: Earnings Recaps
BETHESDA, Maryland—Revenue per available room across Marriott International’s hotel portfolio dropped 90% in the month of April, but executives believe negative trends have bottomed out and conditions will begin to improve slowly.
During the company’s first-quarter earnings call, President and CEO Arne Sorenson said Marriott saw a great start to the year followed by a sharp decline in occupancy associated with the coronavirus outbreak in January in Greater China, which then spread throughout the world.
Occupancy continued to deteriorate in March and stabilized in April at low levels everywhere except for China, he said. In April, both worldwide and in North America, systemwide occupancy was at 12%, but that increased to 15% worldwide the weekend of 2 May. However, that becomes 20% if just looking at comparable hotels that were opened, he said.
Sorenson said roughly 25% of Marriott’s hotels worldwide are temporarily closed—16% of the North American portfolio, and just more than three-quarters of its hotels in Europe.
“To state the obvious, we are operating in a very challenging environment,” he said. “However, the glimmer of good news is that overall negative trends appear to have bottomed in most regions around the world.”
The resiliency of demand is evident in the improving trends in Greater China, where new bookings continue to pick up with demand driven primarily by domestic travelers, Sorenson said. Occupancy levels in Greater China are currently slightly more than 30%, up from the lows of less than 10% in mid-February, he said.
RevPAR has followed a similar trajectory, currently down about 67% year over year compared to an 85% decline in February, he said. Leisure demand was strong in mainland China for the Chinese Labor Day holiday weekend in early May, during which occupancy was more than 45% overall, and close to 70% in resort markets.
Limited-service hotel occupancy in the U.S. has increased a bit each week over the past few weeks, Sorenson said. The segment is showing the most meaningful improvements in drive-to destinations, he said, as local, state and national governments try to manage the tightrope between containing COVID-19 and restarting their economies.
“There are likely to be some areas that start slower, some faster and some that opened in fits-and-starts, but our business should improve as restrictions are relaxed,” he said.
While no one can know exactly how and when demand will start to return in each part of the world, Marriott is ready, Sorenson said. The company has made significant short-term changes to its business and has enhanced its liquidity position while remaining focused on how to best position itself for the recovery and for growth over the longer term, he said.
As global trends have started stabilizing, Marriott’s teams have been monitoring various data points and developing a cross-discipline recovery plan, he said. Along with tracking booking and cancellation data and macroeconomic indicators, it’s also looking at data around COVID-19 testing and government regulations, he said.
“We are consulting with our owners to analyze potential market demand and hotel-level cash flow to help inform when and how to reopen their hotels,” he said. “Region-specific marketing strategies are being developed that we plan to roll out in phases as different customer segments, and levels of
Along with leveraging its Marriott Bonvoy loyalty program and reaching its engaged member base, the company has also launched a new promotion to buy gift cards for future stays at a 20% discount as well as working through its joint venture with Alibaba to rebuild demand in Greater China, he said.
Bill Marriott intends to step down as board chairman and transition to the role of chair emeritus in 2022, Sorenson said. In turn, David Marriott is expected to join the board of directors next year after stepping down from his role as an executive at Marriott.
“(Bill Marriott) remains a daily source of contact and inspiration to me in the midst of COVID-19,” Sorenson said. “I talk to him every day.”
David Marriott is well-suited to serve on the board and will bring not only his operations and sales experience but also his deep understanding of Marriott’s culture to board-level conversations and decision-making, Sorenson said.
David Grissen, group president of the Americas, will step down in the first quarter of 2021 after 36 years with Marriott, Sorenson said. The two had spoken last year about the timing of his retirement and neither felt the time was right then to finalize any plans. In light of the quickly evolving business environment now, they realized the need for new leaders to be fully engaged in the process, he said. Timing Grissen’s retirement for Q1 2021 allows for a smooth and thoughtful transition, he said.
As a result, Marriott’s global hotel business will be consolidated under two leaders. Liam Brown, currently the group president of Europe, the Middle East and Africa, will oversee North America, he said. Craig Smith, group president of the Asia/Pacific, will oversee all international regions outside of North America, he said.
“Liam and Craig are excellent executives and bring tremendous leadership skills with them, and they have been key members of our leadership team for many years and will continue to be in the years ahead,” Sorenson said.
By the numbers
Marriott reported that Q1 2020 comparable systemwide constant dollar revenue per available room dropped 22.5% year over year worldwide, according to its latest earnings report. That broke down to a 30.4% drop outside of North America and 19.5% in North America.
Net income totaled $31 million during the quarter, down from $375 million in Q1 2019. Net adjusted income was $85 million compared to $482 million in the first quarter of 2019. Adjusted earnings before interest, taxes, depreciation and amortization was $442 million in Q1 2020, down from $821 million last year.
During the quarter, Marriott added more than 14,500 rooms globally. Of those, 2,100 were conversions from competitors’ brands. Approximately 7,200 of those rooms were in international markets. Net rooms grew by 4.4% year over year.
By the end of the quarter, the company’s worldwide development pipeline included almost 3,050 hotels and nearly 516,000 rooms. That includes more than 24,000 rooms that are not yet subject to signed contracts. More than 230,000 rooms in the pipeline were under construction by the quarter’s end.
As of press time, Marriott’s stock was trading at $82.33, down 45.6% year to date. The Baird/STR Hotel Stock Index was down 41.1% for the same time period.
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Headline: Sorenson: Marriott performance may have bottomed out
Article Date: 5/11/2020
Article Time: 10:41:00 AM