Interview: Marriott CEO Tony Capuano – Part 1 on M&A, resort growth and staffing challenges

Tony Capuano
Tony Capuano, the CEO of Marriott International.


Talk of consolidation in any market is usually loudest at times of crisis. The big, well-backed players can smell blood in the water and strike when their competitors are at their weakest. The Covid-19 induced crisis, though is very different to previous economic shocks and aside from a few transactions in the hospitality industry nothing major has yet happened.

Marriott’s acquisition of rival Starwood in 2016 was perhaps the last major deal in the sector and Tony Capuano, Marriott International’s CEO since February this year, believes we’ll still see some activity – albeit at a smaller scale.

“Well, I do think we will continue to see consolidation in our industry. There's an interesting push/pull right now that we'll be watching closely in the coming months. I think on one hand, there is still a fairly significant gap in the bid-ask on some of these potential transactions,” he told Hospitality Insights. 

“Sellers, as human nature dictates, do not want to be perceived as having sold near the bottom of a cycle. And so, they've got maybe some unrealistic expectations on pricing. Buyers of course, want to try to buy as close to the bottom of the cycle, as possible. So I think it'll take a little while for that gap between the bid and the ask to close.”

Something that is peculiar to the current crisis is the level of financial support offered to companies by governments across the world, enabling them to survive when in the past they may have been under serious financial pressure. Then there is also the issue of financing not being as readily available as before the crisis.

“I also think right now, the debt markets are not as open as they were pre pandemic, so the ability to secure financing for big wholesale M&A transactions is not as readily available as it was prior to the crisis,” Capuano, who took over after the death of his predecessor Arne Sorenson, said.

We’ve already seen a few deals such as Blackstone and Starwood Capital’s purchase of Extended Stay America but no big consolidation plays as of yet. Last summer there was speculation that Accor had been looking at a potential merger with IHG, but nothing as yet has happened on that front.

“My guess if I had to forecast, you'll continue to see some smaller scale M&A transactions in the short term. And as the debt markets open and as that gap between the bid and the ask of buyer and seller expectations narrows, there is certainly the possibility of some broader transactions,” Capuano said.

Another point Capuano makes is about the reasoning behind doing deals. “I think the pull for transactions tends to be in many ways, around technology and loyalty. I think the smaller players in the industry are increasingly challenged by the volume of investment that is required to compete in terms of technology platforms. And I also think loyalty becomes a more and more powerful tool. And the creation and maintenance of an expansion of loyalty programs, is increasingly challenging financially for smaller players.”

Resorts Growth

One area where Marriott has been particularly active in recent years has been in the resort space. In 2019 it bought Elegant Hotels and followed this up this year by agreeing a deal with Canadian tour operator Sunwing, which will see it more than double its all-inclusive portfolio.

Marriott’s exposure to the sector pre-dates Covid-19 but the timing has worked out well with resorts tipped grow in popularity over the coming years. It’s also a clever way to increase direct bookings.

Back in 2019 Marriott rebranded its loyalty programme under the name Bonvoy and has since then has spent a lot of effort raising awareness, which in turn has helped boost direct bookings. One aspect that undoubtedly helps this is more options to spend your points on, hence looking to boost the resorts offering.

“I think leisure, the resort portfolio has always been a really important part of making The Bonvoy value proposition work. As we talk to our frequent business travellers, in particular, the big pay off for their loyalty, the quid pro quo, if you will, for their families, as they spend a hundred, 200 nights on the road, is their ability to redeem those points with their families for terrific vacations that at resort portfolio,” Capuano said.

Staffing Challenges

There are a couple of big picture trends impacting the hotel industry. One is inflation, which will have a knock-on effect in the industry.

As analysts at Bernstein noted in a piece of research published in May: “The brutal truth is that hotels aren’t a great asset in an inflationary environment: there is limited sign of recent industry wide pricing power and labour is the key cost input. However, most of our hotel companies are asset light, which means more flexibility, creating relative winners and anything that squeezes industry profitability can make a branded network a more appealing partner.”

For Capuano, the biggest issue is staffing. Marriott had around 121,000 employees at the end of 2020, compared with 174,000 the year before.

“In certain markets, the inflation in wage rates is something that we're watching closely. Also, the availability of labor. I think for decades, employees have looked at travel and tourism as a bit of, maybe what I would call, a safe harbor industry. And I think understandably, their confidence in that has been shaken a bit,” Capuano said.

It’s not just Marriott that has been shedding staff, the story has been repeated across the industry. The challenge now for companies is deciding what jobs they need to fulfil and whether they can then entice enough people back to take them up.

“Even though I always think of Marriott as a very thoughtful, prudent steward of its balance sheet and its financial position, in my 26 years, I had never seen us run a sensitivity that said, what happens to the business if demand drops by 90% overnight? And so by necessity, we had to make some really difficult decisions about our employment base,” he said.

This is part one of our interview with Tony Capuano. Part two will cover stakeholder relationships, corporate travel and Arne Sorenson’s legacy.