Marriott International saw that it could see occupancy and revpar levels in China return to their 2019 levels by next year, despite restrictions on international travel.
The company said that owners were showing “great interest” in brands, with China accounting for one third of signings in the first half, as owners took “a long term view”.
President & CEO Arne Sorenson told analysts that the pace of signings was not as robust elsewhere in the world, but that it was having “productive” conversations, with owners looking to lower construction costs and possible conversions.
CFO Leeny Oberg said that the company had agreed short-term payment plans with some hotels and that “only a few hotels go onto foreclosure”.
Marriott International saw second quarter revpar down 84.4%, with 83.6% in North America and 86.7% internationally. Sorenson said that greater China continued to lead the recovery, with all the group’s hotels in the region open as of May and occupancy levels are now reaching 60%, against, 70% in the same time last year. He said: “While Greater China's recovery was originally led by demand from leisure travellers, particularly in resorts and drive-to destinations, we are now seeing more widespread business demand, including some group activity."
Adjusted Ebitda for the period was $61m, against $952m in the same period last year. Sorenson said that in North America leisure demand had been strong in resorts and in secondary and tertiary markets, with revpar down 69% in July. Extended stay hotels were also resilient. He added that consumers were increasing their travel, despite a recent surge in the virus some states. Transient travel in Europe was also starting to return.
The company added more than 11,400 rooms globally during the second quarter, including roughly 2,000 rooms converted from competitor brands and approximately 4,700 rooms in international markets. Net rooms grew 4.1% on the year.
For the full year, the company said that it expected to see rooms growth of 2% to 3%, given current trends. Marriott had a pipeline of approximately 510,000 rooms, 45% of which were under construction.
Oberg said that she expected a cash burn of $85m a month in 2020, down from prior expectation of $145m.
Marriott International in Asia Pacific has, on average, added close to 80 hotels per year in the last three years, with its pipeline growing by nearly 10% annually over the same time period. In the first half of 2020 alone, the company recorded 73 new signings, including 43 in the Greater China region.
Last month the group announced its 800th property in Asia Pacific, the JW Marriott Nara in Japan. Across the Asia Pacific region throughout 2020, the Moxy brand anticipates its first hotel opening in China.
“We remain confident in the resilience of travel, our owners and franchisees, guests and associates as well as the future prospects of lodging in Asia Pacific, our second largest market, ” said Craig S. Smith, group president, Asia Pacific for Marriott International.“We are encouraged by recent trends, especially in China, where demand has been driven primarily by domestic tourism, and we will continue to focus on strengthening our footprint in this important, growing market.”
According to Lodging Econometrics, at the end of 2019, Greater China’s construction pipeline was led by Hilton, at an all-time high, with 480 projects/98,628 rooms and InterContinental Hotels Group with 369 projects/80,583 rooms and then Marriott International, also at record counts, with 335 projects/92,729.
Insight: Marriott International is the largest hotel company in the world - thank you Starwood Hotels & Resorts - but it is not the largest in China. Companies such as InterContinental, which has a CEO who cut his teeth in the region, are far more dominant. In IHG’s case it wasn’t just Keith Barr’s experience on the ground which has put it in a strong position - it has also shown itself to be flexible, with a franchise model tailored for the market, called Franchise Plus.
When the pandemic kicked off, and many thought that it would be limited to the Asia-Pacific region, IHG was one of the big fallers as exposure to China was seen as very much A Bad Thing. Now that China is recovering, Marriott International’s shares fell by 3% on the release of its results, as it was shown to not be exposed enough. And, with its enthusiasm for luxury and lifestyle, it has not been able to enjoy the resilience of Choice and Wyndham in the US.
The good news here is that Marriott is the largest hotel company in the world. This has enabled it to seal deals such as that with Alibaba, which gives it a distribution leg up in China. This will allow the super tanker to turn and start to take more than its fair share. Sadly for Marriott, that time is not now.