Sustained strong leisure travel and recovering business and group demand combined to push Marriott International past a key milestone during the third quarter.
Global revenue per available room rose above 2019 levels for the first time since the pandemic started, Marriott CEO Tony Capuano said during the company’s third-quarter earnings call. It increased by nearly 2% compared to the third quarter of 2019 and represented a sequential improvement from the second quarter in every region around the world.
Global occupancy increased to 69% while average daily rate outpaced pre-pandemic levels by 10%, he said. RevPAR in September reached a new monthly high watermark by increasing more than 4% or nearly 7% when excluding Greater China.
During the quarter, leisure demand remained well above 2019 levels, Capuano said. In the U.S. and Canada, full-service hotel revenue showed continued growth by ending up 3% over the third quarter of 2019. Fourth-quarter full-service group revenue is pacing up 4% currently and is likely to improve further given the amount of last-minute group bookings seen throughout the year.
“The trend toward last-minute bookings has led to meaningful compression and pricing power, helping group ADR for new bookings rise each quarter this year,” he said.
At Marriott’s managed U.S. hotels, ADR for same-year group bookings made during the third quarter increased 17% compared to same-year bookings made in the third quarter of 2019, he said. ADR for group bookings made in the third quarter for 2023 outpaced 2019 third-quarter bookings for events in 2020 by 24%.
Business transient demand also improved during the quarter, though it still lags 2019 levels, Capuano said. Third-quarter business transient roomnights in the U.S. and Canada were 11% below 2019.
Marriott is in the middle of its special corporate negotiations for 2023, and so far progress has been promising, he said.
“After two years of holding rates steady, the early results were positive for at least high single-digit, year-over-year rate growth,” he said.
Third quarter day-of-the-week trends continue to suggest travelers are combining leisure and business trips, he said. The average length of transient business trips has increased meaningfully and is up more than 15% year to date compared to 2019.
With rapidly rising interest rates and growing concerns over a possible global recession, Marriott is closely monitoring consumer and macroeconomic trends, Capuano said.
“There is no doubt that the hospitality industry is impacted by economic cycles, and with transient booking windows averaging only about three weeks, trends could change relatively quickly,” he said.
However, Marriott has yet to see signs of a slowdown in global lodging demand, he said. In fact, it’s seen the opposite, as booking trends remain healthy given sustained high levels of employment, consumers prioritizing experiences versus goods, pent-up travel demand and a high level of consumer savings.
“Travel spending has been incredibly resilient,” he said. “In October, demand remains strong across our regions with the exception of Greater China, where trends are still low.”
International Update
The reopening of borders in most countries around the world has led to an increase in cross-border travel, Capuano said. That helped spur demand for Marriott’s properties, particularly in Europe as well as the Caribbean and Latin American, or CALA, region. Cross-border guests accounted for 15% of Marriott’s global roomnights during the quarter, an increase of 12% from the first quarter this year. In 2019, 18% of guests cross-borders to stay at a Marriott property.
“We anticipate additional upside from international travel, especially from Greater China once stringent travel restrictions are relaxed,” he said.
Europe in particular benefited from a large increase in U.S. leisure demand thanks to the strong U.S. dollar, said Leeny Oberg, executive vice president and chief financial officer. Compared to the third quarter of 2019, RevPAR grew by 6% in Europe, nearly 19% in the Middle East and Africa and nearly 18% in CALA.
RevPAR still lags 2019 levels in Greater China and the Asia-Pacific region excluding Greater China, she said. Greater China improved the most during the quarter, with RevPAR 23% below 2019 levels, a 30-percentage-point increase from the second quarter. The recovery in Greater China remains uneven given the country’s commitment to its strict zero COVID-19 policy.
“The good news is that we continue to see that when a market reopens for domestic travel after a lockdown, lodging demand rebounds very quickly,” she said.
South Korea joined India and Australia in crossing the full recovery mark, Oberg said. That was offset by Japan’s borders remaining closed until the end of the quarter. Third-quarter RevPAR in the region was 14% below pre-pandemic levels, an improvement of 8 percentage points from the previous quarter. The region is now benefiting from the recovery in airlift and Japan’s now open borders.
Pipeline Update
By the end of the quarter, Marriott had more than 3,000 properties with more than 502,000 rooms in its worldwide development pipeline, according to the earnings release. Roughly 33,000 of those rooms are approved but not yet subject to signed contracts. Approximately 204,800 rooms in the pipeline were under construction by the end of the quarter.
The company added about 14,000 rooms globally during the quarter, 8,700 of which were in international markets. Nearly 3,900 were conversion rooms.
Last quarter marked the fourth consecutive quarter that Marriott’s pipeline has grown, Capuano said. Signing activity remains healthy in most regions of the world, as the development team continues to focus on conversion activity. Conversions represented 21% of room signings and 27% of room openings during the quarter.
Outside of greater China, new construction starts have taken off well during the quarter, he said. Though not yet back to 2019 levels, new construction starts in the U.S. reached their highest point since the start of the pandemic.
The company expects full-year 2022 gross room growth of approximately 4.5% compared to its prior expectations of closer to 5%, he said. That is primarily the result of fewer than expected openings in Greater China due to extended construction timelines caused by COVID-19 lockdowns.
“The good news is that we have not seen deals in Greater China, or in any of our regions, falling out of the pipeline at a higher than usual rate,” he said.
The company expects deletions at the bottom end of its prior guidance at about 1.5%, or 1% excluding the 50-basis-point drop from its exit in Russia, he said. That will result in net rooms growth in 2022 to be about 3%, or 3.5% before factoring the deletions from Russia.
Earlier this month, Marriott announced its plans to acquire the City Express brand portfolio with 152 hotels and more than 17,000 rooms in the CALA region, Capuano said.
“We are quite bullish on the moderately priced midscale space, which has meaningful growth potential,” he said. “Upon closing this transaction, we will immediately gain a significant foothold in this high growth segment in CALA while also becoming the largest hotel company in the region.”
If the deal closes before the end of 2022, Marriott’s gross rooms growth could be about 5.5% with net rooms growth of about 4%, he said.
By the Numbers
Marriott reported its third-quarter comparable systemwide constant dollar RevPAR increased by 36.3% worldwide, 28.5% in the U.S. and Canada and 66.1% in international markets compared to the third quarter of 2021, according to the earnings release.
Measured against the third quarter of 2019, comparable systemwide constant dollar RevPAR increased 1.8% worldwide and by 3.5% in the U.S. and Canada. It declined 2.4% in international markets.
The company reported net income of $630 million, up from reported net income of $220 million a year ago. Its adjusted net income totaled $551 million compared to $327 million last year.
Adjusted earnings before interest, taxes, depreciation and amortization reached $985 million, up from $683 million in the third quarter of 2021.
By the end of the quarter, Marriott’s net debt was $8.4 billion, representing a total debt of $9.4 billion minus cash and cash equivalents of $1 billion. By the end of last year, its net debt was $8.7 billion, representing total debt of $10.1 billion less cash and cash equivalents of $1.4 billion.
As of press time, Marriott’s stock was trading at $149.18, down 9.7% year to date. The NASDAQ Composite Index was down 33.5% for the same period.