BETHESDA, Maryland — Marriott International’s chief financial officer is not in the business of predicting recessions. Her job, however, does include making sure Marriott is prepared for any economic situation, good or bad.
During a visit to Marriott’s new headquarters in Bethesda, Maryland, Hotel News Now sat down with Leeny Oberg, Marriott’s CFO and executive vice president of business operations, to discuss her outlook on the industry during challenging economic times, the company’s relationship with franchisees, and guest loyalty and experiences.
In hospitality, the love people have for travel has been reinforced during the pandemic, Oberg said, as has the cyclical nature of the industry.
In the event that the economy does enter a recession, demand for travel, particularly on the leisure side but also for groups and business travelers, will help the hospitality industry weather its effects, she said.
Oberg said leaders in the hotel industry are always prepared for the ups and downs of economic cycles. She said she likes to remind people that while Marriott seems big, it’s 8,100 small businesses.
What general managers and their teams can do at the property level in their own communities has never been more apparent than during the pandemic, she said. Though they weren’t able to get through it all pain-free, they showed incredible skill maneuvering through the challenges.
If a recession does happen, it’s important to remember each economic recession is different with different fundamentals at play, Oberg said.
While unemployment did slightly increase from 3.5% to 3.7% in the U.S., that’s still a low percentage, she said.
“We’ve got a robust labor market with plenty of good jobs for people in the market for work, and that will have some impact on how things go forward combined with the [Federal Reserve’s] moves on both the U.S. balance sheet as well as with interest rates,” she said.
Working with Franchisees
During the first and second quarters of 2022, Marriott had record signings for new management and franchise agreements, Oberg said.
“There’s nothing better than people voting with their contractual commitments to say who they want to be with and their belief in the business and their belief in the hospitality business,” she said.
Tremendous conversion activity also has added to the company’s growth outlook, she said.
Throughout the pandemic, hotel owners and operators had to work diligently to keep their properties afloat as the loss of travel demand significantly cut into their revenue while they still had to cover expenses.
As a franchisor, Marriott has constraints on how it can directly affect franchisees’ operations, Oberg said. To help bring down expenses, Marriott can adjust its franchise fees for programs and services. Those fees are based on the revenue produced at the property level, which is heavily reliant on rates and occupancy.
“If the revenues come down in a recession, that means a big chunk of the charges come down as well,” she said. “That means I need to be ready for both eventualities, both revenues going up and revenues going down.”
Marriott has learned and passed along thousands of best practices to teams in the field, she said. The company is also gaining efficiency in how it manages labor at hotels and controls costs through economies of scale.
“That’s all part of how you help them work through downturns,” she said. “During COVID, we obviously did more than we normally would do in terms of having to really reinvent how you operate a hotel on dramatically lower occupancy and still break even.”
Guest Loyalty and Experience
The strength of Marriott Bonvoy, its loyalty program, and what it delivers to the top line as well as the bottom line for hotels has been clear over the past few years, Oberg said. The size of the program and the extensive participation by members in its full offerings, including credit cards and travel insurance along with the more traditional uses with hotels, builds the power of the program and drives other cost efficiencies.
For example, the costs associated with using online travel agencies have been reduced as Bonvoy grows and drives more direct bookings, she said.
When people couldn’t travel as much during the pandemic, their use of Marriott-branded credit cards allowed them to earn points they could use for future stays, she said. The use of these cards and the number of people signing up for the cards continue to grow.
“All of that is engagement with our customers during a time when the lodging component was particularly weak, but in the meantime, we continued to build and grow this terrific group of customers that we hope to have for the rest of their lives,” she said.
As traveler behaviors and priorities have changed during the pandemic, Marriott has closely watched the evolving demand segments, particularly the blending of leisure and business travel demand, known as bleisure.
“Hotels have done a terrific job of adapting, and frankly, the trend in bleisure growth has been happening before COVID,” she said. “It was kind of inexorably seeming to get bigger and bigger each year, so it’s obviously been a big focus of ours to make sure that we’re operating hotels in a way that meets their desires.”