Continued strong leisure demand and improving group and business-transient demand drove better-than-expected performance at Marriott International's hotels.

During the company's third-quarter earnings call, Marriott President and CEO Tony Capuano said demand from leisure travelers accounted for 45% of its global room nights during the quarter, roughly 4 percentage points higher than in the first half of the year.

Globally, leisure transient room nights were up 7% compared to the third quarter of 2022, resulting in 9% revenue growth for this segment, he said. In the U.S. and Canada, leisure revenue grew by 4% compared to last year — even as the number of U.S. and Canadian guests traveling outside of the region increased by nearly 25% year over year.

Hotel demand from business travelers, particularly in the tech and finance industries, increased 4% year over year in the quarter and made up 32% of global room nights in the U.S. and Canada.

Groups booked 23% of the global roomnights in the quarter, driving revenue from that segment up 9% globally and 5% in the U.S. and Canada, Capuano said.

"The performance of group coming out of the pandemic has been remarkable, and the segment is expected to continue to be a meaningful driver of revenue growth going forward," he said.

In the U.S. and Canada, fourth-quarter group revenue as of the end of September was pacing 12% ahead of last year. Full-year group revenue is on track to improve by 19% year over year, Capuano said. Longer booking windows have allowed for greater visibility into the group segment.

By the end of the quarter, U.S. and Canada group revenue on the books for 2024 was pacing up 14% compared to 2023, he said. That's driven by a 9% rise in room nights and a 5% increase in average rate.

Cross-border travel also continued to strengthen in the third quarter, Capuano said.

Marriott expects the most upside to come from the Asia-Pacific region as international airlift to and inside Greater China was about 50% of 2019 capacity by the end of the quarter. It's expected to improve to about 60% by the end of the year.

"The Asia-Pacific region again saw the most meaningful quarterly increase in international visitors, aided by global events like the Women's World Cup and improved airlift," Capuano said.

Marriott added 97 properties with roughly 17,200 rooms globally during the quarter, according to the earnings report. That includes about 13,000 rooms in international markets and more than 4,900 conversion rooms.

By the end of the third quarter, its worldwide development pipeline comprised 3,239 properties and almost 557,000 rooms. That includes about 40,300 pipeline rooms approved but not yet subject to signed contracts. There were 1,081 properties with about 238,000 rooms under construction by the end of the quarter, and that includes about 37,000 rooms from its loyalty partnership with MGM Resorts International. Eleven properties with 1,494 total rooms exited the system.

At the end of the quarter, Marriott had nearly 8,700 hotels with 1.6 million rooms in operation.

Net rooms growth for full-year 2023 is projected to be between 4.2% and 4.5%, higher than previous expectations excluding the additional 37,000 MGM Resorts rooms. The shifting back of the MGM Resorts deal does not affect projections of a three-year compound annual growth rate of 5% to 5.5% through 2025 that Marriott outlined in its 2023 Security Analyst Meeting.

Capuano said the company is excited about the global opportunities for its new midscale offerings — including strong momentum for the City Express brand in the Caribbean and Latin America region, Four Points Express by Sheraton brand in Europe and the Middle East, and its StudioRes extended-stay brand in the U.S.

The City Express brand has 10 signed letters of intent, nine of which are in new countries for the brand, he said. It has four signed deals for the Four Points Express in Turkey and London.

Marriott recently issued franchise disclosure documents for StudioRes and is negotiating deals in more than 300 markets across the U.S., Capuano said.

“We expect there will be shovels in the ground for StudioRes projects in the next few months,” he said.

Marriott projects worldwide RevPAR growth of 6% to 7% in the fourth quarter and 14% to 15% for the full year. In the U.S. and Canada, RevPAR is projected to grow 3% to 4% in the fourth quarter and 8% to 9% for the year. The outlook for international growth is 14% to 16% for the quarter and 31% to 32% for the year.

“While there is heightened geopolitical risk and continued macroeconomic uncertainty, the consumer is still generally holding up well, and our forward bookings through the end of the year in most regions around the world remain solid,” said Leeny Oberg, chief financial officer and executive vice president of development.

RevPAR growth is expected to remain higher in international markets compared to the U.S. and Canada due to a return to seasonal patterns and stabilization year over year, she said.

Full-year fee revenues could rise 17% to 18% in the fourth quarter, benefiting from higher RevPAR expectations, Oberg said. The company expects that to be partially offset by lower residential branding fees due to anticipated completions, certain projects slipping into next year and softer results in Israel and surrounding countries.

Owned, leased and other revenue net of direct expenses is expected to range between $328 million and $333 million. That’s primarily due to the restructuring of an existing lease on a hotel in New York that recently flipped to being a franchised property, she said.

Marriott projects general and administrative expenses for the full-year to be about $935 million, at the high end of the company’s prior guidance, due primarily to higher compensation and legal expenses.

Full-year adjusted earnings before interest, taxes, depreciation and amortization could increase to 19% to 20% compared to last year, Oberg said.

Marriott’s third-quarter comparable systemwide constant-dollar revenue per available room grew year over year by 8.8% to $129.73 worldwide, by 4.3% to $133.92 in the U.S. and Canada, and by 21.8% to $120.43 in international markets, according to the company’s earnings release.

Its net income amounted to $752 million, up from $630 million in the third quarter of 2022. Its adjusted net income was $634 million, an increase from last year’s $551 million. Marriott’s adjusted earnings before interest, taxes, depreciation and amortization was more than $1.4 billion, compared to $985 million in the third quarter of 2022.

Marriott reported base management and franchise fees came to slightly more than $1 billion in the quarter, an 11% year-over-year increase. That was primarily the result of RevPAR increases and unit growth. Franchise fees unrelated to RevPAR grew by 8% to $208 million, mainly due to higher co-brand credit card fees.

Incentive management fees were $143 million, a 35% year-over-year increase. Managed hotels in international markets made up 77% of the incentive share fees earned during the quarter.

By the end of the third quarter, Marriott’s total debt was $11.8 billion. It had cash and cash equivalents of about $700 million. At year-end 2022, the company’s debt totaled $10.1 billion, and it had $500 million of cash and cash equivalents.

Year to date through Oct. 31, Marriott had repurchased 18.3 million shares for $3.3 billion.

As of publication time, Marriott’s stock was trading at $182.75, up 22.7% year to date. The Nasdaq Composite Index was up 25.9% for the same period.

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