Marriott International faced a number of challenges toward the end of 2018, but executives remained optimistic about the company’s performance in 2019 during their fourth-quarter and full-year 2018 earnings call.

Despite a data security breach of the legacy Starwood Hotels & Resorts Worldwide reservation database, labor strikes at hotels in eight major U.S. markets and generally weaker-than-expected transient business, Marriott saw worldwide revenue per available room grow by almost 3%, launched its unified loyalty program and leads the industry with the largest share of rooms under construction, President and CEO Arne Sorenson said.

The continued efforts to integrate Marriott and Starwood has led them to “truly feel like one company,” he said, citing the creation of the loyalty program, Marriott Bonvoy, having the operations and discipline teams in place, and achieving $250 million in corporate G&A savings.

However, integrating two large companies doesn’t come without its issues, he said. Marriott announced a data security breach of the legacy Starwood reservation system on 30 November and rolled out a broad guest outreach effort.

Because the company addressed the issues head on, it was able to reduce the number of call volume to call centers from 40,000 in December to fewer than 3,000 in February, he said, adding there does not appear to be any material RevPAR impact.

During the recent American Express earnings call, it was reported there was no appreciable spike in credit card fraud from this incident, he said. Further investigation into the breach found fewer guest records were involved than initially estimated.

Marriott incurred $28 million in expenses related to the security breach, according to the company’s earnings release. However, it also received $25 million in insurance proceeds.

The company no longer uses the legacy Starwood reservation database and it has implemented additional security measures.

“All of us remain committed to learn from this experience, work to improve our information security systems and increase our ability to respond quickly to threats,” he said.

As of press time, Marriott’s stock was trading at $124.45 per share, up 15.8% year to date. The Baird/STR Hotel Stock Index was up 13.2% for the same time period.

• For further coverage of fourth-quarter and full-year 2018 earnings calls, click here.

The company’s loyalty program had nearly 125 million members by the end of 2018, and it continues to grow by roughly 1.5 million new members each month, Sorenson said, noting membership remains highly engaged. Reward redemptions increased 8% year over year in 2018, and the number of roomnights sold to members increased by 6% year over year.

“Marriott Bonvoy members contributed roughly half of our roomnights in 2018,” he said.

The changes involved in unifying the loyalty programs affected legacy SPG members more so than legacy Marriott Rewards members, he said. The company transferred about 4 billion customer records from SPG to Marriott. Though the transfer went “pretty well,” some records didn’t translate accurately, which led to complaints, he said.

The silver lining to those complaints is it shows the legacy SPG members are extraordinarily passionate about the program, Sorenson said, likening it to them taking a co-ownership stake.

“When we see redemption behavior, when we see engagement behavior, they continue to see the strength of this portfolio,” he said.

The unified loyalty program’s charge out rate for hotel owners has declined by 50 to 60 basis points, he said. Those dollars combined with the revenue from the credit card companies and timeshare companies and other partners of the program overall mean Marriott can charge hotel owners less.

In response to a question about concerns about other hotel companies launching new brands, Sorenson wasn’t concerned about new brands so much as new supply. Marriott naturally is biased in favor of brands, considering it is the owner of 30 brands, he said.

“The brand that is most important is Marriott Bonvoy, because that’s what binds our relationship with our customers across the entire portfolio,” he said.

RevPAR growth in North America during the fourth quarter was lighter than expected, Sorenson said. While worldwide comparable systemwide constant dollar RevPAR grew by 1.3% year over year, it only grew by 0.2% in North America.

One of the reasons for the softer RevPAR growth in North America was the labor strikes in several major U.S. cities, including Boston, San Francisco and Honolulu.

“We can very easily zero in on that and see that those hotels alone caused us to lose 0.5 point of RevPAR index in Q4,” he said. “So it's a pretty significant kind of impact.”

The strikes were a one-time event with some lingering impact in Hawaii because of pending bookings on future stays, he said.

Marriott has also been a bit more aggressive in yielding its inventory on some less preferred channels, Sorenson said. It’s conceivable that had a similar impact to when the company took similar action in previous quarters, he said.

“Group intermediation fees, group commission fees, we had moved first, and while many of our principal competitors have moved similarly, we were exposed to having lower commissions for much of 2018,” he said.

Marriott also made a large integration effort during the last quarter in moving the legacy Starwood revenue system to Marriott’s, he said. That included reservations, catering and revenue management, which is a big suite of systems for hotel teams and above-property teams to get use to and calibrate.

Looking ahead to 2019, Sorenson said he’s feeling more optimistic than even a quarter ago.

“We see in the U.S. a sort of steady, staid set of expectations for 2019,” he said.

Looking at past years quarter by quarter and adjusting for holiday shifts, hurricanes and other one-off events, the company saw RevPAR growth near 2%, he said.

“You can see in our midpoint for 2019, we're really looking at 2%,” he said. “And so we feel pretty good and feel, again, probably just a touch more optimistic than we did a quarter ago.”

Marriott signed a record 125,000 rooms in 2018, which is almost 10% of the existing portfolio, Sorenson said. The pipeline grew for the 26th quarter in a row to reach a record 478,000 rooms, with 214,000 of those already under construction, he said. The company’s market share of worldwide open rooms was 7%, and its under construction pipeline led the industry with 20% of the market share, he said.

As the company’s footprint grows, it will see some deletions from its portfolio. Those deletions help the company because that means it’s maintaining product quality, he said. Though the company saw a 2.3% deletion rate for legacy Starwood properties, Sorenson believes the company should return to an overall 1% to 1.5% rate.

The company has a high level of predictability of the hotels in its pipeline that will open in the system over the next few years, he said. The pipeline includes about 400 luxury hotels around the globe, which he described as the biggest pipeline in the luxury space in the industry.

“We are overwhelmingly going to depend on our organic growth and organic partners to drive those deals,” he said. “But we've got a lot of good news, which is baked into the pipeline and coming down the pike.”