On business trips to visit hotel associates through Europe, the Caribbean, Latin America and the U.S., Marriott International CEO Tony Capuano said he saw the strong desire people have to travel.
During the company’s third quarter earnings call, he said the strong global revenue per available room recovery momentum in the spring continued into the summer “thanks to sustained robust leisure demand and impressive average daily rates.”
“It's been wonderful to see so many people traveling again and to witness firsthand the resilience of global travel,” he said.
Marriott worldwide RevPAR in July reached a new peak since the start of the pandemic, down just 23% from 2019 levels. Occupancy rose to 61% in July, an increase of more than 500 basis points from the month before. ADR was down only 3% compared to July 2019.
Global demand softened in August because of the COVID-19 delta variant and the resulting delay in many companies’ return to office plans, he said. Demand stabilized in September before growing in October, but recovery trajectories remain varied by region.
Third quarter RevPAR in the U.S. and Canada improved across all of Marriott’s brand tiers and market segments, he said.
“While primary markets are still the most challenged, these markets saw the largest RevPAR gains during the quarter as demand in gateway cities like New York continued to rise,” he said.
Group, Business Demand
Group demand accelerated during the quarter in the U.S. and Canada, with group room revenue for the quarter down 46% compared to the third quarter of 2019, Capuano said. That’s a significant improvement compared to a 76% year-over-year decline in the second quarter, he added.
Group business on the books has increased, as bookings made in the year for the year in the U.S. beat 2019 levels for each of the past five months through October, with the pandemic shortening event booking windows. Group ADR continued to rise, and full-year 2022 is currently pacing almost 4% above pre-pandemic levels.
In the U.S. and Canada, the delta variant affected the special corporate guest segment the most during the quarter because it delayed plans for return to office, he said. Special corporate is the segment of business transient customers who book at pre-negotiated rates. The company estimated this segment accounts for almost half of its business transient room nights.
“Special corporate bookings showed steady recovery each month this year until we saw a slight pullback in the back half of the third quarter,” he said. “The gradual upward trajectory returned in October with bookings versus 2019 growing each week during the month. Special corporate bookings are currently down less than 40% compared to the same time frame in 2019.”
The recovery of business transient will continue gradually as more workers return to the office, guest visitation policies ease and more employees are allowed to travel again, he said. Additionally, the company expects the traditional business trip will continue to evolve with the blurring of the lines between business and leisure travel.
International Performance
The recovery of Marriott's portfolio in the Asia-Pacific region, excluding Greater China, advanced more slowly than in other global regions during the third quarter, Capuano said. Results were mixed across the countries, but the company's hotels in India reported meaningful improvements in demand as COVID-19 caseloads decreased and restrictions eased. Many counties have taken steps to reopen travel, such as creating vaccinated travel lanes.
The recovery of Marriott's portfolio in Greater China has been more up and down given the country’s zero COVID-19 policy, he said. The country was the first market in which hotel RevPAR returned to pre-pandemic levels a quarter ago. RevPAR grew again in July to 11% above July 2019 numbers, but demand fell significantly in August after the government imposed strict lockdowns in response to small regional outbreaks.
“Demand then swiftly rose again in September as soon as those restrictions were lifted,” he said.
Europe’s recovery took another large step forward as occupancy doubled to reach 47% amid the reopening of key international borders, easing of entry restrictions and the reopening of almost every then-closed hotel, Capuano said.
Third-quarter RevPAR came in less than 20% below pre-pandemic levels in the Middle East and Africa, he said.
Hotels in the Caribbean and Latin America reported third quarter RevPAR 18% below 2019 levels, Capuano said. Demand for Marriott’s resort properties remained robust, particularly in the Caribbean and Mexico, while urban destinations lag.
“Historically, the third quarter is the region's softest quarter seasonally, yet many resorts saw record occupancy and ADRs,” he said. “Our luxury ADR in the region for the quarter was ahead of 2019 levels by 32%.”
Hotel Development
During the quarter, Marriott added approximately 17,500 rooms to its global system, including about 8,500 rooms in international markets, according to its earnings release. Of the total rooms added, more than 2,200 were from conversions.
By the end of the quarter, the company’s worldwide development pipeline totaled 2,769 properties with nearly 477,000 rooms. That includes approximately 25,000 rooms that are approved but not signed. In its global pipeline, more than 206,000 rooms were under construction by the end of the third quarter.
Developer sentiment continues to improve in step with the global recovery, Capuano said. The pace of signings increased meaningfully this year, and gross room openings through the third quarter of this year exceeded the first nine months of 2019 by 25%, surpassing the numbers for the same time period in 2020 by almost 50%.
Marriott added more rooms through conversions in the first nine months of this year than it did in all of 2019. That amounts to 30% of all signings through the third quarter this year compared to 15% of signings before the pandemic.
“Conversions are expected to be a significant contributor to growth over the next several years,” Capuano said.
The company’s full-year expectations for gross rooms growth show acceleration of about 6%, Capuano said. Net rooms growth for the year will be approximately 3.5%. He expects the company to return to the typical mid-single-digit net rooms growth experienced before the pandemic, but the timing of that is uncertain as it depends on the global recovery and supply chain dynamics, a factor that has delayed some hotel construction and openings by a few months.
By the Numbers
Marriott reported comparable systemwide occupancy reached 58.2%, an increase of 23.4 percentage points over the third quarter in 2020 but a decrease of 16.8 percentage points from 2019’s third quarter, according to the company’s earnings release. Average daily rate hit $155.21, a 30.6% increase over the third quarter in 2020 and a 4.4% decrease from 2019. Revenue per available room was $90.32, a 118.4% increase over the third quarter last year but a 25.8% decrease from 2019.
The company reported net income of $220 million, up from $100 million in the third quarter of 2020. It’s adjusted net income was $327 million compared to $44 million last year.
Adjusted earnings before interest, taxes, depreciation and amortization amounted to $683 million during the third quarter, up from $327 million in 2020.
As of press time, Marriott's stock was trading at $161.56 per share, up 36.8% year to date. The NASDAQ Composite Index was up 23.3% for the same time period.