With massive job losses, hotel closures and historically low
occupancy, 2020 was the worst year of record for U.S. hotels.
Marriott has been particularly hard hit, recording its first
full-year loss in more than a decade. But the rollout of
vaccines and signs of pent up travel demand has led to a
renewed sense of optimism for the hotel operator.
In the second quarter of 2021, Marriott reported net income of
$422 million compared to a net loss of $234 million a year
earlier.
Most hotel companies are expecting a strong spurt of
leisure demand this summer, some call it revenge travel; people
who have been putting off their vacations and such. And that has
been to the point where many hotels who cater to those summer
crowds are seeing business comparable to pre-Covid levels.
We're actually seeing really strong recovery of demand in a
variety of our largest markets. And it's not just leisure
demand, which is the thing that's really encouraging for
us.
The company was also impacted by the death of its longtime
leader. In February 2021, Marriott CEO Arne Sorenson, the
third chief executive in the company's history and its only
non-family member, passed away. Later that month, 25-year
company veteran Tony Capuano was named CEO.
Marriott International is one of the world's largest hotel
operators with 7800 properties in 138 countries and
territories, including the Ritz Carlton, Sheraton and Courtyard
by Marriott.
From a stock perspective, our strategy has been to remain
bullish, broadly so. And even when we feel like valuations
seem foolish, which they do, but, you know, each week that
we've waited, the news flow has gotten more positive,
An estimated 48 million Americans took to the roads and
skies during the busy Fourth of July weekend. Like its
competitors. Marriott has instituted new cleaning
procedures and cut back on offerings like its breakfast
buffet and in-room dining services in an effort to return
to profitability
But is it enough? And with the rise of video conferencing, will
business travel return to pre-pandemic levels for Marriott
and its rivals Hilton, Intercontinental and Hyatt?
Marriott got its start as a simple root beer stand in
Washington DC.
In the summer of 1927, J. Willard Marriott and his wife
Alice open an A&W franchise to serve thirsty patrons. A few
months later, to cater to winter diners, the couple offered tacos
and tamales; The Hot Shoppes restaurant was born
In 1928, The Marriott added new locations and by the late 30s
were expanding into the burgeoning field of inflight
catering, delivering box lunches for passengers on Eastern and
American Airlines.
But a shift in the late 1950s away from the restaurant
business changed the trajectory of the company and the
hospitality industry. In 1957, under the management of J.
Willard Marriott's son, Bill, the company launched its first
hotel in Arlington, Virginia
By 1964, the Marriott Hot Shoppes, as it was known, had
grown to four hotels and 45 restaurants. Over the next six
years, the company more than tripled in size.
Bill Marriott Jr, took the reins as CEO in 1972. During the
1970s, Marriott oversaw the company as it spent more than $3
billion building airport hotels and convention hotels. He also
began shifting the company from a business model of hotel
ownership to one of property management and franchising. In
1983, the company entered the mid-price hotel market for
business travelers with its Courtyard hotels, and in 1987
moved into the economy lodging segment, opening the first
Fairfield Inn.
The following year, Marriott opened its 500th hotel in
Warsaw, Poland.
Marriott has been one of the more aggressive growth companies
in the hotel sector. It's also grown in a number of different
ways. So it's grown by expanding the number of brands that it
represents. It's grown by both developing them in-house and
acquiring through M&A other hotel companies. And then it's
also been very active in growing internationally in a way that's
spread it's base of brands around the world.
In 1993, the company divided its operations into Marriott
International, the hotel management and franchising
company headed by Bill Marriott, Jr. and Host Marriott
Corporation, a hotel ownership company run by his brother
Richard.
Moving into the luxury market, the newly renamed Marriott
International acquired a 49% interest in The Ritz-Carlton in
1995, with sales topping $10 billion by 1997. But it was a
2016 acquisition that cemented the brand as the world's leading
hotel company.
Led by former CEO, Arne Sorenson, Marriott acquired
Starwood Hotels and Resorts bringing together Marriott,
Courtyard, Ritz-Carlton, Sheraton and St. Regis
properties all under one roof.
There are a lot of other companies which are seeking to
position themselves through, to grow and join the sort of the
upper echelon if you will, either through acquisitions, new
brand development and those sorts of activities,
I think Marriott in general has been, you know, one step ahead,
has been on the leading edge of, you know, evolving lodging
companies across the industry. And you point out the Starwood
acquisition, which really did you know, firmly put them in the
lead in terms of size. In terms of Breath of brands.
However, it may have been a global pandemic in 2020, that
proved to be one of the biggest challenges for hotel operators
With hotels nationwide closing, in September 2020, the iconic
Hilton Times Square hotel announced it was shutting its
doors. That same year, more than 670,000 hotel industry jobs were
lost. According to Sorenson, Covid-19 caused more pain to
Marriott International's business, than 9-11 and the
financial crisis combined.
The global hotel industry was a more than $530 billion business
in 2019 and included brands like Hilton, Intercontinental, Hyatt,
Wyndham and of course Marriott. U.S. hotels set multiple records
in 2019, including having more than 1.9 billion room nights
available, and roughly 1.3 billion room nights sold.
Profitability was high. Unit growth was high, and in general,
the business was doing quite well.
For like much of the travel industry, the coronavirus
pandemic has wreaked havoc on hotels. According to STR, 2020
was the worst year on record for the U.S. hotel industry, with
more than a billion hotel rooms unsold and revenue per available
room hitting an all-time low.
But with an increasing number of people getting their vaccines,
travel demand has surged. In the second quarter of 2021. Hilton
had net income of $128 million, compared to a net loss of $432
million the year earlier.
As of July 2021, the hotel brand had more than 6600 properties in
119 countries and territories. During that same period, Hyatt
had a net loss of $9 million dollars compared to a net loss
of $236 million a year earlier. And in its latest financial
filings, IHG, which includes Holiday Inn, Crowne Plaza and
Intercontinental reported a total operating profit in 2020
of $117 million, compared to $816 million in 2019.
In the first half of the year was the most challenging the
travel and tourism industry has ever seen, when you saw social
distancing come into play travel restrictions and borders
closing.
In the second quarter of 2021, revenue at Marriott rose to $3.1
billion, up 115% from a year earlier. In March 2020. The
hotel operator furloughed two-thirds of its corporate
staff, 10s of 1000s of employees and enacted cost cutting
measures. It also implemented new procedures at hotels like
requiring facemask in public areas, cleaning surfaces with
hospital-grade disinfectant and services like mobile check-in
and mobile key.
At our low point, we had about 2000 out of 7500 hotels that
were closed around the world. We've probably reopened three to
400 of those. I think when we look at even in the United
States, we see the early signs of recovery. Although we've gone
from something like minus 90% revenue to something like minus
80% revenue
By July 2021, Marriott's occupancy rate was 51%, up 18%
from the start of the year.
And according to analysts, the hotel operators, like Marriott,
have suffered as a result of dropping travel demand, they
have found themselves in a better position than individual
hotel owners.
I would say that names like Marriott, Hilton, Hyatt, clearly
devastated by this but less so than the owners themselves.
Remember, these companies tend to take fees off the top line
and in some cases, the bottom lines of the hotels. But all the
costs of operating a hotel are borne by the actual owners of
the hotels. So those are the folks that got hit the hardest.
CNBC reached out to Marriott, but they denied our request for
an interview.
Marrott had revenue of $10.5 billion in 2020, down almost 50%
from the year earlier. According to analysts, the hotel operator
makes most of its money from its full-service hotels, like the
Ritz Carlton, and JW Marriott that offer multiple restaurants
and other amenities
In 2019, 64% of revenue came from its North American
full-service hotels, 16% came from North American
limited-service hotels like Fairfield Inn, and Courtyard
Marriott. 11% came from hotels in Europe, the Middle East and
Africa, and 5% came from the Asia Pacific region. The
remainder of revenue came from things like credit card and
loyalty programs.
Covid certainly was and has been a pivotal moment for Marriott
for a number of reasons; the most important of which is the
structure of their business where they manage hotels, and
they bear the cost of labor and other operating expenses on
behalf of the owners of those hotels that are reimbursed
through the fees that they collect, which seized up in a
way, unimaginable, you know, brought to bear a series of
issues and risks or how their business will run in the future.
So the industry is really hitting a major reset here.
Where are we thinking about what it is that person that that
sleeps in your hotel every night? What do they really want?
Do they need nightly turndown service? Do they need their beds
remade every night if they're there for three or four nights?
Like its rivals, Marriott uses an asset light business model,
meaning it typically manages or franchises hotels rather than
owning them. In 2019, 58% of Marriott's rooms were under
franchise agreements. 41% of rooms were under management
agreements, and less than 1% of rooms were owned or leased by
the company. In a bid to generate capital, in May 2020,
the company signed new deals with Co-branded credit cards
providing Marriott with an infusion of cash, $920 million.
Adding new hotels to its portfolio is another key driver
for how Marriott generates growth, usually with little or
no investment by the company.
The most important driver of is unit growth. So you want to add
additional hotels— 3%, 4%, 5%, we're actually seeing some years
of closer to 6% unit growth. Marriott has pursued that more
aggressively than say Hilton, which has preferred more of an
organic growth initiative. But if you look at, not only the
Starwood acquisition, but other acquisitions in Europe, in
Africa, it has really led to increased growth for Marriott
And while Covid-19 has impacted those growth plans, as of July
2021, the company had nearly 478,000 rooms in its development
pipeline. From the start of 2021. until April, business
travel was expected to be down 85% compared to its 2019 levels.
The expectation is that business travel recovery will lag leisure
recovery in the hotel sector and Marriott participates in both
but it certainly is well known as a corporate and upscale type
of travel and demand. So Marriott will have a challenge
in the near term as it waits for corporate travel to rebound
fully.
The thing that will be interesting to watch, I think
it's going to be less clear what the trip purpose is.
Increasingly we're seeing folks that say, I can blend trip
purpose. I can combine leisure with business travel, and we
think that's a really good news for our hotels across the
country.
Marriott hopes to bring in some of those overnight guests in
what the industry refers to as the bleisure category—travelers
who combined business with tourism
To book more rooms in April 2021, Marriott rolled out two
new programs: a contactless check-in kiosk and a contactless
food and drink vending machine.
I can tell you that Marriott is already focused on making sure
that hotels are resourced properly, so that we can stay
longer, do our work and enjoy ourselves as well. And I think
that aspect of it is going to be critically important. You know,
as we come out of this crisis and recovers as an industry.
And while Marriott has seen an uptick in drive to leisure
demand during the pandemic, particularly for its extended
state and resort hotels., the company is facing headwinds from
another segment of the market: short term rental companies.
To compete with Airbnb in 2019, the company launched Homes &
Villas, a home rental service that offers more than 10,000
luxury hotels in over 250 markets.
By the summer of 2020, bookings at Homes & Villas were up 700%
over the previous season.
When we launched Homes & Villas, it was really a compliment to
our hotel portfolio. The notion that, for very specific trip
purposes, our guests might need a whole home experience. We've
seen pretty explosive growth. I think at the end of the quarter
we had about 30,000 listings, and they are all full homes.
However, as analysts note, Marriott's Home & Villas, it's
just a small fraction of the 5.6 million listings on Airbnb.
While Marriott's business has been severely impacted by
Covid-19, its profitable fee-based business model, solid
balance sheet, and an emphasis on corporate travel, should
position the brand for future growth once confidence and
travel returns
Group and business travel is expected to slowly begin in Q3
2021 and make a full recovery by 2024.
Fortunately, they've made it through to the other side as
have most of their owners, and I think they come out, you know,
leaner, tighter. And, you know, in many respects a healthier
business than they went in.
And I know we've talked, we've written about this wall of cash
that's out there where consumers are putting a lot of money away
in their savings accounts. I think travel could be a real
beneficiary as you look to the second half of next year and
into 2022 as well.