Accelerating Group Hotel Demand Boosts Marriott’s Second-Quarter Performance

Ongoing strength in leisure travel and an acceleration in the recovery of group demand pushed Marriott International’s second-quarter performance to or above 2019 levels.

Excluding its hotels in the Greater China region, Marriott’s global June revenue per available room came in at 1% above 2019 levels, Marriott CEO Tony Capuano said during the company’s second-quarter earnings call. Worldwide occupancy reached 71%, only 5 percentage points below pre-pandemic levels, while global average daily rate was 8% above June 2019 levels.

Demand across all customer segments improved during the second quarter, he said. Record leisure demand strengthened further during the quarter with global leisure transient room nights 14% above the second quarter of 2019.

The greatest acceleration in demand came from the group business segment, with US and Canada group RevPAR almost fully recovered in June, down only 1%, he said. In March, it was down 17%. Group revenue pace for the second half of 2022 also continues to improve, as June in-the-year-for-the-year bookings were up 50% compared to June 2019.

“At the end of the second quarter, group RevPAR for the remainder of 2022 was pacing just a few percentage points down to 2019,” he said.

Marriott expects additional short-term bookings will further bolster group revenue, potentially pushing group rates in the US and Canada for the second half of the year above 2019 levels, he said.

For its hotels in the US and Canada, average daily rate for group bookings made in January was just above 2019 levels, but by June the rate had risen to 16% above, he said. Business transient demand also strengthened, but at a more moderate pace. In June, business transient room nights were 9% below June 2019 compared to being down 20% year over year in the first quarter.

Day of the week trends in the US and Canada indicate travelers are combining leisure and business, Capuano said. Midweek occupancy continues to recover at about 10 percentage points below 2019; occupancies on Fridays and Saturdays have fully recovered while occupancies on Thursdays and Sundays were close to 2019 levels.

As nearly every major country around the world has opened its borders, cross-border travel was a key driver of performance during the second quarter, Capuano said. Cross-border travel isn’t fully back to pre-pandemic levels, and that’s particularly true with Greater China and its strict COVID-19 policies.

“While we are closely monitoring consumer and macroeconomic trends, we have yet to see signs of a slowdown in global lodging demand,” he said.

When borders opened in Europe, room nights booked by international guests more than doubled in the region from the first to the second quarter, said Leeny Oberg, executive vice president and chief financial officer.

“With this strong return of international travel, Europe has experienced the fastest RevPAR recovery of all of our regions this year,” she said. “RevPAR in Europe topped 2019 levels in June, a remarkable 57-percentage-point increase from January.”

Trans-border travel also helped drive strong results in the Middle East and Africa as well as the Caribbean and Latin America regions, she said. RevPAR rose 16% in MEA and 13% in CALA compared to the second quarter of 2019.

In the Asia-Pacific region excluding Greater China, Marriott’s hotels achieved rapid RevPAR improvement, with India and Australia more than fully recovered, she said. RevPAR for the region was down 22% compared to 2019 given the lack of travelers from Greater China and rigorous travel restrictions in Japan.

In Greater China, RevPAR declined more than 50% compared to 2019 because of lockdowns in many major cities, including Shanghai and Beijing, she said.

By the end of the second quarter, Marriott’s worldwide development pipeline had nearly 2,950 properties and more than 495,000 rooms, according to the company’s earnings release. That includes approximately 27,400 rooms that were approved but not yet subject to signed contracts. About 203,300 rooms in the pipeline were under construction.

Marriott signed another 135 deals during the quarter, setting a record for a second consecutive quarter, Capuano said.

“Despite supply-chain issues, labor shortages, cost inflation and rising interest rates, the number of deals falling out of the pipeline remains below historical levels,” he said.

Developer interest in conversions remains particularly strong given Marriott’s roster of conversion-friendly brands as owners continue to look for meaningful top- and bottom-line benefits, he said. Conversions represented 30% of room signings in the quarter, and they represented about 25% of the 17,000 rooms added to the system.

One of the highlights from the quarter was Marriott’s deal with Vietnamese hotel owner Vinpearl for six hotel conversions and two new hotels in Vietnam, he said.

Construction timelines have lengthened in most markets mostly due to supply-chain disruptions and labor shortages, but Marriott expects the number of rooms added to the system will ramp up during the second half of the year, Capuano said. The company anticipates gross additions will approach 5% for the full year.

Following Marriott’s early June announcement of suspending all operations in Russia, the company expects a 1.5% to 2% deletion rate for 2022, he said. Excluding Russia, the deletion rate is expected to remain at 1% to 1.5%.

Marriott’s net rooms growth for 2022 should be 3% to 3.5% or 3.5% to 4% factoring in the deletions from Russia.

“We’ve remained confident that over the next several years, we will return to our pre-pandemic mid-single net rooms growth rates,” he said. “The timing will largely depend on when new construction starts, which have trailed well below 2019 levels for the last two years, really begin to accelerate, particularly here in the US”

Marriott reported second-quarter 2022 comparable systemwide constant dollar RevPAR increased 70.6% worldwide, 66.1% in the US and Canada, and 87.8% in international markets compared to the second quarter of 2021, according to the earnings release.

Second-quarter RevPAR declined 2.9% worldwide and 14.1% in international markets compared to the second quarter of 2019. RevPAR in the US and Canada grew 1.3% for the same time period.

Marriott’s net income totaled $678 million during the second quarter, up from $422 million a year ago. Adjusted earnings before interest, taxes, depreciation and amortization totaled $1 billion in the second quarter compared to $558 million in the second quarter of 2021.

As of press time, Marriott’s stock was trading at $157.33, down 4% year to date. The NASDAQ Composite Index was down 11.3% for the same period.

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