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How Marriott plans to manage a 45% drop in hotel occupancy rates

March 20, 2020
6 min read
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The hotel industry -- like just about every other sector of the economy -- is suffering greatly from the essentially nonexistent demand for travel as a result of the coronavirus pandemic.

Predictably, as a result of the collapse in travel worldwide, hotels are seeing dramatic decreases in occupancy rates, average daily rates and revenue per available room (RevPAR). The drop in demand is having a real-world effect on businesses across the industry, with Marriott having already announced temporary layoffs of tens of thousands of workers in hotels across the world -- from management level to housekeepers.

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On March 19, Marriott held a call for investors featuring its president and CEO Arne Sorenson and Ms. Leeny Oberg, Marriott International's executive vice president and chief financial officer. These executives painted a picture of a company that is making big changes at the hotel and corporate levels to weather this crisis.

From its latest update, it seems the world's largest hotel chain is using learnings it has acquired from past economic downturns and hopes to emerge from this current crisis stronger than before, but it will not be easy. There will be a lot of pain to endure in the short- and medium-term.

The numbers don't lie

There's no way to sugarcoat it: Things are currently grim for Marriott and all hoteliers. As Sorenson said on the call, the chain is seeing occupancy rates in North America at under 25%, down from about 70% last year. And, things will get worse before they bottom out and eventually improve.

In mainland China, occupancy rates were as low as 5 and 6%, and in Macau, occupancy got as low as 2% at the peak of the crisis in those locations. As China begins to cautiously restart its economy, Marriott has seen occupancy rates rise in Macau to around 20%, and has seen encouraging signs of guests returning to its properties in places like Shanghai and Hainan, as well.

The revenue per available room figure was down some 25% across the Asia-Pacific region for the first two months of 2020, and while the chain doesn't have concrete numbers for other regions yet, it's likely that they'll follow a similar trajectory.

Across the entire portfolio, Marriott has seen demand all but dry up for the near-term on both the business and leisure side. But, meeting bookings have largely remained intact for 2021, perhaps signaling meeting planners are taking a wait-and-see approach for the future.

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The way forward

Marriott's main objective as much of the world heads into even more uncertain times is to preserve as much cash as it can, a point that was reiterated numerous times on the call.

This is where theoretical figures like occupancy rates and RevPAR cross into the real world. In short, it means that hotels -- a lot of them -- will be closing, which in turn means people are going to lose their jobs, at least for now. And that's already started. A caller asked if Marriott could see 50% of its hotels closed for a period of time, and while the chain didn't want to give a specific number, it indicated that many hotels would close.

And, for properties that don't close, it's likely that entire floors will be temporarily shuttered, leading to a reduction of staff even at the properties that will remain open.

Renovations currently slated for this year will be put on hold, and other new initiatives will be paused until the situation stabilizes. Many properties that were scheduled to open this year will likely not open on time, and there will likely be delays in signing deals for new properties.

The chain outlined a plan to slow down cash outlay, including curtailing its approximately $1 billion in annual spend on marketing and reducing payroll.

Marriott -- along with the entire hospitality industry -- is asking for help from governments around the globe to help pull it through this unprecedented crisis. It has requested emergency employee assistance in the form of well-funded and readily available unemployment insurance, help with providing liquidity to continue operating and tax relief. Marriott mentioned that it is in negotiations with the Government of Italy to provide financial aid for employees both from the government and through the nation's labor unions.

Will Bonvoy keep Marriott afloat?

One particularly interesting part of Thursday's call to investors was the relationship between the Bonvoy program and the company's bottom line. According to Oberg, the program contributes over $400 million annually to the chain's balance sheet, mainly through branding fees generated from its cobranded credit cards, which it has with both American Express and Chase.

Related: Your guide to hotel elite status during the coronavirus crisis

And, in the past, this has been a relatively stable figure and hasn't decreased along with a decrease in RevPAR, meaning Marriott may lean on its credit-card business, to the extent possible, to help see it through this storm. Though it did note that it would be "right-sizing [its] expenses in loyalty."

Marriott also noted that after most downturns, when daily room rates are softer than normal, Bonvoy members often prefer booking cash rates in order to preserve their points for future bookings. That in itself would help the company conserve cash if it's not in the position of reimbursing properties for an abundance of points stays.

Bottom line

Marriott and its peers in the hospitality industry are facing an immense challenge. And, it's likely that the hotel industry as a whole will need a bailout from the government in order to survive this crisis.

Despite the potential for government assistance, the world's largest hotel chain recognizes the full gravity of the situation it's in and has a plan to weather the crisis.

One thing is for sure, and that's that nothing is for sure. No one can predict when this pandemic will be behind us and the world can begin to pick up the pieces. For now, according to Marriott, it's focusing -- above all -- on managing its relationship with its customers and taking this time to "bank goodwill," so that once all of us are in the air and on the road again, Marriott hopes to be well-positioned to compete for everyone's hard-earned dollars.

Featured image by Getty Images

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TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
4 / 5
Go to review

Rewards Rate

5XGet 5X Membership Rewards® points on flights and prepaid hotels on amextravel.com
1.5XEarn 1.5X points on eligible purchases at US construction material & hardware suppliers, electronic goods retailers and software & cloud system providers, and shipping providers, as well as on purchases of $5,000 or more everywhere else, on up to $2 million of these purchases per calendar year
1X1X points for each dollar you spend on eligible purchases.
  • Intro Offer
    The Points Guy Exclusive Offer: Earn 150,000 Membership Rewards® points after you spend $15,000 on eligible purchases with the Business Platinum Card® within the first 3 months of Card Membership.

    Earn 150,000 points
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  • Annual Fee

    $695
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    670-850
    Good, Excellent

Why We Chose It

It's hard to find a card that competes with the mile-long list of benefits that come with the Amex Business Platinum. While it's certainly not the card for the average consumer, a business owner with tons of expenses -- especially related to travel -- will find this card incredibly valuable. This card is similar to the consumer version that Amex offers, but with more business-oriented perks around statement credits and earning rates that are a better fit for business owners.

Pros

  • An up to $100 credit for Global Entry or TSA PreCheck application fee every four to five years
  • Up to $400 annual credit for eligible U.S. Dell purchases (enrollment required)
  • Gold status at Marriott and Hilton hotels (enrollment required)
  • Access to the Fine Hotels & Resorts program and Hotel Collection
  • Extended warranty protection
  • International Airline Program and Cruise Privileges Program

Cons

  • Steep annual fee
  • Difficulty meeting $15,000 welcome offer for smaller businesses
  • Limited high-bonus categories outside of travel
  • The Points Guy Exclusive Offer: Earn 150,000 Membership Rewards® points after you spend $15,000 on eligible purchases with the Business Platinum Card® within the first 3 months of Card Membership.
  • Get 5X Membership Rewards® points on flights and prepaid hotels on amextravel.com, and 1X points for each dollar you spend on eligible purchases.
  • Earn 1.5X points (that’s an extra half point per dollar) on eligible purchases at US construction material & hardware suppliers, electronic goods retailers and software & cloud system providers, and shipping providers, as well as on purchases of $5,000 or more everywhere else, on up to $2 million of these purchases per calendar year.
  • Unlock over $1,000 in annual statement credits on a curation of business purchases, including select purchases made with Dell Technologies, Indeed, Adobe, and U.S. wireless service providers.
  • $200 Airline Fee Credit: Get up to $200 in statement credits per calendar year for checked baggage fees, lounge day passes, and more at one selected airline.
  • $189 CLEAR® Credit: Use your Card and get up to $189 back per year on your CLEAR® membership. CLEAR® is available at more than 50 U.S. airports and stadiums.
  • The American Express Global Lounge Collection® can provide an escape at the airport. With more than 1,400 airport lounges across 140 countries and counting, you have more lounge location options than any other credit card on the market as of 9/2021.
  • $695 Annual Fee.
  • Terms Apply.