Marriott’s business is booming and rates are climbing — except in China
Don't expect any rate discounts at the world's largest hotel company — with one notable exception.
Marriott International reported Wednesday morning a hefty $772 million profit for the second quarter, which roared on strong group travel demand as well as ongoing strength in markets like the U.S., Europe and the Middle East. Further, the Marriott Bonvoy loyalty program now has more than 210 million members.
But while many countries in the Asia-Pacific region, like Japan, showed hotel strength, it's a different story in China.
The country, an enormously important market for hotel companies like Marriott and for outbound tourism to countries around the world, is facing a mix of economic issues at home, while Chinese tourists spending in the luxury markets are beginning to travel to other countries within the Asia-Pacific region.
"[Performance] in Greater China declined roughly 4% in the quarter as macroeconomic pressures led to softer domestic demand," Marriott CEO Anthony Capuano said during a company earnings call Wednesday. "The region was also impacted by an increase in outbound high-end travelers."
Average hotel rates in China were down roughly 5% from April through the end of June, according to Marriott's financial release.
A Truist Securities report released Wednesday after the Marriott earnings results indicated there's fatigue in China around post-lockdown "revenge travel" that fueled much of the travel industry's comeback from the COVID-19 crisis. Further, other economic issues like high unemployment, a real estate crisis and weaker consumer spending are also to blame.
Marriott leaders noted cities like Macau and Hong Kong are still posting strong performance, however. But while high-end Chinese travelers might be venturing to other Asia-Pacific countries, they still aren't back to pre-pandemic levels in the U.S.
"The travel [from China] to and from the U.S. is definitely not back to the levels that it was, and we do continue to expect to see really strong outbound demand from Greater China," said Leeny Oberg, Marriott's chief financial officer and executive vice president of development, before later adding: "But I will point you again to the overall macroeconomic picture there in Greater China, which has frankly meant that overall levels of travel spend have not recovered as fast as perhaps might have been expected."
No need to discount room rates
While room rates might be down in China, travelers shouldn't expect to find bargains practically anywhere else in the world where Marriott has a hotel. Globally, average nightly rates at Marriott rose 3% in the last three months.
In the U.S. and Canada, average rates are up slightly more than 2%, while those in the Middle East and Africa increased by nearly 11%. Room rates jumped 6% in Europe, while the Asia-Pacific region beyond China saw room rates increase slightly more than 5%.
The company saw increased performance across leisure, business and group travel demand. Of course, Marriott Bonvoy also plays a big role: 71% of all room nights in the U.S. and Canada are booked by Bonvoy members.
While there have been reports of softness in lower-priced segments of the hotel industry, Marriott leaders reiterated that there is still strength in their overall business — especially in higher-priced hotel brands. Travelers might skip out on a fancy dinner or on extending a trip to cut costs here and there, but there is still plenty of runway for growth.
"I think one thing that's just interesting is that around the world, U.S. and Canada, and, frankly, all of the other regions, ancillary spend was a hair softer than we anticipated," Oberg said. "I think it does show that the consumer in general is perhaps being a bit more judicious about the fancy dinner or going on that extra trip when they're on a vacation. That is really the only thing. It's not a trade down in any meaningful way."
Capuano added that Marriott's luxury portfolio showed the biggest occupancy recovery of any market segment since last year.
MGM partnership shows strength
While Marriott broke its recent earnings call streak of announcing or at least hinting at new brands, company leaders did point to strength in ongoing partnerships with companies like Starbucks and MGM Resorts International.
The MGM deal is a huge win for Bonvoy members looking to earn and redeem points when visiting Las Vegas, and it appears the partnership is a win for both sides of the relationship.
"I think from both companies' perspectives, we are elated at the volume of both transient and group leads that are coming through our systems, the number of folks that are considering linking their MGM Rewards and Marriott Bonvoy accounts, [and] the number of groups that are unique groups that are now available to the MGM portfolio," Capuano said. "So, on all fronts, we are thrilled."
Consider this a Las Vegas jackpot that doesn't require a poker table or a slot machine.
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