Marriott soars to full US recovery thanks to higher room rates

May 4, 2022

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If Marriott International, with its wide array of brands from Fairfield Inn & Suites to W and St. Regis, is the bellwether for the hotel industry, it’s a good time to be in hospitality — especially if you run a hotel in the U.S. and Canada.

Marriott on Wednesday reported a $377 million profit for the first three months of the year, up from the $11 million loss the company reported for the same time last year. Overall hotel performance for Marriott brands around the world was just under 20% off 2019 levels while those in the U.S. and Canada were down by 14.5%.

But make no mistake: The travel recovery is well underway.

The U.S. and Canadian portfolio at Marriott returned to 2019 performance levels last month, Marriott CEO Anthony Capuano said in a statement ahead of an investor call this week. The company expects the region to continue to operate at pre-pandemic levels through the end of the year.

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While there is still plenty of volatility in the global travel environment — China, where Marriott last year momentarily saw a full performance recovery, is once again struggling amid lockdowns during an omicron case surge — Marriott leaders are optimistic about sustaining its recovery momentum.

“Many countries have started to cautiously adopt a live-with-COVID policy, leading to a rise in demand for all types of travel,” Capuano said on the Wednesday investor call.

Canada and the U.S., where a bulk of Marriott’s hotels are parked, might have a strong recovery underway. But the numbers are even better for hotels in the Middle East and Africa, where hotel performance was up 12% from 2019 levels.

Hilton leaders gave a similarly optimistic outlook on the travel recovery during their own earnings call earlier in the week; though, some investor analyst reports following that call appeared to chide the company for taking too conservative an outlook given how much travel demand is expected during the summer.

Marriott’s estimation that U.S. and Canadian hotels would remain in line with 2019 levels through the end of the year drew similar questions about if company leaders were playing it safe with their forecast.

Even though analysts and industry executives anticipate record-setting demand levels this summer at hotels, Marriott doesn’t have as clear an outlook for the fall and winter when it comes to business and group booking demand. Both sectors made significant recovery gains to date this year, but booking windows remain shorter than usual.

“It’s that murkiness of visibility in the back half of the year that’s causing us not to be more bullish in terms of forecasting,” Capuano said.

A luxury rate liftoff

It’s already well-documented that it’s more costly now to book a hotel stay than before the pandemic, and it’s only going to get more expensive as the summer travel season picks up.

Hotel companies held onto pre-pandemic rates on rooms, even in more negatively impacted cities like New York and San Francisco, due to the industry ideology that discounts wouldn’t stimulate demand in a health crisis. The move likely saved the industry years in its pandemic recovery timeline, as executives argue occupancy came back much quicker with pricing power than in prior downturns.

Marriott’s leadership team Wednesday indicated average rates across the company were 5% higher than 2019 levels in March. Hilton reported this week that rates across its network were 3% above 2019 levels in March.

But the real eye-popper for the wallet at Marriot comes from the luxury sector, where company leaders on Wednesday said rates in the first quarter were 27% higher than 2019 levels. Rates at upper-upscale resorts (brands like Sheraton and Westin) in the U.S. were up roughly 20% in the first quarter as well.

“[It is] clear proof of the strength of the leisure business,” Leeny Oberg, Marriott’s chief financial officer, said in an interview with TPG following Wednesday’s earnings call.

The number of room nights booked for leisure travel were up 17% from 2019 for the quarter. Business and group travel demand were still lagging, as that combined sector was down about 20% for room nights in the first quarter.

Much of that was driven by the omicron surge at the beginning of the year, Oberg noted. But there was an overall uptick in travel demand, as overall room nights booked in the U.S. were down 8% from 2019 levels for the first quarter but only down 2% in March.

What inflation concerns?

There have been some lingering concerns that inflation, while beneficial to hotel owners looking to recover financially from the depths of the pandemic, would take a toll on travelers who typically stay in more affordable hotels.

Rising gas prices and hotel rates might eventually lead some people to think twice about taking a vacation, the thinking goes.

The CEOs of Wyndham and Hilton refuted that claim over the last week, arguing they haven’t seen any negative impact from inflation to date. Marriott’s leaders were no different in their observations on Wednesday.

Featured image by Ben Smithson/The Points Guy.

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