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Marriott made a series of big announcements at its annual analyst meeting and investor call on Monday. The hotel chain plans to add 1,700 hotels by 2021, increasing rooms by an estimated 275,000 to 295,000 in the next two years. It thinks it can generate $400 million from these new hotels in 2021 and $700 million when stabilized.
The world’s biggest hotel company currently has 6,900 properties and 1.3 million rooms, so this would be an increase of about 23 percent of rooms and 25 percent of properties. The hotel chain has 478,000 rooms in the pipeline with 214,000 that are currently under construction. In 2018, the company added 80,000 rooms across its brands, growing the total by 5 percent.
Don’t expect these properties to be anything like a St. Regis or JW Marriott, though, but more cookie-cutter properties. Marriott is seeing especially strong growth in the number of rooms at its Residence Inn, Fairfield Inn & Suites, and Courtyard brands in North America, said Arne Sorenson, CEO of Marriott, in a statement. The number of rooms per new hotel to be built, 174 at the higher end of the estimate, suggests that most of those hotels will be in the mid-range category.
Shareholders could see $1.9 to $2 billion in dividends and Marriott expects to buy back $7.6 to $9 billion of its own shares over the next three years.
Big Bets on Bonvoy
Despite huge problems integrating the Starwood and Marriott loyalty programs, Marriott said the program’s user base has grown hugely in the last year. At the end of 2018, Marriott had 125 million members in the Bonvoy program, and said it’s adding 1.5 million new ones every month. A huge part of that growth comes from China, with 500,000 enrolling in November 2018 alone.
74 percent of nights last year were booked directly through Marriott as opposed to an online travel agency like Expedia or Hotels.com, and 50 percent of those paid nights were booked by Marriott Bonvoy members. In a sign that travelers value the loyalty points and perks from a stay booked directly with the hotel, room nights sold to members increased 6 percent last year.
The rewards program actually saw an 8 percent increase in loyalty redemptions in 2018, possibly having to do with the Category 8 redemptions that could be had at Category 7 prices before the devaluation earlier this month and the coming introduction of peak pricing. Member bookings for both cash and loyalty stays reached record levels. However, only 4 percent of overall bookings were loyalty redemptions.
“Speaking of the loyalty program, it generated several hundred million dollars of cash in 2018, more than is typical in most years,” chief financial officer Leeny Oberg said on the investor call. “This was in part due to a large one‐time cash payment received from the credit card companies upon signing our co‐branded credit card agreements.”
However, due to higher marketing costs and more redemptions, Oberg thinks the program will be cash flow neutral in 2019.
“We believe the cost of our loyalty program is the lowest among our competitors in the hotel business, while delivering the highest value to guests,” Sorenson said. “I can’t tell you what it is in dollar terms, but compared to (…) what we’ve done in years past, we’ll spend a significant amount of money promoting the program, getting it out there, making sure people know what it is called and know the value that’s associated with it.”
This may help Marriott move beyond the data breach that led to the data of up to 383 million users being stolen from legacy Starwood databases, including passport and credit card numbers.
Sorenson recognized the problem, but said loyalty ultimately trumps the concerns. “Even when we hear complaints from SPG customers, and we have some since the amount of change that they’ve seen, is that they remain extraordinarily passionate about the program, taking almost a co‐ownership stake to it,” Sorenson said. “Why? Well, partly it’s their tradition and their history but significantly, it’s because of the portfolio of luxury lifestyle and resort properties, which Starwood had and which now we have on a combined basis at a dramatically improved level.”
“Again, for those that are frustrated, we’re going to work through this and make sure we do well by them,” the CEO added. “But we’re still quite optimistic that this is going to work the way we planned it.”
Marriott still plans on launching a no-fee credit card in 2019, Linnartz said. That will complement its existing portfolio of cards including the mid-tier Marriott Bonvoy Boundless Credit Card from Chase, the premium Marriott Bonvoy Brilliant™ American Express® Card and the Marriott Bonvoy Business™ American Express® Card.
Marriott credit cardholders book three times the amount of night as a member without a card, the company said.
Marriott wants to evolve Bonvoy from a loyalty program to a travel program, said Linnartz, and says Marriott’s vision is to become the “world’s favorite travel company.” To do this, Marriott will continue to invest in non-traditional programs like its Tribute Portfolio Homes and Marriott Moments.
And for those still scratching their heads as to why Marriott decided to the name the program Bonvoy, Sorenson provided some insight on that too.
“We wanted to come up with something which sort of set us up to explore something new in a bit more powerful,” the CEO said. “And Bonvoy is what came out of that. We had a great deal of fun internally and with a few smart external advisers coming up with that name. And one of the funnest parts of our business, whether it’s a new name for our brand, for a hotel chain or a new brand for a loyalty program is just getting together and feeling those words and trying to think about how they inspire and connect with folks.”
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