Stronger-than-expected first-quarter performance and forward-booking trends prompted Marriott International to increase its full-year outlook for 2023 despite concerns of a potential recession. Executives also teased a new brand, to launch in the midscale, extended-stay space in the coming weeks.
“While macroeconomic uncertainty persists, it has not weighed on travel demand today,” Marriott President and CEO Tony Capuano said in the company’s first-quarter earnings call. “In fact, demand continued to rise across all customer segments in the quarter.”
Global revenue per available room grew 34% over 2022, driven by significant hotel recovery in the Asia-Pacific region and strong growth in other regions, he said. Worldwide occupancy reached 65%, 11 percentage points higher than the first quarter of 2022. Global average daily rate grew 11%.
First-quarter performance and “robust” global booking trends for the year gave executives confidence to raise full-year guidance, said Leeny Oberg, Marriott’s chief financial officer and executive vice president of development.
“Macroeconomic uncertainty isn’t affecting short-term demand, and trends across all customer segments remain strong,” she said.
Marriott expects strong year-over-year performance growth in international markets, particularly in the Asia-Pacific region, in the second quarter. But there’s less visibility in forecasting financial performance in the second half of the year, Oberg said.
The higher end of the new range for Marriott’s RevPAR guidance reflects relatively steady global economic conditions through the remainder of 2023. The low end reflects a meaningful softening of the global economy in the second half, with worldwide RevPAR in the past two quarters flat compared to 2022.
Marriott’s new full-year 2023 guidance projects year-over-year RevPAR growth of between 10% and 13% worldwide; between 6% and 9% in the U.S. and Canada; and between 22% and 25% in international markets.
At the end of 2022, the company’s full-year 2023 guidance projected that RevPAR would grow between 6% and 11% worldwide; between 5% and 9% in the U.S. and Canada; and between 12% and 18% in international markets.
Marriott’s forward bookings remain solid, though the transient booking window is still short term at about three weeks, Capuano said. Globally, leisure demand and ADR are still robust, with leisure demand already above pre-pandemic levels. Transient room nights booked in the first quarter were 12% higher year over year while ADR grew by 8%.
Group demand was strong in the U.S. and Canada, with group revenue for full-year 2023 pacing up 26% compared to 2022 at the end of the quarter, Capuano said. For the second through the fourth quarter of this year, group room nights are pacing 9% above with rates up more than 7%, leading to revenue pacing up 16% year over year.
U.S. and Canada business travel demand recovery was modest in the quarter, he said. ADR rose meaningfully due in part to solid special corporate rate increases. Business transient revenue surpassed 2019 levels for the first time since the pandemic started.
Cross-border travel continues to rise globally, but it is still a few hundred basis points below 2019 levels, a time when guests traveling abroad accounted for nearly 20% of total room nights for Marriott, Capuano said.
“Additional upside is expected to come primarily from the Asia-Pacific given international airlift to and from China is still well below pre-pandemic levels,” he said.
Marriott closed on its $100 million acquisition of the City Express brand portfolio Monday, expanding the company’s operations into the midscale space. The deal adds about 17,000 rooms in the Caribbean and Latin American region, also known as CALA.
“City Express is an incredible launchpad to jump-start our entry into the high-growth, moderately priced midscale space,” he said. “We see meaningful opportunity to expand the brand in CALA as well as in other locations around the world.”
The goal of Marriott’s breadth of brands is to satisfy the wants and needs of guests, owners and franchisees, he said. The midscale tier is one that Marriott hasn’t offered, but one that each constituent wants.
There is an immediate opportunity to accelerate the growth of City Express across the CALA region as Marriott has done with other brands it developed organically or acquired.
Marriott is “knee-deep” in exploring how and where to grow the City Express platform, Capuano said.
The firm also has further goals in the midscale space.
“Here in the U.S., we’re just a few weeks away from announcing a simple, modern, streamlined, new-build extended-stay product that has very basic services and amenities for those looking for longer stays that have midscale price points,” Capuano said. “You should expect to hear more about that in the coming weeks.”
By the end of the first quarter, Marriott’s worldwide development pipeline totaled more than 3,050 projects with approximately 502,000 rooms. Of those, more than 21,000 rooms are approved but not yet subject to signed contracts. About 200,000 rooms were in construction as of March 31.
The company added approximately 11,000 rooms to its portfolio during the quarter. Of those, 5,800 rooms were outside of the U.S. More than 2,700 were converted from other brands.
Marriott expects gross rooms growth of about 5.5% this year and net growth of 4% to 4.5%, Capuano said. It anticipates returning to mid-single-digit net rooms growth in the next few years.
There are many questions about the banking environment, particularly in the U.S. and Europe, given rising interest rates and other challenges, Oberg said. Many banks are waiting for more clarity on capital requirements and possible additional regulations. Despite these issues, deals that have committed financing continue to move forward.
There has been no increase in the number of deals leaving the development pipeline, which represent 1.5% of projects, below the company’s historical average of more than 2%, she said.
“We’re closely monitoring the situation and the regulatory response, but we do expect the tightening of hotel financing to be short term,” she said. “As we have seen over time, hotel financing has proven to be quite resilient over the long term. Hotel loans have been among the better-performing sectors of commercial real estate lending of late, as hotels continue to post excellent operating results.”
During the quarter, Marriott reported income of $757 million, up from $377 million in the first quarter of 2022, according to its earnings release. Adjusted earnings before interest, taxes, depreciation and amortization was nearly $1.1 billion, an increase from $759 million a year ago.
RevPAR increased 34.3% worldwide, 25.6% in the U.S. and Canada, and by 63.1% in international markets.
Base management and franchise fees amounted to $932 million during the quarter, a 31% year-over-year increase. The company attributes that growth primarily to RevPAR increases and unit growth. Other non-RevPAR related franchise fees came to $197 million, a 16% increase.
Incentive management fees totaled $201 million, up from $102 million the year before.
By the end of the quarter, Marriott’s total debt was $10.7 billion with cash and equivalents at $600 million. This is compared to $10.1 billion in debt and $500 million in cash and equivalents at the end of 2022.
As of press time, Marriott’s stock was trading at $176.73 a share, up 18.9% year to date. The NASDAQ Composite Index was up 15.8% for the same period.
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