Marriott focusing on enhanced efficiencies

BETHESDA, Maryland – After a reporting a 3Q24 slight earnings miss due to higher G&A expenses, the big news from Marriott was an announced plan to enhance effectiveness and efficiency across the company that it hopes will yield $80 million to $90 million of annual G&A cost reductions beginning in 2025. In addition, Marriott expects this work to deliver cost savings to its owners and franchisees.

“We have undertaken an enterprise-wide process to enhance our effectiveness and efficiency across the company,” said Marriott President and CEO Tony Capuano. “We want to further empower our teams closest to our markets, guests, owners and franchisees to operate even more nimbly. While this work is not yet completed, we believe these efforts will drive increased profitability and enhanced value.”

CFO and Executive Vice President of Development Leeny Oberg added that at this point in the process, Marriott expects these efforts to yield $80 million to $90 million of annual pre-tax general and administrative cost reductions, beginning in 2025. In addition, she said Marriott expects to deliver cost savings to its owners and franchisees.

When pressed on specifics about savings for owners, Capuano only said Marriott is looking at every facet of their engagement with them and expects to have some tangible saving opportunities identified in the very near future. It is worthy of note that Marriott will rollout an upgraded property management, reservations, and loyalty technology systems in later 2025 that is expected to benefit owners.

He also said this process was due. “We think right now we operate from a position of strength. The business has really strong momentum,” Capuano said. “The company is quite different than the last time we looked holistically at the organization. If you think about the changes in the company over the last decade, we’ve more than doubled in size, entered over 60 new countries, now operating in 142 countries. So, it felt like the right time to really look across the enterprise and figure out what adjustments we can make to enhance and improve our efficiencies.”

Performance, pipeline insights

On the performance side, Marriott’s 3Q24 was strong, led by a 10% jump in global group business for the second quarter in a row. It forecasts 2% to 3% RevPAR growth for 4Q24. For FY24, RevPAR growth guidance is unchanged at 3% to 4%, but gross fee revenues and earnings have been slightly reduced.

An interesting data point was revealed about this week’s elections in the U.S. with RevPAR forecasted to be around negative 300 basis points in November, and negative 100 basis points for the quarter. That is double the impact of past election cycles, according to Oberg, with meaningfully lower transient and group room nights on the books for both this week and next.

At the end of September, while global group revenues were roughly flat for the fourth quarter, it is expected to rebound quickly with group revenues for 2025 pacing up 7% at the end of the quarter on a 3% increase in room nights and a 4% increase in average daily rate.

On corporate negotiated rates, Capuano said early discussion have them targeting mid-single digit increases for 2025.

Globally, business transient experienced another quarter of growth with third quarter RevPAR rising 2%, while leisure transient RevPAR was flat to the year ago quarter.

RevPAR growth at luxury and full-service hotels outperformed select-service properties and weekdays surpassed weekends, reflecting strength in group and business transient compared to leisure.

RevPAR grew 5% internationally, driven by 9% increases in Europe, Middle East and Africa and in Asia Pacific, excluding China. EMEA growth was helped by the Paris Olympics and other special events, as well as solid demand from U.S. travelers.

APEC strength was broad based across the region and benefited from international guests, especially from Greater China. Cross border travel on a global basis is now above pre-pandemic levels at just over 20% of total room nights. Greater China RevPAR declined 8% in the third quarter as macroeconomic pressures led to weak domestic leisure demands and restricted pricing power.

That said, Oberg did note Greater China RevPAR has been slightly better than expected moving into October. “One of the things that is interesting is we are starting to see a slight pickup in cross border travel into the Tier 1 cities [of China] – kind of classic business transient,” she said. “It’s only quite marginal because RevPAR was down meaningfully in Q3, and we do expect that to continue, but at the margin slightly better than we thought.”

Global RevPAR is expected to grow 2% to 3% in the fourth quarter and still assumes 3% to 4% growth for the full year.

In the fourth quarter, RevPAR growth is anticipated to be higher in most international markets than in the U.S. and Canada, where it is expected to be in line with the third quarter with strong leisure and business transient trends in October.

Greater China is still expected to post negative RevPAR growth in the fourth quarter and for the full year as a result of current weak demand and pricing power.

Marriott’s fee revenues rose 7% in the quarter to $1.28 billion, reflecting higher global RevPAR, rooms growth and an increase in residential branding fees helped by timing, and higher co-brand credit card fees.

Incentive management fees grew 11% to $159 million, led by higher fees in the U.S. and Canada, as well as strong growth in APEC and CALA, partially offset by a $5 million decline in Greater China.

Capuano said both in 2024 and in 2025 Marriott sees average fees per room growing, which might seem a little counterintuitive, giving their push into midscale. “But I think there are two principal drivers: we continue to see really strong momentum in the luxury tier, which drives outsized fees, and we continue to see strong growth in incentive management fees.”

In the third quarter, Marriott added around 16,000 net rooms, reaching more than 1.67 million rooms at nearly 9100 properties around the world. Global signing activity has remained strong, with more than 95,000 organic rooms signed year to date. In 2024 compared to a quarter ago, Marriott’s pipeline moved up 5% to a record 585,000 rooms.

In the third quarter, conversions represented over 30% of room additions and over 50% of signings.

Capuano said Marriott still expects rooms to grow a solid three-year CAGR of 5.0% to 5.5% five to five from year end 2022 to year end 2025.