Marriott off to good start in January

BETHESDA, Maryland – While a little light on 1Q25 guidance, bellwether Marriott International’s 4Q24 earnings call should be reassuring with all the giant’s regions producing better RevPAR growth than anticipated with strength across all customer segments. ADR was up 3% and occupancy increased by 1 percentage point. For 2025, Marriott is projecting global RevPAR growth of 2% to 4%.

During Marriott’s 4Q24 earnings call, Marriott President and CEO Anthony Capuano said leisure, which comprises 44% of global room nights, had its best RevPAR growth quarter of the year, up 6% globally and 4% in the U.S. and Canada, driven by gains in both room nights and ADR, and with strength across all tiers.

While there have been many predictions about the end of the line for leisure demand growth, Capuano said those fourth quarter numbers reflect that the leisure rebound from COVID still has some legs, even as the expectation is further normalization.

Adding further perspective, Marriott CFO and Executive Vice President of Development Leeny Oberg pointed to the overall macroeconomic picture and how it will always be a huge element to how leisure business develops. “We’ll all be watching that very closely,” she said.

Business transient has recovered to 2019 levels, just in a little bit different form. The small- and medium-sized businesses came back faster than the largest corporates… You still see their nights meaningfully behind 2019 levels, although some other of those large corporates, like in the financing sector of the economy, are actually back to more than recovered.

Leeny Oberg

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For 1Q25, Marriott expects worldwide comparable RevPAR to increase between 3% and 4%. They also expect to generate $1.24 billion to $1.255 billion in gross fee revenues. First-quarter adjusted earnings are expected to range from $2.20 to $2.26 per share. The guidance was slightly below earnings projections of $2.37 per share with $1.28 billion in fee revenue.

Business transient contributed 33% of global room nights in the fourth quarter and saw solid gains, again driven by ADR growth. RevPAR was up 3% globally and 4% in the U.S. and Canada.

“Business transient has recovered to 2019 levels, just in a little bit different form,” Oberg said. “The small- and medium-sized businesses came back faster than the largest corporates… You still see their nights meaningfully behind 2019 levels, although some other of those large corporates, like in the financing sector of the economy, are actually back to more than recovered. She added that while overall occupancy of Marriott’s global system is higher than 2019 levels, Monday, Tuesday and Wednesday occupancies have not recovered, while the other nights of the week are actually higher than pre-COVID. “So, we continue to see, bit by bit, additional recovery in those large corporates and we expect that to continue into 2025. But they are still not back to the level of 2019.”

Group RevPAR, which comprised 23% of room nights, grew 3% in the quarter, the lowest quarter of growth for the year due to fewer group events in the U.S. around November’s election and a decline in group RevPAR in Greater China. For the year, group increased an impressive 8%.

Capuano also said that at the end of 2024, global group revenue was pacing up 6% for 2025 and 10% for 2026 on increases in both room nights and ADR.

Oberg added that much of the overall gains in 2025 will be ADR driven. “We do expect a little bit of occupancy gains, as well,” she said. “But when I compare it to last year, we expect it to be more heavily weighted toward ADR gains.”

RevPAR growth in international regions is expected to outpace the U.S. and Canada, while Greater China is expected to be flat.

Oberg said that in 4Q24, Marriott gross fee revenue improved 7% to $1.3 billion, primarily due to higher RevPAR, room additions, a 13% increase in credit card fees and a near doubling of residential branding fees.

She said incentive management fees (IMFs) decreased year-over-year as strength in APEC was offset by declines in Greater China and in the U.S. and Canada, which were primarily driven by lower fees in Maui.

At the hotel level, profit margins at worldwide managed hotels rose 110 basis points in the quarter, and 40 basis points for the year, helped by continued productivity improvement, according to Oberg.

Regional snapshots

Looking at the geographic mix of results in 4Q24, Capuano pointed out that the drop in occupancy around November’s U.S. election was not as severe with demand rebounding quickly after the election.

We do expect a little bit of occupancy gains, as well. But when I compare it to last year, we expect it to be more heavily weighted toward ADR gains.

Leeny Oberg

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International RevPAR rose over 7% in the quarter, driven by 4% rise in ADR and a two-percentage point gain in occupancy. APEC RevPAR increased 12.5%, led by strong growth in Japan, India and Thailand, and aided by strong cross border demand, especially from Greater China. RevPAR in the EMEAA region rose 8% with broad based growth across the region led by strong leisure demand.

RevPAR in Greater China declined 2% -- better than prior expectations as the region benefited from the recent expanded visa free transit policy and better than anticipated demand across multiple holidays and citywide events. RevPAR growth was positive in big cities such as Hong Kong, Macau and Taiwan, while Hainan Island was again impacted by weak domestic leisure demand as wealthier travelers continue to vacation across other parts of the region.

Development outlook

Shifting to development, Marriott witnessed net rooms growth of 6.8% in 2024, led by the addition of around 38,000 rooms from its agreement with MGM and approximately 9,000 rooms from Sonder.

Conversions were again a large driver of growth in 2024, contributing about one-third of Marriott’s signings and over half of its openings.

With a record 1,200-plus deals signed last year, Marriott ended the year with over 577,000 rooms in its pipeline. In the U.S. and Canada, Capuano said Marriott led the industry in gross room additions with around one-third of all rooms opened during the year flying one of Marriott’s flags.

While financing in the U.S. remains particularly challenging for new construction, Capuano also boasted about having the leading share of new-build construction starts in 2024.

“We continue to have strong owner interest in all of our midscale brands, given their compelling brand design, the power of our revenue engines and their simple bundled affiliation costs, which we believe are the lowest in the industry,” Capuano added.

At the end of the year, Marriott had more than 300 open and in the pipeline for Four Points Flex, StudioRes and City Express by Marriott, just a year and a half after entering the tier.

For 2025, Oberg said Marriott expects net rooms growth of 4% to 5%.

Tech overhaul update

Marriott expects about $1.1 billion of investment spending in 2025 with another year of higher than historical investment in technology. Over half of this investment is associated with the multi-year transformation of their property management, reservations and loyalty systems.

We consider using the company’s balance sheet in deals where we believe the use of those capital tools will drive outsized fees. We’re not seeing deals where we’re making a key money contribution and being forced to do shorter terms, to deviate materially from the sorts of base and incentive fees or franchise fees that we’ve established.

Tony Capuano

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Elements of the tech transformation will start to roll out later this year with Capuano suggesting that items such as improved simplicity and streamlining surrounding training will be a big advantage as they try to attract next-generation talent.

For owners, he said there will be new opportunities to drive ancillary revenue around food and beverage, spa and golf, for example. “The ease with which a guest can shop across all those categories through are a new reservations platform we believe represents meaningful revenue upside for our owners,” he said.

Key money abounds

The last bucket of spending is expected investment in contracts, largely for new units as they continue to expand our global portfolio.

Key money was a big topic of conversation during the Q&A section of the earnings call with Capuano reinforcing that in the U.S. and Canada, competitive landscape has really shifted towards key money being the tool of preference, including a shift to using it for limited-service deals that matter. He added that the investment dollars per deal is down, but the volume of key money deals is up.

“We consider using the company’s balance sheet in deals where we believe the use of those capital tools will drive outsized fees,” Capuano said. “We’re not seeing deals where we’re making a key money contribution and being forced to do shorter terms, to deviate materially from the sorts of base and incentive fees or franchise fees that we’ve established.”

Oberg emphasized that overall Marriott is seeing very strong returns on invested capital with Capuano saying key money use is much more prevalent in the highest value tiers, upper upscale and luxury, which represents 40% of their pipeline.

“Our shareholders should want us to be holding those tools, largely for the most valuable opportunities,” he said. “Our focus on leading in those tiers is reflected in nearly over 40% of the pipeline being in those two quality tiers.”

Debt capital sparse

In response to a question about the availability of debt capital for new construction, Capuano said it has little to do with lodging fundamentals and perhaps it is more about the unknowns surrounding Basel III, which is a framework that sets international standards and minimums for bank capital requirements, stress tests, liquidity regulations and leverage to mitigate the risk of bank failures.

“We are seeing an uptick in construction starts, not back to pre-pandemic levels, to be sure, but that’s encouraging,” Capuano said, adding that Marriott had a leading share of the new-build ill construction starts. “That would suggest that the lenders that are active in lending for new builds are using the same criteria they’ve always used… Our sense is barring some significant regulatory change, we will see slow and steady improvement in the lending environment.”

Lastly, Capuano was asked to predict the China recovery curve and said they are encouraged by January’s performance there.

“We also have to temper that enthusiasm a little bit because some of that is a byproduct of the timing of Chinese New Year,” he said. So, we'll continue to watch. We are seeing some very small encouraging signs. The fact that the Tier One cities were positive [in January] is a good sign… We’ve seen some stimulus programs coming out of the central government, none of which to date are having material impact on demand patterns, or, for that matter, on the property sector. But long term, we continue to be really bullish on Greater China… Even in the face of some short-term operating weakness, we had record level of deal volume in 2024 and I think that’s indicative of the development community’s confidence long term about China and growth trends.”