Marriott (MAR) Banks on Unit Expansion Efforts, RevPAR Dismal

Marriott International, Inc. MAR is likely to benefit from unit expansion efforts, pent-up demand and the loyalty program. Also, its focus on hotel conversion opportunities bodes well. However, a decline in revenue per available room (RevPAR) from the pre-pandemic levels is a headwind.

Let’s delve deeper.

Growth Catalysts

Marriott is consistently trying to expand its presence worldwide and capitalize on the demand for hotels in international markets. During the second quarter, the company added 97 new properties (16,917 rooms) to its worldwide lodging portfolio. Also,  the company announced an agreement with Vinpearl to open eight hotels in Vietnam. The deal is expected to add 1,700 rooms to the system. MAR plans to expand its global portfolio of luxury and lifestyle brands.

Meanwhile, Marriott is focusing on hotel conversion opportunities to mitigate the impact of construction delays caused by the pandemic. In 2022, Marriott anticipates net room growth in the range of 3-3.5%. The hotel company is also trying to strengthen its presence outside the United States, especially in Asia, Latin America, the Middle East and Africa. The company’s European pipeline has grown consistently in the recent past and is expected to continue going forward.

Marriott has been gaining from the reopening of international borders and leniency in travel restrictions. Throughout the second quarter of 2022, the company witnessed a steady increase in demand in the United States, Canada, the Middle East and Africa regions. The company benefited from robust leisure demand and business and cross-border travel improvements. It also reported a strong RevPAR recovery in Europe. With global trends improving, the company expects the recovery momentum to continue in the future. Attributes such as pent-up demand for all types of travel, the shift of spending towards experiences versus goods, sustained high levels of employment, lifting of travel restrictions and opening borders (in most markets) are likely to aid the company in the upcoming periods.

The company is benefiting from the robust growth of its loyalty program. With nearly 169 million members globally, the company’s loyalty program Marriott Bonvoy plays a supporting hand in its marketing strategies. Also, the company is engaging its customers with promotional offers such as grocery and retail spending accelerators on its co-branded credit cards (American Express and Chase). In July 2022, the company unveiled a new credit card in China and reported solid feedback. During the second quarter of 2022, the number of global card accounts rose 16% from 2019 levels. Backed by solid customer acceptance for credit card programs coupled with a rise in credit card average spending, the company anticipates higher contributions from credit card fees in 2022.

Concerns

Marriott — which shares space with Hilton Worldwide Holdings Inc. HLT, Marriott Vacations Worldwide Corporation VAC and Hyatt Hotels Corporation H in the Zacks Hotels and Motels industry — has been affected by the coronavirus crisis. During the second quarter of 2022, strict COVID policies and lockdowns in Shanghai and Beijing weighed on travel demand. Also, supply chain disruptions and labor shortages added to the downside. Although most properties have lifted or eased restrictions, RevPAR is still lagging behind pre-pandemic levels. The company expects demand to remain uneven in the near term.

A Brief Review of the Other Stocks

Hilton is benefiting from its focus on expansion, luxury development strategy and digital efforts. The company is gaining from robust leisure demand and business and cross-border travel improvements. During second-quarter 2022, the company witnessed solid RevPAR gains in Europe, the Middle East and Africa region on account of easing travel restrictions. With global trends improving, the company expects the recovery momentum to continue in future periods. The company anticipates system-wide 2022 RevPAR to increase between 37-43% (compared with the previous projection of 32-38%) on a year-over-year basis.

Marriott Vacations continues to witness robust recovery during second-quarter 2022. While both occupancies and tours are witnessing growth in the second quarter, VPGs remain well above the 2019 levels. The company reported benefits from its development and rental businesses. During the second quarter of 2022, the company reported solid occupancies with respect to its Aqua-Aston business. Also, it reported a solid recovery in domestic markets (Hawaii) and Asia-Pacific. Going forward, much optimism prevails as the company noted increasing customer willingness to resume travel.

Hyatt is benefitting from a gradual increase in demand, new hotel openings and acquisition initiatives. Also, increased focus on loyalty programs bodes well. With continued ease-of-travel restrictions and improvements in airlines, the company noted solid demand from both leisure and business travelers alike. The company is optimistic with respect to the Apple Leisure Group acquisition on account of robust business and technological optimization.

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