East plays west in battle for growth

Executives at hotel giants Marriott and Hilton are all looking forward to a happier 2021, with travellers moving around once more, and the prospect of lucrative business and group bookings restarting.  

Both businesses are living with quarterly losses, but cash burn has fallen as head office teams have cut overheads. Revenues are starting to recover through an improvement in business in some parts of the globe, just as others remain locked down in a bid to curtail the covid-19 pandemic.  

But the pace of the pickup – and their respective exits from the pandemic – are already starting to look a little different. For a start, there’s the all-important net unit growth figure – NUG – where Hilton looks to have picked up the pace on its larger peer. Hilton CEO Chris Nassetta said his 2020 NUG was 5.1%, ahead of guidance, with fourth quarter openings up nearly 30% year on year: “This was largely driven by new development in China, where our focused-service brands continue to command a disproportionate share of industry growth.”  

He predicted the measure would continue in the 4-5% range per year, over the next three years, and it was just one reason why he was unconcerned about any marginal drop off in business travel due to new digital solutions such as Zoom. “Our business is going to be a better business and a stronger business and a faster growing, higher-margin business.”  

“I think if you go out three, four years, I think demand is going to look a lot like it did in ’17, ’18 and ’19. Meaning the makeup of the business between business transient, leisure transient and group at that point in time, I think, will look quite similar.”  

At Marriott, where the sudden death of CEO Arne Sorenson meant a team of senior executives fielded the year end presentation, Anthony Capuano, group president, global development, design and operations services revealed: “In 2020, we added nearly 63,000 rooms worldwide, for rooms growth of 4.6% on a gross basis. On a net basis, including deletions of 1.5%, our global distribution grew by 3.1%, year-over-year.” Looking ahead, he added: “We expect net rooms growth of roughly 3% to 3.5%.”  

Again, Asia Pacific was the standout region: “We opened more rooms in 2020 than we did in 2019 adding over 18,000 rooms with gross rooms growth of over 8% versus year-end 2019.”  

At Hilton, Nassetta declared the current brand portfolio was all he needed to meet guest needs, and there would be no consideration of acquisitions. And he said the big opportunity would be in the mid-market: “It’s something I talked a lot about pre COVID that, frankly, I don’t think got enough attention, which is the mega trend in the industry in every market in the world.” 

“That’s where the bulk of the population growth is, particularly in the emerging markets. We have the best mid-market brands in the world. If you wake up in 20 years and you look back and say, where was the bulk of the growth in demand and thus, the bulk of the growth in rooms, it’s going to be in the mid-market.” 

Nassetta pointed to China, where its mid-market brands are expanding strongly, in the hands of local partners.  

In contrast, Marriott has been on the acquisition trail, as it concentrates on growing its all-inclusive resort portfolio. In February, it announced a longterm agreement with the hotel division of Sunwing Travel Group, to bring 19 resorts into the Marriott Autograph collection. The resorts in Mexico, Dominican Republic, Jamaica, St Lucia, Antigua and Costa Rica will all switch in the coming months, adding 7,000 rooms to the all-inclusive offering launched when Marriott acquired Elegant Hotels at the beginning of 2020.    

“It was frustrating for us to see the pace of growth in the all-inclusive space, certainly in CALA, but even in Southeast Asia and some of the Eastern European resort markets and not have a platform to compete for those opportunities,” said Capuano. “Since our launch, the market reaction from the development community has been quite significant – it has accelerated the volume of inquiries we’re getting about new opportunities, particularly on the conversion side.” 

Both groups are pinning their hopes on the return of business travel, before too long. Nassetta commented: “Sequential upticks in business transient booking pace year-to-date indicate that there is pent-up demand for business travel that should drive a recovery in corporate transient trends as the year progresses. On the group side, we saw a meaningful step-up in new group demand in January with our back half group position showing significant sequential improvement versus the first half of the year.” 

Stephanie Linnartz, group president, consumer operations, technology and emerging businesses at Marriott, confirmed the outlook: “The story on the group front just underscores the point that there will be a return to meetings and group business. May be slower than we would like, but we’re seeing the demand. We’re talking to our customers all the time, meeting planners, our top accounts and they all want to get back out on the road and travel. We’re also seeing in China some quite positive things on the group front. As a matter of fact, group bookings in China were up to 20% of our room nights, again, which was encouraging.” 

While loyalty programmes have largely been stillborn, due to restrictions on corporate travel, Marriott is still planning for an expected return to the world of earning and burning points. Linnertz said the all-inclusive additions to the portfolio are “going to be a terrific offering, particularly for our Marriott Bonvoy members. It is really anything that makes the Marriott Bonvoy program stickier and more engaging, is great for our business.” 

She also revealed that Marriott’s homes and villas business, which has now grown to 25,000 listings, largely in the Americas and Europe, is also predominantly tilted at the Bonvoy membership. “90% of our bookings are coming from loyalty members and also 30% of the bookings are redemptions, people redeeming their Marriott Bonvoy points. 40% of our HVMI destinations are actually new to Marriott, they’re where we don’t have hotels and many of them are in more remote locations, which really was quite attractive during COVID.” 

HA Perspective [by Chris Bown]: They may be the biggest, but Marriott’s being caught. With a 3.1% NUG in 2020, and similar predicted for 2021, the growth pace is slipping – both Hilton and Hyatt are managing 5% or so.  

So the question is, is size everything? Nassetta, always a glass half full character, sees the road into the future rosier for having a slew of limited service brands that he can roll out to the expanding middle classes. He’s walking the walk, having just expanded an agreement with Jin Jiang in China to grow Hampton by Hilton to 600 properties there; while Funyard is growing its extended stay brands, having seen its Country Garden affiliate deliver on DoubleTree and Garden Inn hotels.  

Marriott, meanwhile, is placing a big bet on loyalty – and on the idea that its Bonvoy members will simply pick up their points cards where they left off, when they begin travelling again. If so, then the additions of all-inclusive resorts look like a great place to burn those points, while the homes and villas collection adds another option too.  

With a slower pace and an apparent concentration on the old world, Marriott is starting to sound like an organisation that had not just lost its leader, but its mojo too. Time for the new CEO to step up.  

Additional comment [by Andrew Sangster]: Marriott has been doing a good job over the past few years of seizing M&A opportunities, most spectacularly with Starwood but on a smaller basis too. The Sunwing all inclusive is but the latest. 

Sunwing represents the equivalent of a bout 100 basis points of growth in room openings so Marriott is off to a good start with its NUG and ought to be able to keep up with its rivals. Surprisingly, perhaps, given the quantity of money in the market at present, Marriott’s new CEO Tony Capuano (his appointment was announced Tuesday as this issue went to press) thinks the financing market for M&A transactions is “challenging at best” and he thinks this “will have some cooling effect”. 

Capuano said he would be surprised if there is a high volume of activity because buyer and seller pricing expectations “are still out of alignment”. Any deals Marriott does will have to fill a gap in terms of geographic distribution or segment and the deal will have to provide compelling economics. 

The tone of Marriott’s investor call was understandably subdued given the death of Arne Sorenson. But Capuano will need to stimulate a strong growth mentality at Marriott to seize the opportunity that lies ahead. Right now he appears to be stepping back from the offensive position that ought to be expected given Marriott’s position as the global number one. 

Hilton’s CEO Chris Nassetta was nearer the mark when he said: “I know it’s sort of an odd time to be pounding the table with optimism”. He predicts a future of higher margins and more free cash flow which “is going to drive incredible returns”. 

Nassetta also said that the second half of this year could be “better than any of us think” given the “huge amount of pent-up demand”.  

Most interestingly, Nassetta’s tone on acquisitions seems to be shifting. He admitted Hilton has been running the slide rule over regional brand acquisitions. The company remains cautious on breaking its no-acquisition run: Nassetta summed it up by saying not high likelihood but never impossible. But he sounds more inclined than he ever has. 

With Marriott’s conservative choice of CEO in Capuano, Hilton looks to be in a commanding position among the global majors to do deals if it wants to. If it is going to make an M&A splash, the next couple of years will offer the best opportunity for a generation. 

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