Marriott Navigates Through Pandemic Storm, Eyes a Brighter Future in Travel’s Rebound
Marriott International, a global hospitality giant, faced its toughest year on record in 2020, suffering massive job losses, widespread hotel closures, and historically low occupancy rates. Despite the dire circumstances, the company is now cautiously optimistic, buoyed by vaccine rollouts and a surge in pent-up travel demand.
The pandemic’s impact on the hotel industry was unprecedented. "2020 was the worst year on record for the U.S. hotel industry," according to STR, a leading hotel data provider, with more than a billion rooms unsold. Marriott CEO Arne Sorenson, who passed away in February 2021, described the pandemic’s impact as exceeding that of 9/11 and the financial crisis combined.
However, as vaccination rates climb and travel restrictions ease, a glimmer of hope has emerged. "We’re actually seeing really strong recovery of demand in a variety of our largest markets," reports Tony Capuano, Marriott’s new CEO. The company reported a net income of $422 million in the second quarter of 2021, a significant turnaround from a net loss of $234 million in the same period the previous year.
"Most hotel companies are expecting a strong spurt of leisure demand this summer," explained an industry analyst. "Some call it revenge travel; people who have been putting off their vacations." This trend is already being seen in many hotels catering to summer crowds, with business levels comparable to pre-Covid times.
Marriott’s recovery mirrors the broader industry trend. Hilton, another major hotel operator, saw its net income jump to $128 million in the second quarter of 2021, compared to a net loss of $432 million the year prior. Similar positive trends were observed in the financial results of Hyatt and IHG.
While leisure travel is leading the charge, business travel, a key driver for Marriott, is expected to lag behind. “The expectation is that business travel recovery will lag leisure recovery,” according to a travel industry expert.
However, Marriott is actively adapting to this new reality. "Increasingly we’re seeing folks that say, I can blend trip purpose. I can combine leisure with business travel," Capuano noted.
The company is focusing on attracting “bleisure” travelers by offering new contactless options and enhancing amenities at its hotels.
Marriott is also looking to diversify its portfolio. It launched “Homes & Villas” in 2019, a home rental service, to compete with Airbnb. The venture has seen significant growth, with bookings increasing 700% by the summer of 2020.
Although the pandemic has been a major challenge, Marriott’s strong financial position and focus on growth strategies position it well for a future where travel demand is expected to rebound. “I think they come out, you know, leaner, tighter. And, you know, in many respects a healthier business than they went in,” an industry analyst remarked.
The road to recovery for the hospitality industry is still uncertain, but Marriott’s resilience, combined with the pent-up demand for travel, suggests that the company is well-positioned to reap the benefits of a travel rebound in the coming years.
Marriott Recovers From Pandemic Losses, But Challenges Remain
The COVID-19 pandemic dealt a devastating blow to the hotel industry, with massive job losses, hotel closures, and historically low occupancy rates. Marriott International, one of the world’s largest hotel operators, was particularly hard hit, recording its first full-year loss in more than a decade. However, the rollout of vaccines and signs of pent-up travel demand have led to a renewed sense of optimism for the hotel operator. In the second quarter of 2021, Marriott reported net income of $422 million, a significant improvement from the net loss of $234 million reported in the same period the previous year. This turnaround is driven by a surge in leisure travel, with many hotels seeing business comparable to pre-COVID levels.
Key Takeaways
- Marriott’s 2020 losses were the worst in the company’s history, but the second quarter of 2021 saw a significant rebound.
- The recovery is driven by a surge in leisure travel, fueled by pent-up demand and revenge travel.
- While leisure demand is strong, business travel recovery is lagging, posing a challenge for Marriott in the near term.
- Marriott is adapting to the changing travel landscape by expanding its portfolio and offering new services like contactless check-in and vending machines.
- Despite the challenges, analysts are optimistic about Marriott’s long-term prospects, citing its strong balance sheet and asset-light business model.
A Historic Year of Losses and A Rebound Fueled by Leisure Travel
The pandemic’s impact on Marriott was profound. In September 2020, the iconic Hilton Times Square hotel announced its closure, a symbol of the industry’s struggles. More than 670,000 hotel industry jobs were lost that year, and Marriott CEO Arne Sorenson described the pandemic’s impact as more severe than 9/11 and the financial crisis combined.
However, the tide began to turn in 2021. The rollout of vaccines coincided with a surge in travel demand, particularly for leisure travel. This phenomenon, dubbed "revenge travel," saw people make up for missed vacations and trips.
Marriott’s recovery was evident in its second-quarter 2021 earnings report. The company’s revenue rose to $3.1 billion, up 115% from the same period in 2020. As of July 2021, Marriott’s occupancy rate had reached 51%, an 18% increase from the beginning of the year.
Other hotel giants like Hilton and Hyatt also experienced significant rebounds in the second quarter of 2021. Hilton reported net income of $128 million compared to a net loss of $432 million the year earlier. Hyatt’s net loss of $9 million in the second quarter was a substantial improvement from the $236 million loss reported the previous year.
The Hurdle of Business Travel Recovery
While leisure travel is back with a vengeance, the return of business travel remains a significant challenge for Marriott and the broader hotel industry. Analysts predict that business travel recovery will lag behind leisure travel recovery. This is a significant challenge for Marriott, which is heavily reliant on corporate and upscale travel.
In the first half of 2021, business travel was down 85% compared to 2019 levels. While the expectation is for business travel to slowly begin recovering in the third quarter of 2021, it is unlikely to reach pre-pandemic levels before 2024.
Marriott is actively seeking to address this challenge. The company has launched new initiatives like contactless check-in kiosks and vending machines to cater to the evolving needs of travelers. Marriott is also promoting "bleisure" travel, a combination of business and tourism. This strategy aims to attract business travelers seeking to extend their trips and add a leisure element to their travels.
The company recognizes that the "trip purpose" is becoming blurred, with travelers seeking to combine business and leisure. This presents an opportunity for Marriott to attract travelers who might otherwise choose other accommodation options.
Growth Strategies in a Post-Pandemic World
Marriott has always been an aggressive growth company, seeking expansion both in terms of brands and geographic footprint. The company’s growth strategy has been driven by a combination of in-house development, acquisitions, and international expansion.
One of Marriott’s most significant acquisitions was the 2016 acquisition of Starwood Hotels and Resorts. This deal brought together a diverse range of brands, including Marriott, Courtyard, Ritz-Carlton, Sheraton, and St. Regis, under one umbrella, solidifying Marriott’s position as the world’s leading hotel company.
Marriott’s growth strategy also encompasses developing new brands and expanding its presence in emerging markets. This has been a key driver of the company’s success and has positioned it for future growth even in the face of pandemic-related challenges.
A Fee-Based Model and the Rise of Short-Term Rentals
Marriott operates an asset-light business model, primarily managing and franchising hotels rather than owning them. This model allows the company to generate revenue from fees, which has proven to be a significant advantage during the pandemic.
Despite the challenges, Marriott has a strong balance sheet and a solid business model, which positions it for future growth. The company’s emphasis on corporate travel is also expected to drive its recovery as business travel rebounds.
However, Marriott faces competition from other players in the hospitality sector, particularly from short-term rental companies like Airbnb. To compete, Marriott launched Homes & Villas, a home rental service that offers luxury villas and houses in destinations around the globe.
While Homes & Villas has experienced significant growth, with bookings up 700% in the summer of 2020, it is still a small fraction of Airbnb’s overall market share.
Future Outlook
The hotel industry is facing a period of significant transformation as it adapts to the post-pandemic world. Marriott’s strong balance sheet, profitable fee-based model, and commitment to growth position it well for future success.
However, the company faces challenges from the lingering impact of the pandemic, including the slow recovery of business travel and the growing popularity of short-term rental companies.
Analysts remain optimistic about Marriott’s long-term prospects. The company’s ability to adapt to the changing travel landscape and its focus on delivering a quality guest experience are likely to drive its continued success. As the industry returns to normalcy, Marriott is poised to capitalize on the pent-up demand for travel and emerge as a leader in the post-pandemic world.
