Q2 2020 Marriott International Inc Earnings Call
Ladies and gentlemen, thank you for standing by welcome to today's married Internationals second quarter 2020, <unk> earnings Conference call.
At this time, a participant lines have been placed in listen only mode and later, we will open the floor for your question.
If you wish to ask a question at that time simply press Star then the number one on your telephone keypad.
If at any point. Your question has been answered and you wish to remove yourself from the Q plus the town key.
Lastly, if he should require operator assistance.
Our zero.
It's now my pleasure to turn call over to Mr. already Sorenson to begin. Please go ahead Sir.
Good morning, everyone and welcome to our second quarter 2020 conference call I Hope, everyone is safe and healthy during these difficult times.
Joining me. This morning are Leeny, Oberg, executive Vice President and Chief Financial Officer.
Keep Burger I'm, not gonna, our senior Vice President Investor Relations.
Betsy Dom Vice President Investor Relations.
I want to remind everyone that many of our comments today are not historical facts and are considered forward looking statements under federal Securities laws. These statements are subject to numerous risks and uncertainties as described in RCC filings.
Could cause future results to differ materially from those expressed or implied by our comments.
Statements in her comments in the press release, we issued earlier today are effective only today and will not be updated as actual events unfold.
Please also note that unless otherwise stated our revpar occupancy comments reflect systemwide constant currency year over year changes and include hotels temporary closed due to covert 19.
Find our earnings release, and reconciliations of all non-GAAP financial measures.
For two in her remarks today on our Investor Relations website.
The lodging industry continues to be profoundly impacted by the covert 19 global pandemic.
The current operating environment remains quite challenging.
Second quarter worldwide Revpar was down 84%.
Well April Revpar fell 90% the toughest year over year comparison on record demand has risen steadily since then.
Revpar declined 85% in May 78% in June and 70% in July.
Many of our hotels that were temporary close to covert 19 have no reopened.
To date, and 9% of our global properties remain closed compared to more than 25% in April.
Since April occupancy levels have increased each month in every region around the world.
At varying rates.
Global occupancy in July 31% for all hotels, increasing 19 percentage points from April you.
In occupancy in July for the hotels that were opened for each of the last four months reached 39% growing 23 percentage points over that period.
There are still no visibility around when Revpar could return to 2019 levels. However, the global industry trends experienced over the last couple of months give us confidence that people will continue to increase their travel.
We're optimistic that the second quarter will mark the bottom end.
And that the worst is now behind us.
Greater China, which represents 9% of our rooms over 90% of which are managed is leading the recovery.
And he has seen rapid improvements in occupancy and new bookings.
The virus, mostly contained at this point many domestic travel restrictions have been lifted and the number of daily passenger domestic flights is now around 80% pre cobrand levels.
Well leisure and drive to destinations led the initial recovery.
Encouraging to see business transient as well as group also picking up nicely.
Occupancy levels in greater China have reached 60% up significantly from a single digit levels in mid February.
Much closer to the 70% we saw at the same time last year.
Revpar has followed a similar trajectory.
After declining 85% year over year in February Revpar in greater China improved down 34% in July.
Averaging over 10 percentage points of improvement per month.
At the current rate of recovery in assuming no wide resurgence of covert 19, the greater China market could approach 2019 occupancy in Revpar levels. It's really is next year, even assuming limited international yes.
2019, nearly 80% of its room nights were sourced from guess within China.
Trends and the rest of Asia Pacific are improving at a slower pace as countries are in various phases of reopening.
There are certain borders remain closed, but the <unk> recovery of travel in greater China demonstrates the resiliency of demand. Once there is a sense that the virus is better under control.
And restrictions can be safely lifted.
In North America, 96% of our hotels are now open.
We are experiencing a steady recovery across all chain scales, although the rate of recovery within markets and by hotel type has vary tremendously.
2019, domestic travelers accounted for 95% of North American room nights, a benefit and the current environment.
Leisure demand has been strong and resort areas as well as in secondary and tertiary drive to markets not surprisingly or extended stay hotels experienced the fastest pace recovery.
New bookings in North America had been building nicely led by near term leisure transient reservations. Despite the recent surgeon cases in some states consumers are increasing their travel.
Well U.S. airline passenger traffic is still well below last years levels. The number of air travelers. The last two weeks of July has more than triple was more than tripled over the first two weeks of me.
In system wide North America Revpar continue to improve in July two two a year over year decline of 69%, which is seven percentage points better than June.
Shortly leisure has made up roughly one third of our total room nights in North America.
The more interesting part of this statistic is that the monthly variance in that percentage is actually quite small.
2019, the estimated proportion from leisure was around 30%, 36% during the summer.
And only declined to 32% in September and October.
We expect that solid leisure demand will continue through labor day in North America and could continue into the fall as employers in schools like I've read remotely.
Business transient and group demand in North America, well lagging are showing very early signs of improvement for now the group bookings outside of those associated with her caregiver and first responder programs tend to be mostly smaller ones, such as weddings or travel sports teams.
Our Europe Middle Eastern Africa region, or EMEA, and our Caribbean, and Latin America region, or Kayla posted the lowest occupancy levels in steepest revpar declines in the second quarter.
Severe restrictions following rising rates of covert cases in many countries combined with a much higher dependence on the international travelers in these regions have suppressed demand in these regions in 2019, the percentage of room nights from international travelers was around 40% in Europe, 50% in the Middle Eastern Africa.
Yeah, and 60% even camilo.
75% of our hotels in EMEA and 70% Kayla were closed for most of the second quarter.
Trends in both regions have started to improve recently as the prevalence of cases drops in border restrictions he's.
Many of our hotels in these regions are welcoming guess again.
Under 30% remaining temporarily closed.
On the development front owners are showing great interest in our brands.
Greater China again out in front.
Great are trying to contributed nearly one third of deal signings in the first half a year with the entire Asia Pacific region accounting for roughly half of all signings.
In the region are taking a long term view on the market year to date, we have signed 30% more deals in Asia Pacific and we did in the first half of 2019.
The pace of signings he is not as robust in other regions around the world largely due to lack luster lending environment and owner uncertainty.
We canceled one of our monthly deal approval meetings in the spring, which reduced our signings here to date.
But we are having productive conversations with owners and franchisees who want to move forward.
Some are hoping to see lower construction costs in the weaker economic environment for Newbuilds, while others are interested in conversions to our brands.
Our pipeline totaled approximately 510000 rooms at the end the second quarter with over 230000 rooms under construction or around 45%.
The pipeline is 1% lower than at the end of the first quarter with a slowed signings in a few more projects than usual put on hold.
Well construction activity has resumed in most parts of the world. We still expect some openings will be delayed due to slower construction timelines and supply chain issues related to cope with 19.
There is uncertainty surrounding future worldwide room's growth, but given current trends, we could see net rooms growth between two and 3% in 2020.
The final result will depend a great deal on the way the pandemic plays out around the world in the remainder of the year.
Over the last several months, we have a lift enhanced our liquidity position in materially reduced our cost structures at both the corporate in property level.
We are in constant dialogue with her owners and franchisees and are working together to navigate these extremely challenging times.
Demand returns, we are adjusting our operating protocols and ramping up our business any thoughtful way.
First and foremost we're focused on the health and safety of our associates and guess and on communicating these important efforts.
We continue to enhance our cleanliness guidelines to meet the health and safety challenges presented by covert 19.
We have mandated that all hotels have electrostatic sprayers.
Help quickly disinfect public areas and all properties must submit a monthly commitment cleans certification.
And we are increasingly leveraging technologies like mobile checking.
Well key and mobile chat between guess and hotel associates to reduce face to face interactions well amplifying operational efficiencies.
Additionally, we've announced the guests are required to where face coverings and the public spaces of our hotels in the Americas. A policy that is also currently in place for associates globally.
We are stepping up our marketing efforts around the globe is demand improves each region is carefully monitoring social economic and travel trends and implementing a phased in approach based on local consumer sentiment.
And travel intent.
With over 143 million members globally Marriott bonds away Our award winning global loyalty program.
Europeans all our marketing strategies.
We remain focused on engaging our members with targeted email campaigns and various promotions such as points accelerators on our co brand credit cards for gas dining and groceries.
Gift card discounts and our current Bon voyage boutiques, it's sweepstakes for items like bedding and robes.
For leap members, we have extended their status through early 2022 in June credited their accounts with a one time deposit of elite and I'd credits, allowing them to reach the next tier faster.
Before I turn the call over the leading I must take a moment to say how proud I am of our incredible team of associates around the world. This has been a time of tremendous stress and uncertainty yet our teams continue to impress and inspire me.
I also want to comment on the current social justice movements.
As we said in our recent statement, we stand against racism, we believe that racism must be eradicated.
Our company believes in a quality justice and putting people first no matter, what they look like where they come from what their abilities are or who they love.
My management team and I are deeply committed to building on our historic commitment to diversity.
Due more to champion diversity equality in inclusion both within our company and within the broader community.
In closing well this was by far the most challenging quarter in the history of our company I am pleased with our progress.
Believe we can look forward to a brighter future for travel and from area.
With our unparalleled portfolio of 30 global brands superior loyalty programs strong liquidity position invest even the business I'm optimistic about the trajectory of our business in the months in years ahead.
And now Leidy, who as easily led to our finance team to buttress or liquidity and to set married up with the strength that needs to survive. This crisis, we'll talk more about our financials maybe.
Thank you Barney.
I hope all of you and your families are staying well I also want to express my appreciation to all our associates around the globe for their dedication. During these unprecedented times. This morning, I'll review, our second quarter results and current trends, it's still too much uncertainty around the timing and trajectory of the recovery to give.
You know guidance for the rest of the year, but I will provide an update on the monthly cash burn model that I shared with you on our first quarter call.
As already noted second quarter global Revpar was down 84%.
Second quarter gross fee revenues totaled 234 million.
Comprised of 40 million from base management fees 182 million from franchise fees, and 12 million from incentive management fees or I am out.
In the first quarter, we did not record any IMAX given the significant uncertainty regarding hotel level full year performance in the second quarter, we had more information and could better predict where hotel performance well warrant I'm asked recognition for the full year and as such we recorded I MFC. It's the majority of I am.
Maps recognized in the second quarter were at hotels in Asia Pacific, where there is generally know owner's priority with greater China, particularly strong.
65% of greater China to tells had positive gross operating profit in the second quarter due to increasing demand and our ability to control costs.
In 2019 over one third of our incentive fees were from Asia Pacific.
Within franchise fees Unsurprisingly, our non revpar related fees were the most resilient totaling 107 million in the second quarter down 27% from a year ago credit card fees declined to the lower card spend versus last year, while total fees from timeshare in residential branding.
Were relatively flat.
Second quarter, Gionee improved by 22% year over year by 35% excluding bad debt.
Bad debt expense, it's primarily based on our estimate of future credit losses and is not a reflection of current cash losses.
A significant reduction in net administrative expenses demonstrates the many steps we had to take to reduce our cost structure to align with the decline in revenues in this low revpar environment.
He steps have included furloughs reductions in executive pay and reduced work weeks throughout the organization.
We reported positive adjusted EBITDA of 61 million, which includes 36 million of bad debt expense. We were pleased with our lack of cash burn during the second quarter, especially in light of the 84% decline in Revpar.
The additional monthly fees, we earned moving from our 90% Revpar decline cash burn model to the actual 84% Revpar decline were better than the 2 million per point per month estimate we gave a quarter ago as a result of incentive management fees and a bit better credit card fees favor.
A couple timing of investment spending and cash taxes. During the quarter was also helpful. Lastly, strong working capital management and loyalty cash inflows contributed to our overall positive cash position.
Given that many of our programs and services are funded by revenue base charges. We're building the hotels vastly less than a year ago.
We have had to dramatically cut our cost to match. This decline in revenues, while still providing the required services, we've been able to reduce current breakeven profitability rate at our hotels around the world by three to five percentage points of occupancy to help our owners preserve cash.
From a working capital perspective owners and franchisees are largely finding enough liquidity to pay these lower bills, albeit more slowly than usual.
We continue to work with those owners and franchisees that are challenged to pay on time and for many have set up short term payment plans.
So far this year, we have had only a few hotels go into foreclosure, but our management and related agreements protect us and historically, we have held onto most franchise agreements in that situation as well.
The cash burn scenario that I'll outline today's just one scenario, we're not an estimate of actual results. Please remember that assumptions for certain line items are not paid out evenly throughout the year. So our averages over another number of months this year.
Our overall cash flow was comprised of those at the corporate level and those associated with our net cost reimbursements. The model I walked you through a quarter ago assumed a year over year global Revpar decline of 90% as we experienced in April.
It included monthly averages for several categories of spending like taxes and investment spending and yield the total net cash outflows of around 145 to 150 million per month.
We've updated this analysis, assuming a worldwide revpar decline of 70% as we experienced in July the revised model results in monthly cash outflows of about 85 million a significant improvement around 65 million a month.
45% better than the prior scenario.
Roughly three quarters of the improvement is that the corporate cash flow level, largely as a result of additional fees due to higher revpar.
In today's scenario total monthly fees could be about 110 million per month versus the 60 to 65 million and fees assumed assuming revpar down 90%.
The impact of a one point change in Revpar in our revised model would be roughly two to two and a half million a fees a month, though the sensitivity is not completely completely linear given I M. S.
Moving revpar is likely to coincide with higher credit card fees as well.
The monthly cash flows.
Cash outflows at the corporate level include cash DNA cost investment spending cash interest cash tax payments and cash outflows for owned and leased hotels. Despite the revised revpar assumption. The total outflow from these items has not changed meaningfully from the 155 million we describe.
The quarter ago, although there are some key timing differences to point out.
Cash taxes in 2020 will primarily be paid in the third quarter, while cash interest will be higher in the fourth quarter given the schedule of interest payments for our senior notes.
Total investment spending for the full year is expected to be roughly 400 to 450 million with higher outlays in the second half a year versus the first half.
The Lumpiness of these cash flows will naturally impact our cash balances in the third and fourth quarters.
All in all this 70% Revpar declined scenario yields an average total corporate cash burn of roughly 45 million per month about half of the 90 to 95 million presented in this scenario a quarter ago, while the absolute cash burn numbers in this model still reflect a tough operating in.
Firemen, the sizable improvement demonstrates the strong cash flow characteristics inherent in our asset light business model.
The remaining one third of the cash burn improvement comes from our net cost reimbursement.
Today's scenario yields cash outflows of about 40 million a month for this category versus outflows at 55 million in the original scenario. The improvement is primarily due to better match timing of our cash outlays and reimbursements as well as continued collections of receivables.
This was partially offset by slightly lower cash contributions from loyalty given redemptions are expected to pick up as occupancy improves.
Note that this model does not currently include any severance and other payments associated with our global restructuring initiatives.
It's extremely difficult to have to undertake these efforts which include a voluntary transition program announced in the second quarter as well as additional job eliminations.
<unk> of the decline in our business and our expectation that it will take time for demand to return fully required these measures.
We currently expect the total cash charges related to our above property restructuring activities.
Around 125 to 145 million.
In the second quarter, we recognized 26 million up costs related to these efforts of which 6 million was in restructuring and merger related charges on our piano and 20 million was included in reimbursed expenses.
We're still working through the details, but currently expect these restructuring efforts will reduce total above property controllable costs, which includes both corporate DNA and program and services costs by roughly 25%.
We'll know more about the specific impact on DNA as we work through the 2021 budget process.
We're also developing restructuring plans to achieve cost savings specific to each of our company operated properties, including our own leased hotels, we expect to implement these plans over the next couple of quarters.
In addition to focusing on preserving cash we've substantially boosted our liquidity and extended our average debt maturities during the quarter. We raised 2.6 billion of long term debt and 920 million of cash to amendments to our credit card deals.
As part of our liability management. The 1 billion raised in June was largely used to tender and retire a portion of our near term debt maturities.
At quarter end, our cash and cash equivalents on hand was around 2.3 billion.
Adding that cash to the undrawn capacity of our revolver of approximately 2.9 billion and deducting around 800 million a commercial paper outstanding our net liquidity was approximately 4.4 billion at the end of the second quarter.
We believe our strong liquidity position cash flow from operations and access to capital markets comfortably position us to meet our short and long term obligations.
While there is still a lot of uncertainty and there are many factors impacting our business outside of our control. We are very pleased with the progress we've made in the areas we can control.
Many of the steps we have taken have been painful but the company is in a solid position to navigate through these challenging times.
The global recovery may take longer than any of us would like but the strong recovery in greater China and trends in the rest of the world show the resilience of lodging demand and make us hopeful about the future.
We all look forward to traveling again and two welcoming all of you at our hotels. Thank you for your time. This morning, and we'll now open the line for questions.
Thank you the floors and open for questions. As a reminder to ask a question simply press star one on your telephone keypad.
If your question was answered and you wish to remove yourself from the Q press the pound Keith.
Our first question comes from line of Joe graph of JP Morgan.
[noise]. Good morning, everybody has two years loans and thank you for all the information.
Likewise.
Arnie I found fascinating your comments about the new signings in greater greater China can you talk about what's driving that and and can you talk about that maybe the construction cost environment. There and then you signing how did they compare versus the year rebelling in that geography.
Yeah, so the a the statistic.
Last part of that question are we put in the prepared remarks or where our signings are up over last year about 30%. So in Asia Pacific all driven by China.
And I think the thing to keep in mind in China. One is about the markets generally obviously the recovery is.
Well a pace I think it's easy to be in China and look at covert 19 is being.
You know not not seen of history quite yet because I, probably won't happen until we get a vaccine and obviously there.
Since that come up a most recently in Beijing, where there maybe some research restrictions, but those actions get done quickly and by enlarge the Chinese or back to traveling again.
And so I think you've got a much greater confidence about the future in the markets generally and I think secondly, the the Marriott has done extraordinarily well in China or with a combination with Starwood that we did a few years ago I think our position.
Luxury and upper upscale space, if you use the nomenclature from the United States.
He is a very very strong.
With a dominant Revpar index position.
And I think we end up with a tremendous share of the new development in those segments as well as increasing Oh of course.
The moderate tier courtyard, Fairfield and the like which was moving sort of quickly and you know I think in a in a way you can contrast that with the United States you.
You can see our total pipeline is down 1% and I think if you look at the U.S. and Europe by comparison were just much earlier in reacting to covert 19 them I think given the uncertainty about half is out of this I think people are confident it will get behind us ultimately and we'll get back to different place but.
How long it takes out the lenders respond or what happens with the supply chain. All of those questions are still very much on answered I think that's it.
And can you talk about within the pipeline, obviously, it was down a little bit sequentially and China obviously.
Added.
Groceries basis, how much did you revisit and just come to conclusion that the likelihood is less today than a few months ago over six months ago or do you think those discussions accelerate from here how do you how do you view that.
Well I think the a couple of things keep in mind here, one is that by and large just as it's too early to answer questions about exactly what the ship the recovery it looks like in the United States, It's too early to kill projects in the United States. So so what we are not seem.
The Brightside folks say Weve abandoned this project and decided not to do it.
I think on the other a hand, if you're not financed you don't have your debt financing or if you don't have all your equity raise for project, even if you've been working on it for you know a number of quarters or maybe a year or two.
You're probably not able to complete those financing.
Challenges as well as you would have been before cobot 19 to state the obvious.
And even if the financing is done if construction hasn't already started.
Yeah, well might be that you're sitting there, saying well, let's watch it here now that over the next number of months and see what happens.
We have told you before that a in April I think we cancelled or hotel development committee meetings and process in the United States.
It seemed to be.
What.
Inappropriate maybe the wrong word, but an odd this time I suppose to be bringing in deals that we couldn't really under right in a way to know that they were.
The kind of high probability we would want in order to the pipeline and to some extend our partners couldn't really evaluate them the same way.
And so I I think this is a place we watch now the I think as recovery builds as we collectively get more confidence about covert nice team.
Starting to move behind US we've never see talk more about that in this call I think we'll see folks who see a long term.
Projects it still makes sense, a enhanced probably by reduction in cost associated with construction costs and and other development efforts.
And we'll probably start to move forward, but it's going to take well for that clarity them to reach.
Thank you very much.
Our next question comes from one of Robin Farley of yes.
Great. Thank you on Q question right. One is that good morning hard [laughter].
Yeah. He asked you name reductions that you outlined for this year, how sustainable is that into next year in forward and and then my other follow up with them.
Commentary on business person can use your travel I know you mentioned September September October it still decent levels compared to the summer could you quantify how Q4 looks versus Q3 that sort of business versus leisure travel next. Thank you. So why don't I take that.
Latter part first and then maybe you want it should jump in with the Gionee and other spending.
We were we were curious to go back and take a look at.
Leisure fall versus in the summer because I think a lot of us.
A little more caution around the corporate traveler than we do around the leisure traveler based on the first few months of recovery here.
And so you know somewhat gratifying or we see that leisure travel is only about five points lower in terms of total till mix in September and October than it is in the summer.
Going from 35, or 36% to 32% something like that EM and what that tells you is Ah leisure may continue to be a pretty.
Significant source of a recovery, even as we get past labor day and into the fall.
I think that the corporate travelers has been interesting too we have.
Watch segments over the course of the quarter all of us in the industry, including at Merian haven't talked about leisure being the strongest but interestingly a special corporate is probably up five points.
In terms of Revpar decline year over year.
The last two months.
Looking at a weekly numbers, our guess is that that is driven.
By business travel in.
[noise] what in.
The Midwest more in smaller companies more than bigger companies in aspects of business, which are less probably dependent on flying.
There is still frustration to me that we see too often see a big big companies, they're making decisions about keeping offices close Oh for you know as much as the next year.
Frustrating to us because a in a sense sort of withdrawing from the economy and well all of US me to make decisions that protect or people and make sure that we're not putting people out him.
Risky environments before it's ready.
There's absolutely no reason for us to be making decisions about what offices it looked like or would travel looks like in the second quarter 2021 for example.
You didn't even I think the the way of putting this is that so far in the recovery.
Every segment has gotten better every month.
Albeit with leisure and drive to being the strongest.
We see a government government business up modestly we see special corporate business up modestly.
We basically see that folks are increasingly willing to step out.
In travel a bit more so with that leidy, maybe you want to take the GE and make sure.
Sure and I'm going to tag on one other thing Robin I think you find interesting which is that to remember that November and December typically actually see the pop up back up to more summer like levels for leisure. If you remember help a lot of people do their travel in November and December. So so there again that that kind of goes to the same point.
On DNA, you clearly see <unk> just substantial moves that we've made this year.
And really battening down the patches and and making sure that we're putting ourselves in a position to deal with the decline in revenues, what we've done with the work over the past few months is to really be thinking more broadly about restructuring the company to move forward, knowing that it needs to be sustainable and knowing that it.
It's too.
Reflects the fact that it's going to take beyond 21, a at least to return to 2019 revenue levels. So in that regard you know, though when you think about kind of broadly speaking if you remember back last quarter and I talked about all the reimbursables a bunch of them more pass through.
News, but there were about 4 billion of our Reimbursables that are around delivering the programs and services to all of our hotels around the world and then obviously you've got Gionee on top of that and that that is that the very large pot of cost that we have gone after to try to a.
Sure and put ourselves in good position going forward and that's where.
I think 25% reduction in that whole set of cost.
Is what we're expecting the details about exactly where that falls relative to Gionee, we will work through.
Through the budgeting process I can't give you a specific number I think for the rest of this year as you know we've taken you know dramatic.
Steps this year or whether you call it.
You know reduced executive pay et cetera, So I think for the rest of this year, you're going to continue to see these really dramatically lower levels up, but giving you kind of sustainable forward numbers I think we'll we'll work through that but I would expect them to be quite substantial.
Okay, great. Thank you both for the color. Thanks.
Our next question comes from line of Thomas Allen Morgan Stanley.
Thank you good morning, Arnie about more than three weeks to grow your quoted in the press. It then you are less stopped domestic then 30 day days prior.
Can I ask you that question again.
You feel now [laughter], it's a fair question [laughter]. The Oh, you know I guess in on some level I'm depends whether you're thinking about the virus or you're thinking about lodging recovery travel recovery.
I am a no more optimistic about the virus then I wasn't month ago that once that's what caused me to you know a month ago or so to say less optimistic than it was a month before them I am however, more optimistic about the recovery of travel and a recovery of our business.
And I think if you if you read the news everyday which which we all do it's sort of obvious why that's the case the.
Virus numbers are frustratingly high, particularly in the United States.
And they remain high and it is.
Hard to look across the country and see.
The kind of.
What a strategy that we'd like to see they have confidence that we can put this thing behind us sooner rather than later.
Why am I more optimistic about our business well I think if you look at the July numbers as a whole and we've put some of those in the press releases wells.
Script.
It shows a gratifying resilience.
American travelers.
American consumers notwithstanding the high virus numbers to get back up.
And so first of July this virus researches a little bit.
Personally do we have July 4th weekend, which is positive because of its leisure intensive travel aspect.
And we see a little bit of a pause maybe in the days after July 4th but as the month continues.
We go back to trend essentially and see occupancy build.
In each week by a point or appointed a half compared to the prior week and we end up with July being about five points better.
And June in the U.S. occupancy.
Context, and and so that that tells us I think us that.
Notwithstanding the frustration around the virus numbers.
The American traveler, and consumer and I think increasingly the business travelers, who will say you know what we've got to get back in liver life.
Got to get back I'd like to get back to work on maybe can't get back to the office, depending on where where I'd go to the office. Many of you were in New York, which of course has got its own.
<unk> set of skills and I'd, just remind all of you don't assume the United States as a whole has got the same dynamic working as those.
New York is less.
Dependent on people driving to work.
Much more concentrated in terms of elevator traffic and alike.
It's obviously had a high virus numbers, particularly early in the crisis.
Get to much of the rest of the country and people still commute to work by car.
They tend to work in a smaller buildings with lists.
Alonge in terms of.
Being able to be there safely and I think they're more inclined to be.
Stepping back to work in stepping back towards normal life. So that's what makes me more optimistic than it was a month.
And just as a follow up it you know are you more optimistic around your net unit growth as you were a quarter ago.
Oh about the same I think I think it is.
Highly likely a that we will see a.
A bunch of these new projects.
Take longer to get to opening than we thought before covert 19.
I you know we mentioned is one of the earlier questions I think it's still hard to predict with certainty how much longer those things are going to take but I think we'd be foolish to think that a these these projects are gonna open as quickly as they would have.
We will have some increasing opportunities to offset that conversion space.
We've got conversations that are up and the conversion space I would say there too it's a little early for conversions to actually start moving when you look at Pryor.
Economic cycles.
Conversion volume tends to step up in weaker environments, but it tends to step up with transactions stepping up.
And by and large well there are increasing number of hotels that are out there under some pressure we haven't seen many transactions take place yet I.
I think as we do we'll see our conversion.
Step up as well.
Helpful. Thank you you bet.
Our next question comes from line of Shaun Kelley of Bank of America.
Hi, good morning, everyone.
Sean warning.
I was just wondering already maybe just stick with a little bit of the same theme on I in the prepared remarks, you mentioned you know just in general the business traveler or you know outlook, maybe being a little bit more positive and he said for both business travel and group just any kind of more specificity you could give around what you might be seeing is it really.
Yeah that drive to piece any certain markets or or areas and particularly your thoughts on obviously the domestic piece of that would be would be helpful.
Yeah. So so looking at the U.S. for a second and I, let's let's make sure. We don't we don't oversell. This I want to make sure I get my data. So I mentioned that special corporate is up.
Five points in the last.
Eight weeks, but when you look at Rev par for special corporate.
It's gone from minus 85% eight weeks ago to minus 79.
Last week.
So you're still at numbers, which are.
Monumentally negative Oh and by comparison, if you look at.
Ah retail for example, which is you know were a lot of leisure is going to land some corporate will land there too and so it's obviously the sort of recreate business.
We've seen a 15 point improvement compared to that five point improvement special corporate and the Revpar associated with it is down 57 compared to the down 79 for special corporate so so there is improvement to be sure in its measurable.
Essentially week by week, and we would expect it to continue but we would expect corporate to be slower in recovery and leisure has been so far and probably slower to recover in the fall depending of course on the shape of the virus.
I'm struck always you know we've got a a we live in Washington, D.C. area, where we're headquartered obviously.
And I've got three kids, who live in New York I've got one that lives in Washington.
We we haven't place on the Chesapeake Bay, where we have spent a significant portions of the.
The pandemic and it's interesting to see the different rhythm so out in the county seat out here, where you've got lots of small.
Ah businesses that are operating they're all back to work.
You can see you can see there they're surface parking lots are by and large as busy as they've ever been before.
And the more you get into the Central Washington, The more you see.
Ah quiet.
And I think that is a function both of.
Some restrictions locally, but I think it is a function of you get greater conservatism, you get greater reliance on public transportation or.
Other higher risk.
Tools I suppose a than you do and the smaller markets in the smaller cities.
And as a consequence, I think we'll see business travel steadily continue to improve I would think you know absent some unanticipated thing in the virus.
Or some calendar event, we'll see that are not just leisure, but we'll see that business travel improves every week as we go through the fall.
But it will be a little bit slower coming back and it's going to be slowest into places where the the cancer population concentration is highest and where the companies are most conservative.
Thank you very much.
Okay.
Our next question comes from a lot of Patrick Shoals of Chile.
Hi, Good morning, everyone. Thank you Patrick.
And then.
But you know what you might expect for a permanent hotel closures what percent of your system I just might not yeah, not might not be around <unk> and a year or two and then a follow up on that is.
We noted the addition times square close.
Really quickly once cobot hit I Wonder what was Ah why so quick for that one thank you.
Maybe you want to take that [noise].
Yeah, I'll start I'll start and then Arnie Phil feel free to to jump in so I. You know obviously this is all going to take some time I think what you are seeing so far quite frankly is our deletions or below average.
If you look at where we were in the second quarter in the first quarter. It's it's below a kind of even though 1% to 1.5% we guided in normal times.
Obviously, though it's really going to depend to some extent on on how long a the virus persists and in which areas and to what extent and then obviously be owners ability to.
To get through that so I you know I can't give you a a specific that specific sort of estimate, but but I'll also say that so far we've seen really a really strong capabilities on the part of the owners to be able to find access to liquidity they need to keep the hotels.
Going and the banks have shown a clear willingness to kind of essentially press pause for a while and when you think about kind of the depth of what we seem to have really only a very few hotels already in foreclosure.
That I think demonstrates the fact that a everybody wants to try to see their way through this now Oh, we clearly are going to see a bunch of foreclosure. So you know through all of this but that doesn't necessarily mean the hotels cloaks.
I think in many cases, what happens is the banks one are preserved the ER.
The value of the asset in which case keeping the brand on it is the best way to do that and.
We'll do so and the addition is a great example, as you've described where a the lenders had stepped in and I think you could actually see that hotel riocan that no. You've you saw a lot of urban full service hotels close temporarily.
To kind of stop and reassess the situation work really hard to figure out what the right occupancy breakeven is to be open or not open a and I think a that you're seeing more and more of them open up.
So I you know, it's obviously something that is.
Very top of mind for US we are North America team and all the teams around the world for that matter are spending just an inordinate amount of time working with the owners whether it's on a short term payment plans or looking at the f. any reserves or.
Making sure there's a conversation about our bills and and working through a the other bills like property insurance et cetera.
But again I do think that.
For the moment, it's it's been a really good pattern for other hotels marching through it but but it does depend a lot on how long it's flat.
So the I think is perfectly but let me the you to bottom line.
I would guess very very very few of our hotels around the world will not reopened.
Third close now.
They will fail so profoundly that they that they are close permanently.
Now in a portfolio of 7500 hotels are 8000 hotels.
Even before covert 19 hits there are.
Handful, maybe a couple handfuls of hotels, where profitability is not sufficient.
For the long term viability of those hotels.
And they're the ones not surprisingly that lenient team are working with first in this crisis.
Because you know they they were in trouble before and when they're in trouble before and you end up with something like this.
That's a double whammy I actually think that the addition times square is not the poster child for this it's a brand new hotels are beautiful until I'm optimistic actually the that hotel opened will be fine.
But there are hotels in New York city or that we're not making money before covert 19.
And some of those closed and some of them may not reopened.
Because the cost burdens, whether that be labor costs or property taxes or the like.
I mean that their owners will not be able to look at them and say I can see a path towards profitability, but I need to happen.
Yes.
But I think those those circumstances are.
Globally.
And in terms of number of hotels or number of rooms are very very unusual I think overtime will be owners are broadly under significant pressure and we've got to make sure that we work with them to to build back profitability.
The best use for this a portfolio of assets real estate assets will be as hotels.
We'll open and be open for the long term.
Okay. So very very good that's encouraging to hear thank you.
Our next question comes from London, Stephen Grambling of Goldman Sachs.
Thanks. This is a bit of a crystal ball question, but how do you think about the impact of work from home. If the recent acceleration holds that's part of this question what has been the impact from work from home. If you look at corporate relationships or end markets, where these trends were the most pronounced over the past five to 10 years and if you were to maybe even peel. The onion back further can you see whether those.
The digital customers [noise].
Second sectors have changed their leisure behavior, along with it.
[noise] Oh those are good questions. The the last one I don't think we've got data that tells us much yet we've obviously got Mandy.
Business travelers, particularly who are not back on the road, yet who are relying on a remote work and or.
You know a technology tools in order to continue to work from home and travel.
I think the.
The.
Statements that you hear from folks frequently that will never go back to the office or will never go back to travel.
I would take with a huge screen them. So we've heard similar comments in each of the last three crises that we've been through started in the early nineties, obviously, the technology has gotten better and better but in 2001 and two in 2009, we heard the same thing which is we don't need to.
Go back travel the way we've done before.
Difference to be sure. This time is the remote work kind of context.
But you've also got a perspective about this and I think what we've heard over the last month or so, particularly is an increasing level of frustration about remote work.
Maybe particularly for folks who are relatively earlier in their career for whom.
Training and networking and pursuit of opportunities depends much more on beam.
President with somebody, but I think even for others, we have gotten to the point of after two or three or four or five months same.
This is not it's not as good.
We can't maintain our culture, we can bring on new people, we can trained people.
We can't invest and that kind of relationships, we need to have with their business partners and with our customers.
And I think increasingly we will see folks say, we've got to get back out there and get back at it.
And I do think there will be.
Some more flexibility on whether we'll go to the office every day when we're not traveling.
And we'll see people that can sort of further mix to some extent work and leisure.
I think theres, a piece of that which will be good for us.
So I imagine that a year from now or two years from now that week and Florida were weak in the Caribbean, which would have been 100% vacation and I can only do it you know once a year I.
I might be able to do twice a year now because I can go down there for a week and I can do a couple of days of work.
Concentrated are spread out over the work over the week.
And have my vacation and to some extent I think that blending of leisure and business.
Could actually be need as much as a threat travel.
All things considered we would say that that we will build back and see that kind of levels and travel demand.
Makes sense helpful color. Thanks, so much.
Our next question comes from line as Anthony Powell of Barclays.
Hi, Good morning, I started my Anthony.
Hi, a question on room bookings have you seen.
Meeting when or start to book in the second half of next year or any part of next year and how are you approaching booking business, where you don't tell just generally right now.
So I I think the the the most clear trend clearest trend, which is obvious is that folks that have near term group business.
<unk> deferred more than cancelled, but basically put off put off those meetings.
I think most of our group customers want to have those meetings and so that's why they deferred instead of cancelled and of course, we've been interested in having them differ as opposed to cancel because we just see that business show up ultimately.
And most of those folks are folks who are engaged in hosting those meetings and they believe those meetings are valuable.
And want ultimately to have them.
I think at the same time, we have seen new bookings for future periods.
Be less robust than they would have been before because if they have not already committed to that meeting.
They are probably a little less likely to commit into they've got some greater clarity built with future looks like what that means is that so far we've seen business on the books for 2021.
Not really canceling big numbers, we've seen a group business on the books for 2020 canceled significantly.
I am I suspect.
Cancellations for business that has not been canceled or deferred yet is the better word to use.
For latter parts are 2020, probably continue to cancel until we get some greater confidence around the virus.
And ultimately when we get to the point, where it looks like group meetings can be had safely.
We will see both less deferral of business already on the books and we'll see new business come in.
Give you one statistic I think group group business on the books for 2021 compared to what would have been on the books for 2020, a year ago is about down 10%.
I think in some respects that we're likely to see.
The first part of the first half of next year be meaningfully worse than the second half of next year in terms of group.
But that is based on you know I guess on where the virus is or the vaccines are and obviously the more the virus receives into the background and the more confidence or availability, we're getting the vaccine.
More we'll see this group business start to go back.
Got it thanks.
Yeah, Hi, Anthony Anthony the only other thing I'd add is that it for 22 and beyond versus 21 the rate of decline are meaningfully less.
So so when you think about.
That kind of the overall decline its mirror in where there's more concern, but when you look at corporate bookings beyond that it's a it's.
It's it's Mike it's down much less.
Thanks for that and definitely I'm home, even below the what did you learn having about business then in the portfolio and in this environment you see more people look for more space and do you think having that option news.
Yeah.
Increasingly valuable for you and the time each environment. So so three things on atrium I wish are consistent with what that.
<unk> homes and goes by Marriott International licensee not use our our.
Internal lingo too much in Springfield, no it, but our our home sharing business has been.
Benefited by three trends all of which we've talked about leisure.
Dr. well two of 'em, we've talked about leisure drive to both advantages and a whole home isn't advantage. So what people are drawn to in terms of a home sharing particularly in a covert 19 environment.
Is do you have a place where I can take everybody and where we can be on our own.
I don't want a separate bedroom I don't really want an apartment that somebody lives in regularly I don't want the old style home sharing because I can't be certain about the cleanliness or comfort.
But if you can give me a vacation home on the beach or in new England, or someplace I can drive too.
Then I know that I can control my environment.
I can control my transportation.
Since my purpose, because the leisure group anyway, and so generally that has been a positive thing although to state. The obvious it is a very small part of our business.
Hi, Thank you you bet.
Our next question comes from lot of Smedes Rose a city.
Hi, Good morning, Thanks, Hello, Snob hate me.
Hi.
I guess really wanted to ask you assuming it whenever this pandemic is behind US how do you think about the operating model for the owners coming out of this is that a lot of talk from there and they come out with better margin and that theres been meaningful changes to I guess kind of brand requirements.
So I'm interested in your thoughts around that and I guess, specifically you know how do you think the.
Trajectory, it's kind of in room housekeeping during his yesterday it goes and am I right in thinking about that would be kind of a significant cost savings pick up were too to go away.
So all good questions and leaving you should you should jump in here because you've got some good good data I think that will be really helpful. I mean, we are working with our owners to make sure that we do everything we can to get back to the kinds of margins they had before if not better.
The only caution here is.
Rate in revenue are important.
And so the the longer it takes us to get back to the kind of Revpar levels. We hadn't 29 team the more pressure that's going to be on that.
And we would may want to make sure we're focused not only on the cost elements, but that we are really focused on driving revenue because that's that's an easier way to get back of margins in many respects.
I think on the operating cost side, which is where your your question focuses I think there will be a couple of things that could be sticky I think a one is probably more digital check in.
Keyless contactless keys, and and the like I think we'll be adopted.
More dream covert 19.
Would be helpful longer term.
I think housekeeping protocols could be interesting I mean, I think we'll see that there is certainly during covert 19, less intensive or less housekeeping period during the guest Dave and between guess phase.
That protects both the gifts and associates.
We have frustratingly seen a couple of cities move a in.
The opposite direction certainly at the best of unions to try and.
Bring jobs back, but essentially to say that notwithstanding covert 19 every room should be cleaned every day.
And that should be done as a matter of municipal policy.
Requirement and a in many respects the consequences of that I think is we'll see hotels that reopened slower in those markets and we'll see the jobs as a consequence comeback slower in at lower numbers than would have been the case.
Without without that.
But you know we'll be looking at not just housekeeping and then checking but we'll be looking at food and beverage and other things to try and make sure that we'd do what we can.
To bring back of the the margins. So that are on our owners can be healthy which is in the long term interest obviously, not just of them but of us.
Yeah. The only thing I'd add Smedes is you know the I think a lot of the work right now that we're doing will help very much in the longer run the a whole lot of the work right now is focused on lowering the breakeven.
At these lower levels of demand, so whether you're doing things more flexibly around how you're managing certain departments, all that kind of contact less work that aren't he was talking about using technology more that frankly will kind of change the way the guest interact with.
Tell team all of those things are tremendously helpful and as I said, we we we've kinda globally reduce the breakeven occupancy by three to 500.
Ah basis points around the world and that you know much of that should be helpful and the much longer run, but again as already said, we got to kind of got to get back there to have the proof of the putting in our goal is to make sure that that over the next few years that we get as much cash flows.
We can while the demand is still building back.
Great. Thank you appreciate the color.
Our next question comes from line of David Katz of Jefferies.
Hi, good morning, everyone.
David Thanks for thank you for taking my questions.
Look I.
What we've observed across our coverage and listening to all of your commentary so far.
Could we see scenarios, where the cost basis, both for yourselves and the hotel owners, obviously, you're adjusting to a reduced demand environment.
But what do you aiming for our their scenarios where in the next 12 to 24 months you know, we see a lot less revenue, but improved profitability and you know better earnings for marry up is that what were.
Ultimately aiming for or are we trying to just sort of hold steady in Seoul, you know things get back to you know coaching 19 levels.
Well I mean, it a little bit depends on what your compares comparing to obviously the.
We ought to see improving profitability for owners, we got to see improving profitability improving earnings improving EBITDA from Marriott.
Every month and every quarter from this point going forward now that's not sand much obviously given the <unk>.
The absolute numbers, we reported more this morning, but.
With a fairly high level of confidence you can't say was certainty, obviously, but with a fairly high level of confidence.
The second quarter of 2020 should be the worst quarter, we've ever seen by far forever.
And things will get better from here.
I think as it relates more towards what I think your question was focused out.
We have orient in the process of merit nearing completion of I suppose.
The rebaselining of our business.
And by our business I think I mean do include hotels that we manage for others, what our franchisees are doing but wouldn't Marriott is doing also.
As you all know we manage a big portfolio hotels, we manage more hotels in the luxury and full service space them.
Any other company in the World.
And in the managed context of course, we provide services.
From a above property, sometimes there are shared services and given market, sometimes they're localized by country, sometimes their global services reservations platform for example.
And the costs of those are paid for by the hotels, which are supported by those services.
And we've obviously got our own DNA spending that we do to provide a.
Support for our brands and to provide a management company and to.
Through all the other things we need to manage our business for ourselves as well, but in both of those context is leaning talked about we are.
Moving towards about a 25% reduction in gross level of spending between both categories combined.
And that's the new base from which will build.
And we will do our best of course overtime to build from bad base only at the kind of rates, we would have built.
On the preexisting base in the past.
And are hopeful that we will see.
Revpar and a fee growth for Marriott and.
EBITDA growth for hotel owners.
Grow at a faster pace them, the pace at which we've grown costs.
And that could well be the case for a number of years.
Right. So my point being you know earnings and cash flow should improve more quickly and you know hopefully at a better rate than anything we're going to see on the topline.
For a while.
I think that's fair.
Sure Thanks very much.
Thank you very much be well.
Our next question comes from the line of Jerusha James.
Well for research.
Hi, Good morning, everyone. Thanks for taking my question and Arnie, It's great to hear your voice on on this call I'm, just going back to to China can you elaborate a little bit more in terms of how leisure is performing versus those other two segments. I mean, you called out the improvement in business transient group, but anything you can share first to just kind of context.
Realize what that looks like and then with inbound travel restrictions it would seem that demand from Chinese locals is now above pre cobot levels, if I'm understanding that right. So correct if I'm wrong there.
Do you think intra China is getting an outsized benefit because there just aren't really outbound options right now and so you're seeing a substitution of outbound trips for inbound trips.
Yeah. There's a lot there are a lot of good questions and that I appreciate that very much the the I.
I would say generally that China is coming back in all segments.
Leisure business transient and group.
You can point at different markets and reach different conclusions. So we've got a.
Probably 20 to 25 hotels opening in southern yellow Pine N. Island.
Which you can think about as China's Florida.
They are doing extraordinarily well.
And they are going to be mostly leisure and some group.
On the other hand part of our grid and trying to remember the numbers are Macau Macau is a leisure market and by enlarge Macau is not reopened.
And so that's sort of pulls those numbers back a little bit I think when you look at.
Shanghai you look at.
Gong show and surrounding areas, which are much more business travel dependent.
I see but I think generally you see fairly.
Strong.
A very strong recovery certainly from their lows remember in February our occupancy numbers and trying to were.
10%, I think nine and change and we're now running about 60%. So you can see a substantial substantial.
And you know him and I mentioned, the Beijing context in Beijing, I think they had.
I don't know a couple it doesn't cases and ended up testing a million people for coven 19 in 30 days or something like that in managed to get.
Sort of covert back under control.
The only other thing I think we could say about China and and this is maybe odd given the kind of political dialogue that is taking place or or political.
Events that are taking place maybe not that much dialogue is that China and the U.S. are quite similar.
In the travel center.
Demand is overwhelmingly domestic.
You S, 95% domestic China, we have the number of 80% being domestic but I actually think the numbers probably higher than that.
China is not a big leisure market for the rest of the World people you know some adventurous travelers go to trying to see.
To take their vacations, but by and large the international travel is business travel.
And overwhelmingly the shift has been towards.
Domestic travel I think you're right to say that some of that recovery is probably Chinese travel that would have gone abroad to maybe to Asia Pacific or someplace else.
Stayed home in China this year.
We're certainly seeing the same dynamic in the United States Nobody's Gonna Nobody's going to Europe, and they're more likely to take your vacations here.
Okay. Thank you very much.
Our next question comes on line or less holiday of RBC capital markets.
Hey, good morning, everyone.
I should just a follow up Hey, I'm just a quick question on the follow up to your answer to the last question I'm can you give us a sense on the I'm trying to gauge how the U.S. could follow greater China into recovery, you kind of highlighted both being more of a domestic market, but can you potentially talk about the biggest variances you see in those markets. For example is the U.S. more depend.
That all large group compression nights, and maybe a little <unk> lack a little bit longer.
Yeah. That's a good question I think the generally what we see in China bodes well for what we should expect in the United States.
And there are differences, obviously, but the domestic.
Predominance is similar.
So there's really not that much dependence on long haul air travel for example.
Probably not that much difference on a regional air travel obviously trying to its got to.
Big Aviation business and those planes are back flying and they're back find it bigger numbers than they are the U.S., but remember China's.
Two or three months ahead of the U.S. and that cobot 19 recovery.
I think the resilience of the American consumer is second to none.
And I think we see that already and that sort of was what causes us to be a little bit more optimistic today than three or four weeks go in terms of the way the business may recover in the United States I think all of that is either similar or or maybe even better I think the negative is we.
Do have more group business in the United States, We do in China, we as an industry and we as Marriott both.
We are whether that be association business or corporate business. The meetings side has been a.
More established part of business for many many years.
But not at same time I think there other compensating factors I think that Ah, we spend more money on leisure travel in the U.S. them.
Trying to does I'm guessing, they're a little bit a net net.
I would think the recoveries generally ought to look about the same subject to the recovery of society from covert 19.
And subject to the strength of economy generally.
Great and they only on <unk> you should have only sell the last two questions, which is not as GDP look in the U.S. compared to China. When you get through Covenant 19, and how does the coven recovery.
Look like.
The United States.
Sorry, leaving you were going to jump I can't say the only other differences when you just look at the fundamental portfolio differences and that is that there is broader and deeper limited service.
Presence of our portfolio in the U.S. then there is in China, which probably at the margin is more skewed towards full service and maybe a better overall urban so I think there you're clearly seeing in our limited service portfolio, you're seeing in the tertiary markets, you're seeing if demand come back.
So that that's the other.
Difference that actually accentuates the positive so North America.
Great. Thank you both.
You bet.
Our next question comes from the line of Bill Crow Raymond James.
Hey, good morning, or do you shall I hope you are thinking you're feeling great. Thank you appreciate that.
Two.
To ponder on unit growth. The first question as I get the 2% to 3% growth this year.
And maybe I missed it but did you talk about how that might bounced back a in 2021 2022. If these are really just kind of delays in the construction costs.
Yeah.
I guess the short answer is no I mean, I think the we will see these projects.
Overwhelmingly become reality is is our guess I mean, the certainly when you look at 2008 nine when you look at 2001 or two.
Even projects that we thought.
Ed often came back and of course most were never.
We never thought of as being did a we thought of as being.
Slowed because of financing or construction.
Well the depth of Revpar decline is more significant this time is particularly tied to one.
The reason that reason will ultimately get behind us and I would guess that overwhelmingly these projects Macquarie together.
Whether they move forward to see a bounce back in 2021 or whether it takes us a little bit longer than that that's the question that's hard to answer.
Okay, and I think that I think that's going to depend on cobot 19, I think it's going to financial markets.
The second part of the question might have something to do with that as well which is.
How many requests are you getting for key money and do you think the conversion activity that you and Hilton with other peers keep talking about is gonna be largely driven by key money that's offered to the owners.
We are in let me you should jump in on this but I think we are generally in part to manage our own a liquidity and financial resources would probably putting less money, let's keep money and then we've done in the past years.
Projects that we're signing today I think when we get to the conversion market.
In some respects and maybe this is a little bit of wishful thinking but in some respects the.
Relative value that is achieved by joining the portfolio like ours in a weaker market is more obvious and therefore the need for key money is less.
Our referral.
It would be in stronger environment, where everybody is performing fine.
Not whether whether we can.
Turning that into actual terms of deals that are signed obviously depends on our deal makers within negotiate those deals.
We do you want to add anything to that yet the only at the only thing I'd say is the biggest I think question Mark no for the moment is around lenders and while certainly on key money. It can be a competitive perspective. It is making sure you've got lenders onboard to fill the the biggest part of your capital stack.
Matt in many cases really depends on the strength the brand the strength of the cash flow that's gonna be delivered to the hotel, which I think does lead us back too.
Brands like ours, and well sure key money, it's always competitive, but I don't think on the conversion side that that's going to be a kind of the one sole element that then makes or breaks it I think it. It has so much to do with that the asset value. Because these are long term assets. So chemo.
Money will always be an important part of the discussion, but I don't think on kind of that element in of itself is really that different.
From other times.
Alright, Thank you both.
<unk>.
Our next question comes from honest had done of Macquarie.
Hi, good morning, Thanks for taking my question.
Just wanted to ask about a booking window, what you're seeing in the U.S. if that really changed at all in the last couple of months, particularly going into July if that's kind of still in under a week or if that's starting to expand beyond what we've seen that it's still very short term.
Okay, all right and I it shouldn't surprise here because although they occupancy numbers improved have improved we've still got a pretty pretty general availability across the portfolio.
Okay, and then Leeny, maybe a hypothetical in a tough question, but regarding some of the positive sequential improvements you've been seeing on the revenue side and the reduction of cost should we still assume that north American IMS fees or that it's pretty difficult to see a positive outcome just because of.
The accounting method or do you think you know if the trends continue.
You could kind of eke out a positive outcome. Thanks [noise].
Sure.
No [laughter] believe it or not there there there were a couple I have not in Q2 from North America, but Ah if it's overwhelming like from Asia Pacific.
And there you know whole lot of that's going to depend on Q4.
So we need to get farther into the year, but as you might imagine for.
The North American hotels, where you have an owner's priority under most.
Any circumstance, you're you're seeing a absolutely massive decline in revpar in 2020, and so for this year I think it it's hard to imagine that there's anything very exciting to talk about there, but then and when you start talking about rebound.
And as demand comes back I think one of the things that has been good to see is that as demand really picks up rate Uh Huh has also done what demand and supply show it to do which is that it has also shown.
Shown the qualities of being quite resilient. So when we think of kind of special corporate rates et cetera for next year.
You know I think again it would point you to I've a potential view that as demand comes back you will see things pick up nicely and again as we've said there's been so much work on the cost side that that's kinda points to margins being able to be helpful.
As well, but I do think north if you look at our history of of North American recovery and I am match. It does take a while because of these owner's priority.
Appreciate it thank you very much.
Our next question comes from London, Michael Dell Sanyo of Baird.
Good morning, everyone. Good morning.
Morning, I'd, just just one follow up on your net unit growth comments.
Looking forward what does the split of managed versus franchise growth look like and are you anymore has it tend to.
Take on managed properties today, given the working capital requirements that we've seen that were celebrate this last quarter.
We are and we are no more hesitant to take on managed than we were before particularly in the luxury in full service space, but I think that the question really has to be assessed from a global perspective.
I think given the relatively greater strength of Asia Pacific in our year to date adds to the pipeline.
If anything we might skew just a tad more managed and franchised, but if you look at it.
Like to like our you know new unit growth in the United States is going to tend to be select service, which is going to tend to be overwhelmingly franchise.
And obviously those numbers are down.
Thank you.
Our next question I'm trying to want a rich hightower of Evercore.
Hey, good morning, everybody. Thanks for squeezing me in here.
Yeah.
Good good to hear from me I wanted to follow up on another twist on the China versus North America question and Leeny. I think you you may have answered part of this to an earlier question.
In the prepared comments Arnie, you said that both occupancy and revpar levels in China might like come back to 2019, you know sometime next year.
How much so there's a pricing component to that so how much of the fact that you're talking about lower absolute 80 ours, you know translated into dollars in China contributes to that and how do we sort of think about that versus a a the recovery and rates in North America, let's say.
[noise], you're you're going to test maybe leeny you can do this but you're testing by.
My knowledge here I think it's relatively easy to see Revpar getting back to 2020 2019 levels in 2021 in China, just based on the strength in recovery. So far I can't tell you the split between 80 earn occupancy.
Okay.
Yeah, I think again I think occupancy is obviously typically you know that that's the first driver and that is the one that.
You can see so quickly.
Get the pricing back right. When you have super high demand over a weekend or over a holiday or Tuesday, Thursday, and certain urban market. Then all of the sudden that compression happens very nicely and you quickly see the rate pop.
You know when we look at how our Chinese hotels are performing relative to the market.
I think we all know that classic Revpar index, a things or are not great.
Kinda perfect.
Analyses given you've got a bunch of other hotels close, but we have seen that our hotels have performed dramatically better than the industry. So I I think again when you see demand for the brand and demand come back a that then rate can pick up pretty quickly I think.
In North America, we're going to its going to depend more on the segment right. It's going to it it's going to depend more on the shifts between retail a special corporate leisure and group because they all have some variances there on the 80 aren't front. So if you had a fundamental shift on the percentages of group.
Versus retail.
For example, you might see a difference in rate, but but again, we would expect as you see the occupancy pick up quickly to.
I see the rate a move fairly quickly there aren't kind of institutional reasons why the rate if it's going to behave a super differently.
Okay. That's helpful guys. Thank you you bet.
And ladies and gentlemen, we have reached the allotted time for questions I'll now turn the floor back over to Arnie Sorenson for any additional closing remarks.
All right well I just say thank everybody. We appreciate your interest in your time and of course look forward to walk you back or hotels, just as soon as you feel comfortable getting on the road.
Which we hope is very soon.
[noise] and thank you ladies and gentlemen, this does conclude Marriott international.
2020 earnings Conference call you may now disconnect.
Oh.
[music].