Q2 2021 Marriott International Inc Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Marriott International second quarter 2021earnings conference call. At this time, all participants are in listen only mode.
The speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone keypad.
Please be advised that today's conference is being recorded if you require further assistance. Please press star Zero I would now like to turn the conference over to your Speaker today Jackie Burka. Please go ahead.
Thank you good morning, everyone and welcome to Marriott second quarter, 2021earnings call.
On the call with me today are Tony Capuano, our Chief Executive Officer, Leanne, Hilbert, our executive Vice President and Chief Financial Officer, and Betsy Dom Our Vice President of Investor Relations.
I will 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 our SEC filings, which could cause future results to differ materially from those expressed in or implied by our comments.
Statements in our 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 and average daily rate comments reflect systemwide constant currency results for comparable hotels and include hotels temporarily closed due to COVID-19.
Revpar occupancy and ADR comparisons between 2020, 1 and 2019 reflect properties that are defined as comparable as of June 30th 2021 even if they were not open and operating for the full year of 2019 or they did not meet all the other criteria for comparable in 2019 you.
You can find our earnings release and reconciliations of all non-GAAP financial measure I'd referred to in our remarks today on our Investor Relations website, and now I will turn the call over to Tony.
Thank you Jackie and good morning, everyone.
I'm very pleased with our second quarter results and the accelerating pace of the global recovery.
Tremendous up overall.
The improvement we saw in both occupancy and rate in the quarter demonstrate a basic premise people love to travel and to stay at our hotels.
Demand grew steadily throughout the second quarter worldwide occupancy gained 6 percentage points in the months of June compared to May and topped 55 per cent.
Average daily rate in June was down only 13% from June 2 years ago.
As a result, global Revpar has risen meaningfully and swiftly from the depths of the pandemic when Revpar was down 90% to down just 38% in June compared to the same month from 2019.
[noise] recovery timelines vary by region, given the uneven vaccination trends virus case loads and travel restrictions.
We remain encouraged by the incredible resilience of travel demand demonstrated by the rapid return of guests in areas, where rules have been eased and people feel they can travel safely.
This can be seen most keenly in mainland China. The first major market, where revpar has recovered to pre pandemic levels.
Revpar in the second quarter was driven by very strong demand, resulting in ADR exceeding 2019 levels.
Occupancy reached 71 per cent in April and 68% in May before dipping to roughly 60% in June due to small COVID-19 outbreaks and strict lockdowns in certain markets demand recovered quickly once the restrictions were lifted as we've seen throughout the last year July revpar.
<unk> is again expected to exceed 2019 levels.
Perhaps most encouragingly in April for the first time since the pandemic began leisure transient business transient and group room nights in mainland China were all ahead of 2019 levels. This is especially impressive given the absence of international arrivals excuse me due to stringent.
<unk> border restrictions.
The U S and Canada accounts for roughly 2 thirds of our rooms and in this region lodging demand grew impressively during the quarter led by increasingly strong leisure demand as the number of vaccinated people continued to rise U S. Leisure room nights in the second quarter were 15% higher than in the second.
Quarter of 2019, we are seeing more blending of trip purpose with some more flexible work from home or anywhere trend.
Total U S occupancy reached over 63% in June with ADR down just 11% versus June of 2019.
Our strong momentum has continued into the first 3 and a half weeks of July.
With U S occupancy, reaching 67 per cent and ADR down only 2 per cent compared to July of 19.
July Revpar for this period was down around 16% versus July of 2019.
The U S is also seeing increasing signs of recovery in both special corporate and group demand.
While special corporate booking levels in the first 3 and a half weeks of July are still down around 45 per cent compared to the same period in 19.
We are optimistic that we've turned the corner.
U S special corporate bookings rose, 23% in June over May and then rose another 27% in the first 3 and a half weeks of July as compared to the first 3 and a half weeks of June.
With improvement widespread across industries, and lengthening book booking windows.
Many of our corporate customers are telling us they are beginning to get back on the road. This summer and we expect to see a step up in business travel.
Most labor day.
As children go back to in person learning and workers increasingly returned to the office.
Bookings in the U S have also gained momentum U S group bookings made for all future dates were down 29% in June compared to those made in June of 19, a large improvement from down 56% in March of 'twenty, 1 versus March of 19.
And for the first time since the pandemic started group bookings made in the months of June for any time in 2021 exceeded in the ear bookings made in the same month of 2019.
At the end of the second quarter group revenue pace versus 19 was down 31% for the fourth quarter of this year improving to down 21% for the first quarter of 'twenty, 2 and then down 12% for the second quarter of 2002. However.
However, it's still early and we expect bookings made closer to the event date will increase group revenue on the books for these time periods.
Most importantly, our sales team is holding on to average daily rate.
ADR for group bookings is almost flat for the fourth quarter and 3% higher for full year 2022 compared to the same periods in 2019.
In other regions of the world demand in the second quarter improved over the first quarter in the Middle East and Africa in the Caribbean and Latin America and in Europe.
Middle East Africa is benefiting from relatively high vaccination rates in many countries in the middle East occupancy strengthened to 47% in June largely driven by Staycations in the UAE and <unk> business.
Occupancy in the Caribbean and Latin America improved meaningfully during the quarter rising to 45% in June.
While urban destinations continue to struggle given slow vaccination rates and high Covid case counts many of our resort properties in the Caribbean and Mexico are flourishing as they benefit from easing international travel restrictions and their close proximity to the U S.
Europes recovery is still lagging given its heavy reliance on international guests slower border reopening and shifting restrictions that change on short notice.
Yet with the EU easing many travel restrictions beginning in may and an increasing number of hotels reopening occupancy doubled in just 3 months really reaching 31% in June.
The recovery in Asia Pacific, Excluding China stalled in the second quarter as countries, such as Japan, India, South Korea, and Australia imposed strict lockdowns in response to sharp rises in delta various cases and low vaccination rates.
Encouragingly the recovery is now picking up steam again as case loads in some countries like India have started to decline.
Shifting to the development front, our pipeline stood at nearly 478000 rooms at the end of the second quarter.
<unk> openings were strong with nearly 25000 rooms added to our system during the quarter quarter and deal signings were also healthy. Additionally.
Additionally, less than 2% of rooms fell out of the pipeline 1 of the lowest levels. We've seen in the last 3 years.
We are very pleased with our momentum around conversions as well conversions accounted for 26% of rooms added in the first half of this year and have been a meaningful contributor to signings. We continue to have the largest pipeline of global rooms under construction.
We are also seeing great momentum around our branded residential business with a record 18 residential properties expected to open during the year.
For the full year, we expect that gross room's growth will accelerate to approximately 6% and with more visibility into anticipated full year deletions. We now expect 2021 net rooms growth to be towards the higher end of our previous expectation of 3 to 3.5%.
As a reminder, this estimate includes the 100 basis point headwind from the 88 service properties Trust hotels that left our system earlier this year.
We are pleased with the continued progress on replacing those hotels with new product. We are now in conversations for 80% of those locations with signed or approved deals for nearly 20%.
We continue to enhance and expand Marriott envoy into an immersive travel platform that includes multiple products and offerings that enable us to provide value to our members beyond hotel stays.
Program grew to over 153 million members at the end of the quarter.
Homes, <unk> villas by Marriott International or <unk>, which currently has around 35000 whole home listings has been an attractive offering and tool for engaging with members throughout the pandemic.
With nearly 40% of listings in markets, where we don't have distribution.
<unk> is expanding the number of destination options for our guests.
Over 90% of <unk> room nights in the quarter were booked by bond volume members.
Our co branded credit card holders were very active in the second quarter with global card spending surpassing the same period in 2019.
Global card acquisitions were also strong reaching 2019 levels.
Our recent credit card launches in South Korea, and Mexico have seen strong initial interest from consumers in those markets the.
The South Korean card issuer Shinhan financial group touted the launch of our card is 1 of the most successful premium card launches they have ever had.
Our total co brand credit card fees in the second quarter surpass those in the same quarter of 2019 for the first time since the pandemic began.
We've also been very pleased with our successful Uber collaboration in the U S. The number of members linking their accounts to date has far exceeded our expectations activated.
It accounts were already averaging 6 transactions in just the first 10 weeks demonstrating our ability to drive real engagement with our Marriott bond volume members beyond the hotel stay.
We're always working on innovative ways to enhance our guests' full travel experience just last week, we became the first major hotel company to provide U S based customers with the opportunity to purchase travel insurance guests can now buy travel insurance when they make a reservation through marriott's website.
<unk>, our mobile app by linking to approved products sold by Alliance partners as part of this distribution agreement Marriott will earn commissions from alliance.
In another effort to connect with bond volume members beyond the hotel stay.
We are piloting a program that allows members to earn and redeem points at food and beverage outlets in select hotels, even if a member is not staying in the hotel the.
The program is currently in over 200 outlets in Asia Pacific and the Middle East with expansion to over 500 outlets expected by the end of the year.
We also remain keenly focused on engaging with another key constituency are owner and franchisee community. We have worked closely with them throughout the pandemic to help lower costs significantly with some meaningful improvement in demand profitability for many hotel owners.
In the second quarter.
As the recovery continues we are aligning with our owners and franchisees to balance 2 important goals as we think about our path forward maximizing hotel level cash flow and driving great guest experiences as lini will discuss in more detail.
We are also working to address the labor challenges, we are seeing mainly in the U S in markets, such as Southern Florida, Texas, and Arizona, where demand has rebounded quickly.
To that end, we are increasing our social and targeted marketing of Marriott as a best employer with career advancement opportunities as well as holding job fairs to reach qualified candidates hiring tools, including 1 time sign on bonuses and temporary incentives sometimes in combination with base salary.
<unk> in select markets are also being successfully employed.
Before I turn the call over to Lini I want to thank our amazing team of associates around the World I have spent time in Los Angeles, Miami and New York over the last couple of weeks as I've been getting back on the road again it has been wonderful to visit our hotels and to meet with so many of our associates and see firsthand their path.
<unk> and resilience these have been challenging times, but we are looking forward with optimism while the timeline is uncertain I am confident that our business will fully recover and continue to grow from there lini. Thank.
Thank you Tony our second quarter results reflected the strong pace of the global recovery and the incredible resiliency of our business model worldwide occupancy came in at 51% a significant increase of 13 percentage points over the first quarter of this year. We also saw meaningful improvement in our average day.
On a rate decline versus pre pandemic levels with ADR down 17% in the quarter compared to the second quarter of 2019.
We are optimistic that rate recovery will occur faster than in prior downturns, when ADR gains lagged occupancy gain its been very encouraging to see that in mainland China ADR has comeback in tandem with demand.
Elsewhere ADR has also been particularly strong in areas, where occupancy has rebounded quickly and Aruba, Puerto Rico, and Mexico over half of our 28 luxury and upper upscale comparable resorts saw record high ADR for the month of June and the rest of the U F robust day.
And across our 34 comparable luxury resorts drove ADR for those hotels.
More than 40% above June 2019 levels <unk>.
Demand in Greece Rose quickly after travel restrictions were eased in April leading to a 20% premium and ADR for the quarter versus the same period in 2019.
Global Revpar declined 44% compared to the second quarter of 2019, a more than 15 percentage point improvement compared to the first quarter Revpar declined versus the 2019 first quarter we.
We recorded gross fee revenues of $642 million in the second quarter, our non revpar related fees again proved to be quite resilient.
<unk> $160 million in the second quarter. These fees have now fully recovered to the second quarter of 2019 levels. Our residential branding fees were strong again this quarter at $14 million.
Incentive management fees or IMF totaled $55 million in the quarter.
Almost half of our <unk> earned an Asia Pacific mostly from hotels in mainland China around 30% of our IMF were earned in the U S and Canada region with a number of U S luxury hotels generating more incentive fees than in the second quarter of 2019.
Second quarter, G&A and other expense was 18% lower than in the second quarter of 2019, primarily as a result of our significant restructuring activities undertaken last year.
We had a tax benefit of $41 million in the quarter due to releasing $118 million of reserves related to the favorable resolution of pre acquisition Starwood tax audit.
We continue to believe that going forward, our core tax rate will be around 22% to 2022% to 24%.
Absent any legislative changes to corporate tax rates.
Adjusted EBITDA in the second quarter with 558 million, which included $22 million of German government support for certain of our leased and joint venture hotels.
I also want to highlight the sale of the <unk> to meet the St Regis in the quarter, a joint venture in which we held a minority interest it is encouraging to see transactions like this occurring and we expect to receive a total of at least $36 million in after tax cash proceeds from the sale.
We will continue to operate the hotel under a long term management agreement.
At the hotel level are numerous cost reduction and productivity enhancement efforts have significantly lowered breakeven occupancy levels around the world even further than we anticipated when the pandemic got underway.
As a result of these efforts as well as the strong recovery progress the financial condition of many of our owners and franchisees continues to strengthen.
As does our accounts receivable collections performance.
Over 95% of our managed comp hotels in mainland China had positive growth operating profit or GOP in the second quarter.
Our GOP margin from managed comp hotels in this region expanded over 200 basis points versus margin in the second quarter of 2019.
Strong margin expansion exemplifies the beneficial impact of our recent cost reduction and productivity enhancement efforts given operations have fully come back in mainland China with a recovery in demand.
These results also reflect our strong top line performance driven by meaningful share gains in the region. Thanks to our strong distribution, especially in the valuable luxury space, our popular brands and our powerful loyalty platform in.
In the U S. The number of managed hotels with positive GOP improved significantly in the quarter as demand increased approximately 90% reported positive <unk> in the second quarter up from about 60% just 1 quarter ago.
As Occupancies increase we are working closely with our hotel owners around the world to balance maximizing hotel profitability, while also driving guest satisfaction.
We're being thoughtful about how and whether to bring back costs programs and amenities that were reduced or eliminated as we navigated the depth of the pandemic.
For example, we've already reinstated accountability for our intent to recommend scores with accountable brand standard audits resuming next year. We also introduced a new set of renovation rules, which will allow for additional deferrals of some renovations as well as reduced scopes for certain properties.
We're considering how best to evolve housekeeping brand standards across each of our hotel brand tiers, while ensuring guest expectations are met.
We do believe that once business is fully recovered in operations are fully back there'll be permanent areas of margin improvement primarily related to our productivity enhancements and the increased use of contactless technologies, such as mobile check in and mobile key.
As we look ahead to the rest of the year, while we are keeping a close eye on variant strains were optimistic about the continued global recovery. Our momentum has continued into July and we expect an uptick in business travel. This fall, we expect that when improved ease of international travel occurs that will also.
So fuel further recovery in lodging demand, while there's still too much uncertainty to be able to give specific revpar earnings guidance.
To provide color on specific items, where we do have some visibility.
Starting with the topline at current Revpar levels, we still expect the sensitivity of a 1 point change in full year 2021, revpar versus 2019 could be $35 million to $40 million of fees as we've seen the relationship is not linear given the variability.
IMF.
We expect our non revpar related fees to continue to benefit from strong co brand credit card fees and robust fees from our branded resident sales.
We still expect full year G&A to be roughly $800 million significantly lower than in 2019 and interest expense is still anticipated to be around $430 million for.
Full year cash taxes are now expected to be $325 million to $350 million.
A key component of cash flow with the loyalty program with the acceleration of leisure demand. We've continued to see redemption night pick up nicely, especially in our resort destination. We remained focus on carefully controlling envoy program administrative costs and we still anticipate that full year cash.
Flows from the loyalty program could be positive before factoring in the reduced payments, we will receive from the credit card company.
After factoring in these reduced payments, which are expected to effectively repay around 1 third of the total $920 million we received in 2020.
We continue to expect the cash flows from loyalty overall could be modestly negative.
With better visibility and our continued disciplined approach to investment spending we are lowering the top end of our full year investment spending expectation and narrowing the range to $575 million to $625 million.
Total investment spending includes capital and technology expenditures loan advances contract acquisition costs and other investing activities.
We're focused on bringing our credit statistics back in line with our historically strong investment grade levels, our leverage ratios continue to improve as Marriott asset light business model is showing its resilient cash flow characteristics. We expect continued improvements in cash flow generation as the.
Cover a progressive.
I also want to add my appreciation for our incredible team of global Associates, who have worked tirelessly throughout the pandemic.
Truly exemplify the Marriott spirit to serve and take care of culture.
In closing, we could not be more pleased with our progress in the quarter and we look forward to the continued return of guests to our 7800 hotels around the world We're happy to take your questions operator.
If you would like to ask an audio question. Please press star 1 on your telephone keypad again Thats Star 1 to ask an audio question. Your first question comes from the line of Shaun Kelley with BLA.
Hi, good morning, everyone.
Good morning.
Good morning, Tony I was wondering if we could just talk a little bit about the.
<unk>.
The development environment.
Just hoping you could give us a little bit more color obviously, it looks like the <unk> increase was primarily driven.
Driven by reduction of deletions, but maybe help us look out little further 'twenty 2 'twenty 3 how other conversations going and how do you think.
Excluding the SBC component.
Outlook is looked or changes versus maybe 90 days ago.
Of course, thanks, Sean well.
As we mentioned in the prepared remarks, we are increasingly confident in our ability to deliver at the top end of our range in 'twenty..1 I think when we look at factors like.
The number of rooms, we have under construction more than 200000 rooms.
The lowest fallout we've seen from the pipeline in about 3 years.
The accelerated pace of conversions.
We are increasingly optimistic that we can get back to a mid single digit net unit growth.
<unk>.
But as you've seen with some of the data coming out of STR around the slowdown in U S. Construction starts.
The reality is the impact of those reduced construction starts will make it challenging for us to get back to that mid single digit level over the next year or 2.
Tony just as the follow up to mid single digit being more of a medium term target, but just for the next year or 2 construction starts probably limiting maybe a little bit below that range is that the way to think about it yes.
Yes, I think Thats right I think we.
We're guiding to about 3.5% net unit growth, excluding the impact of SBC in 2021.
And then 'twenty, 2 and 'twenty 3 will be the years that we think will be impacted by that drop in construction start activity in the U S.
Thank you very much.
Of course.
Sure Sean just 1 follow up in that that we do believe that a.
While we are constrained by these lower construction starts that the industry has seen in the U S.
That we are going to be able to offset some of this through conversions and we're really pleased with the pace of conversion signings and the conversations that we're seeing on that front.
To be specific at this point about exactly where that leaves us but that again as Tony said, we're confident about getting back to the mid single digits.
Rooms growth rate.
Thank you.
Your next question comes from the line of Joe <unk> with JP Morgan.
Hi, good morning, everybody good morning.
You touched on this a little bit in terms of the labor challenges.
Labor costs going up.
So when you look at the Q2 results and we're looking at your reported results is there a lag in sort of the operating cost structure, particularly with labor relative to those.
Any recovery.
The exit rate coming out.
The key to your cost structure is that something that's more significant than the reported results because of potential net.
Well.
As you know that's going to overwhelmingly show up in IMF.
Joe from a standpoint of kind of the way there.
You know the quarters operating profit works at the hotels, so and as you might imagine with owners.
Owners' priorities in the U S. We didn't have a very high percentage of hotels, earning incentive fees yet.
The biggest growth in incentive fees was in Asia Pacific and frankly, the labor cost pressures are much much lower there.
So honestly I don't think that there is.
A meaningful impact at all relative to the really rapid increase in occupancy.
And then.
The patent that we get are.
Employment levels in the hotel is up as quickly as possible a day. She said there I think there is a little bit of a lag there, but I don't think it had any sort of impact on the profit for the quarter.
Great. Thank you and then you had mentioned a inc.
The group's piece.
The first quarter and second quarter next year, but maybe you gave it I missed it but did you talk about full year 2022 days.
Yes.
<unk>.
Yes.
Sorry, Joe.
Yes, we talked a bit about 'twenty, 2 pace and I think the.
There's a couple of encouraging things.
When we look at booking pace.
We continue to see volumes increasing.
Pretty measurably into 'twenty, 2 and maybe just as encouraging if not more encouraging is the pace of the ADR growth that we're seeing for 'twenty 2.
Bookings in fact, if you look at group bookings beyond in 'twenty, 2 and beyond.
<unk> is actually about 3% ahead of what we were booking back in 'twenty.
For the following year, so the ADR pricing power that we're seeing in group in 'twenty 2 and beyond.
Is is very encouraging.
Thank you very much.
Your next question comes from the line of Thomas Allen with Morgan Stanley.
Thanks.
You're seeing some really encouraging trends out of China.
Can you just talk about like the pluses and minuses of using China as a comp like how did your China business different from from kind of your global business.
Okay.
So Thomas this.
It's a good question and I'll say a couple of things I think 1 of the things that is the most consistent in greater China and the U S is the reality that the overwhelming.
Percentage of travelers that stay at our hotels.
In those 2 regions are domestic and so.
We're seeing obviously, you're seeing some of the same trends in the U S that we would that we saw earlier in mainland China, which is that when people feel comfortable to travel the demand picks up really really quickly, albeit with leisure being the strongest.
And clearly that is quite helpful.
For the hotels occupancy levels, because they're not traveling outside their country.
But but I will say that.
I think the trends have been remarkably similar in terms of the pace of ADR.
Covered at the same time and I.
I think the other thing that I'll point out that is interesting is that in mainland China.
The markets.
When they do have a pop in.
Some some COVID-19 cases, they do shut down demand very quickly because the cities are closed down we haven't obviously seen that same impact.
Impact in the U S because of the.
The population is.
More varied in terms of kind of day travel and.
The way cities are shut down or not shut down.
And in that regard, it's perhaps been a little bit more fluid in the U S. But we.
We have seen really terrific similarities in these markets where are the.
Occupancy is so much based on domestic travel.
I think the other thing I'll point out is that the F&B recovery in greater China I think does.
Point out the real strength of our.
Hotel brands there.
That I think has been really impressive as well.
Thanks, Dan just a quick follow up.
You mentioned Revpar was down 16% in July versus 2019.
Net U S only or is that global and if it is 1 of them can you give us the other 2.
That's U S only.
Do you have available number we don't have to.
And that was just for the first 3 and a half weeks just to be clear that wasn't for the month of July.
As you know this is all in real time that we're pulling this together so.
We don't have all of them.
Those numbers quite yet and again as we said that was for that was for the U S.
I appreciate all the color. Thank you.
Your next question comes from the line of Robin Farley with UBS.
I have a question about margin, but first if I could just clarify.
Tony's comment about.
Guidance for this year for unit growth of 3.5% I thought I heard him say, excluding the service properties Trust.
Even including that right that yeah, sorry, that's right so excluding the impact of SBC.
Our guidance would be 4 to 4.5% and we guide to the high end of that if you account for the impact of those 88 SBC hotels, it would be 3 to 3.5% and we're guiding towards the high end of that range. That's correct, sorry, if I misspoke.
Thanks, I just wanted to clarify that.
Just sort of higher end of the 3.3 and a half range from fewer removals.
Is it a timing factor or in other words.
Was it were there properties that sort of we're not may be in compliance with brand standards that came back into complaints and won't be removed in in 'twenty and.
'twenty, 1 or is it just that some of the removals are sort of pushed into 'twenty 2.
<unk> really robin it's a byproduct of as the year advances, we have more and more visibility on both fronts in terms of the timing of individual openings and the status of projects going out potentially going out of the system.
Okay, Great. Thanks, and then and then my other.
The margin clarification question.
You mentioned the 200 basis points ahead of 2019, I think it was for.
Greater China.
And I think when you've talked about potential for margin improvement in the U S. You've maybe sort of said you wouldn't necessarily.
We expect a big increase or a big change in the margin when Revpar is recovered.
Is that still the case in other words should we think about the some of the just sort of 200 basis points emerge in the example, we used in China is that kind of temporary maybe because brand standards.
What they were in 2019 or I guess just.
Trying to square that with your previous.
Previous comments. Thank you sure. So a couple of things first of all I was I was speaking about mainland China and there I think the interesting thing is that with Revpar back to essentially similar levels to 2019, we are producing GOP margins that are 200 basis points better. So I think that shows you.
Some of the work that we've been able to do on the cost management side and productivity enhancement side that that would tell you that those are.
Kind of good margins to think about going forward I think you asked robin.
The interesting thing here is that we've got a lot of them similar productivity and cost enhancements that we've done here, which would lead you to.
Some similar sort of conclusions I think other thing you have to think about is how quickly do labor costs and benefit cost increase so as we talked about before if ADR recovers really quickly and you've got these productivity.
And cost enhancements enhancements in place you've probably got a similar opportunity in the U S for those similar kinds of numbers that we've talked about in mainland China, but again a lot of this depends on how quickly. It all comes back in the U S and also what's going on with wage.
Wage rates.
Benefit costs.
Okay, great. Thank you very much.
Okay.
Your next question comes from the line of Tomatoes Rose with Citi.
I can't.
Hi, how are you.
I was just hoping you could give a little more color on the kind of the composition of the group's improvement you're seeing in 'twenty, 2 maybe any changes on a on a regional basis.
Potentially away from larger or higher cost cities or if youre seeing anything just in terms of.
The kind of corporations, where they tend to be smaller or is it larger or maybe just some color around what you're seeing on any kind of forward bookings.
Sure. So as you know group is a complex group of subsets of types of groups.
Where we're seeing really significant acceleration is on social in fact in many ways.
Social group demand is largely back to pre pandemic levels.
We are not seeing rapid recovery in city Wides yet.
The sort of Big box Convention Hotel city Wides that we enjoyed pre pandemic.
And then the fall I think will be quite telling is we look for more conventional corporate group demand to return.
The only other comment I might make smedes is that.
We are seeing in the year for the year group bookings are stronger than what we've typically experienced.
Pre pandemic environment.
Okay. Thank you.
Well I think it sounds like just to kind of follow up on the question about margin.
How did you guys make decisions around housekeeping would that be kind of the key driver for potential margin improvement for owner.
Hospital day elimination or significant reduction in housekeeping or are there other items on the table that would be.
You know very important towards potentially driving margin expansion at the property level.
Smedes you can expect us to continue to try to strike the right balance.
A tween the expectations of our guests as they get back on the road and the financial realities that our owners and franchisees face.
We'll continue to be guided by guest preference.
And it is quite interesting when you read some of the verbatim said, we hear from our guests some of our guests that are dipping their toes back into travel are still a bit hesitant about having housekeepers in the room and they appreciate the choice of <unk>.
<unk> keeping at their discretion.
Others are vaccinated and feeling Inc.
Encouraged about the safety of travel and they would prefer a more conventional housekeeping solutions and so I think whether it's housekeeping protocols, whether it's food and beverage service will continue to evaluate and evolve those service levels by market and by quality tier around the world.
Great. Thank you.
Okay.
Your next question comes from the line of Stephen Grambling with Goldman Sachs.
Hey, good morning.
Morning, how are you.
So you mentioned a number of things about the bond boy brand extensions and creating value there as well as the strength of non book Revpar related fees, including the credit card fees. How do you think about the growth of this segment going forward and how closely tied we're not tied to kind of the core.
Business, whether that's net unit growth and Revpar going forward.
So.
Just broadly speaking the non revpar fees, Stephen are made up of a kind of a variety of things, but the biggest.
Trunk of them make up again, when you think about it going back to 2019 call. It you know.
$579 million the biggest chunk is obviously the credit cards.
And that is going to overwhelmingly relate to both the number of cardholders and the amount they spend on their co brand cards and as we talked about today, they're spending has actually gone back to 2019 levels and you saw the similar thing happened to our co brand fees. So I think it's both.
The power of envoy combined with.
General level of consumer spend and health of the economy, particularly obviously the U S. Since these fees are overwhelmingly driven by the U S. Cardholders is how you should think about that I think youre going to continue to see.
Outsized growth in our residential branding fees.
Although they are obviously meaningfully smaller.
<unk> share fees is much.
More of a stable number because as you know those are overwhelmingly fixed.
So I think the biggest driver is really how you think about consumer.
Credit card spend on our co brand cards.
So I guess as a follow up is there an opportunity to monetize from January credit card fees or other types of fees in the international markets, where it hasnt been as much of a contributor yes, no. They are I, just there meaningfully smaller depending on kind of the economic.
The structure of the.
The credit card business in those various countries and obviously the U S is a very very large market. So yes, we are and we expect to continue to see.
Increases in our international credit card co brand card fees and as we talked about in this insurance.
Travel insurance business that we're entering into we should also be able to benefit there as well.
But I would not expect them to be meaningful in terms of marriott's overall, earning stream.
Yeah.
Great and if I can sneak 1 other follow up on just on the IMS you referenced that only a few north American properties or kind of above that under priority level is there any kind of level of occupancy recovery or specific markets that we really need to see to start seeing those start to be earned again.
Well.
Honestly they range all over the map.
Just to give you a sense when you go back to 2019, we basically were in a position where our full service hotels about half of them were earning incentive fees.
And overall for the U S. It was call it 56% when you take in our limited service and there you obviously had occupancies up into the seventies.
But otherwise I will say, it's a it's a it's a big mishmash, depending on the specifics.
The counter to that is as we described in greater China, where we were at 77% earning.
And a year to date numbers.
For IMF and back in 19. It was at 86. So you can see that they behave much more in line with base fees, while in the U S. You really have a ways to go before we get back.
Earning meaningful incentive fees from the U S.
That's super helpful. Thanks, so much.
Your next question comes from the line of David Katz with Jefferies.
Good morning, David.
Good morning, everyone.
Uh huh.
I wanted to take a little longer term book.
Maybe.
Wonder what would have to happen and how you might be thinking about getting back into the capital returns day, and whether we'd have a shot.
Maybe <unk>.
We are recommending a dividend by the end of the year.
How you might be thinking about the setup for these items next year, which is sort of what we used to with Marriott share.
Sure.
Absolutely I think.
You know as you pointed out David we are seeing tremendous progress our credit ratios are absolutely improving literally month by month, and we're really pleased with the progress.
First and foremost we want to get our credit ratios back in line with being a strong investment grade credit that is the first priority and we are well on our way.
So I do think we're going to be talking about capital returns sooner rather than later.
As you know David so much of this is around the pace of continued global vaccination rates as well as our restrictions on travel and consumers' comfort with travel both domestically and internationally.
As well as people returning to their offices et cetera. So so.
As we said, we can't predict and give your Revpar and earnings outlooks in specifics, but if we continue to see really strong progress like we have been seeing we could absolutely imagine that we're talking about capital return.
Later on in 'twenty 2.
Actually.
When we're able to count on that and have a discussion with our board on that topic remains to be seen but you certainly can envision that scenario.
That assuming things continue to progress that that is the case.
If I could follow that up 3 to 3 and a half times was usually.
Target is there any qualification around that.
But we should be thinking about today.
Except to say that we again would want to feel like we are squarely.
Staying there I E that the market is.
The lodging recovery has has stabilized.
Things have.
Got into a position where.
Reaching that 3 to 3 and a half is something that we for per seat being a very solid going forward, but I think.
But other than that no additional constraints.
Got it. Thank you so much good luck.
Sure.
Your next question comes from the line of Richard Clark with Bernstein.
Hi, Good morning, Thanks for taking my question I just wanted to ask a quick question on the GAAP between your gross and net unit growth I think you've done about 19.
19900 exits in the first half and if I look at the gap between your net unit growth that would imply you need to do about 15, a bit more than 15000 exits in the second half and that's about double what you did in the second half of 2019 and actually even ahead of the exits you had in the second half of 2020. So is there anything particular or any anything.
That's coming out there is it just conservative or anything you could mention on that.
No I mean I.
I think we continue to expect to see deletions for the full year in that 1% to 1.5% rate.
They.
Yeah.
Excluding the impact of SBC, obviously in terms of baseline deletions.
They tend to ebb and flow a little bit from quarter to quarter, but on a full year basis, we are increasingly comfortable with that guidance of 1 on 1 to 1.5% deletions excluding SBC.
Okay that makes sense or were you, saying that the deletions in Q2 sort of to 2000.2500 day. So that's a particularly low number and there might be a bit of a catch up from that and then in the second half.
Do they they are really quite variable during the year. You can you can have 1 quarter with 7000, you can have 1 quarter with 1000, so it's really.
It varies and we do look at this region by region very carefully.
And looking at exploration and how things are going so.
It continues to be as Tony said it continues to be our best estimate at this point.
It is clearly better than where we were earlier in the year because again, we had a wider range that we were considering.
And we have been able to firm up that range, so that we feel better to.
To say that we will be in the space that says we'd be at the top end of that 3.
3 to 3.5 per cent range, and and I should add part of the comfort around that is with the openings as well that we have greater visibility on the openings and we're extremely pleased with the openings in.
In the second quarter and year to date.
Wonderful thank you very much.
Q.
Your next question comes from the line of door Houston with.
<unk> Fargo.
Good morning, everyone.
Hey.
And given the trend that you've seen in new signings.
<unk> schedule when would you expect to see the pipeline resume quarter over quarter growth I think I think in the last downturn you saw about 6 quarters of compression.
Yeah, again, I might give a different version of the answer I just gave on deletions.
Pipeline tends to ebb and flow a little bit.
Some of the indicators, we look at the.
Development Committee volume for instance, and we are starting to see an acceleration in our volume of of deals, particularly in June and July in our biggest markets specifically in the U S and Canada and in China, and I think that is encouraging for us.
The other thing is remember.
More than 25% of our volume right now is in conversions and because of the quick turn on those conversions often those get signed and opened and never even make their way into the pipeline and so that adds to some of the quarter to quarter variability as well.
Okay.
Okay.
Okay and can you just remind us what the differences in fees.
Between a between me and your pipeline of luxury versus like services on average.
Sorry, the difference in fees you said.
Yeah, the other long term expectations of what the risk free.
For you guys versus day residents.
Sure.
Setting aside the fact that there can be pretty wide variations from market to market. The rule of thumb. We've shared in the past is that our luxury hotels stabilized annual fees could be as much as 10 times the annual fees.
Select service hotel like a Fairfield Inn.
Yeah.
Okay. Thanks Youre welcome. Thank you.
Your next question comes from the line of Michael Bellisario with Baird.
Good morning, Michael Good morning.
Thanks, Good morning, everyone.
Just a 2 part question wondering something's on bond Boy I'm not sure you mentioned it what would be occupancy contribution during the quarter and then a bigger picture question. Maybe just how are you thinking about further broadening the platform and value proposition for gas is there any renewed interest in travel adjacencies partnerships or any other.
Brand holes in the portfolio.
To me the brand portfolio that Youre seeing really just kind of what are your plans to add more value for customers as everyone seems to be fighting for a greater share of everyone's travel wall today.
Great well, let me try to take both of those and leaning may chime in as well on your first question.
Envoy penetration continues to recover in Q2, we were almost 50% 49, 5% to be precise.
That was a significant increase we went as low as about 43%.
At the bottom of the pandemic, but it's still a couple of points shy of where we were pre pandemic at about 52%, but the pace of penetration recovery I think is quite encouraging and then on your second question.
I think we continue to look for opportunities to make the program stickier to engage with our customers even as they start to get back into travel and we tried to give you a few examples so I think the new travel insurance program as an example.
The Uber partnership I think is a terrific example, the new branded credit cards are a good example.
And then the just the number of App downloads that we're seeing with the Marriott envoy App I think all of those point to our efforts in the.
Excuse me the success of those efforts in trying to grow engagement among our bond volume members.
Okay.
Helpful. Thank you.
Thank you.
Your next question comes from the line of Ben CPO with Cleveland Research.
Good morning, Good morning, Dan Good morning.
Thanks for taking my question a lot of mine have been answered, but 1 thing that I'm trying to get a little bit more clarity on as it relates to your perspective trajectory of U S. Revpar.
I think you mentioned the first few weeks of July down only 16, ADR impressive is only down 2.
Like leisure is really contributing nicely to that and just curious how you're thinking about the handoff through the second half from leisure into more corporate and group.
And just how sustainable that July run rate is.
Well certainly the fall is going to be fascinating to watch is as more and more schools open for in person learning as more and more companies get back to the office I think the data that is perhaps most telling from our perspective is some of the statistics, we shared with you on special corporate bookings.
As we mentioned those bookings rose 23% in June as we compare to May and then again.
It's just the first 3 and a half weeks of July but we saw another 27% increase in those first 3 and a half weeks of July versus the same 3 and a half weeks in June and so the magnitude and the steadiness of the growth in special corporate bookings.
I think is quite encouraging.
And then you've heard US talk about this before this blending of trip purpose continues to be a real and measurable phenomenon and we think it's good for our business and we think it will continue well beyond the end of the pandemic.
With all that said.
We will continue to be vigilant as we watch.
The pace of vaccinations around the world the effectiveness of those vaccinations relative to the Delta variant.
And monitor the impacts of that on our business.
Great and 1 follow up if I may with that.
Our number in July.
It has been.
Progressing really nicely and probably better than a lot of folks thought going into this year curious you know what what do you attribute that progress in ADR to and how sustainable do you think that is through the second half.
Well, we certainly look at at.
The pace at which is demand.
Is recovering and the amount of pent up demand is maybe best illustrated by the pricing power. We are seeing in rate, we knew we'd have that in leisure, but it's really encouraging to see that pricing power extend to both business transient and group.
And in China, obviously, we've seen ADR come back at the same time and so you throw all of that in the Blender, it's really encouraging and I think it's just driven by the sheer volume of demand.
The only other thing I'll add to that is the reality that so much of this depends on macroeconomic factors and so as consumer confidence and consumer spending and general economic growth continue that will be an important part of being able to.
To continue to see this growth.
Growth in demand.
And that has also.
Always had an impact on how companies.
Companies do their group bookings do their business trips et cetera, and that that is another element of this.
Price power.
Thanks.
Okay.
Your next question comes from the line of Bill Crow with Raymond James.
Good morning, Bill good morning. Thanks.
Good morning, first a clarification I think it was needs that asked about 2022 group.
Segmentation and I think your answer was about it was largely social with little.
Evidence of city Wides coming back was that was that really more about 2021 or is that still 2022.
Yeah.
Book, We will get Jackie to get back to you with Super specific but I think the reality Bill overall, if you're still seeing a big chunks of association corporate and government nights in 2022.
But at the margin, where we're seeing the strongest kind.
Kind of in the period for the Purion demand is in both the smaller and medium sized groups as well as other social groups, where in many cases, they've put off having events per year and now coming forward, but again, when we think about the big chunks of business, we've still got I mean, you.
I'm sure you've heard from Gaylord about their bookings there is still a wide swath across all the big segments of group business for 2022. The other thing to point out is that we still are in a position where their room nights.
At our current pace for group is still down from 22.
It's just down a lot less than it used to be and that it also.
Seeing strong rate where rate is actually up compared to 19 and with each progressing quarter you see those nights improve as you move farther and farther away from Q3.
2021, where there is still obviously some concern around these variants.
Thanks for that clarification.
Well my question that I really wanted to address was housekeeping.
How are the guest requests per nightly housekeeping trending we had heard.
From someone else that they had doubled over the last 3 to.
6 months.
Where the guests are proactively asking for that and then I guess the second part of that.
Is simply should we expect that.
Yesterday seen experience at luxury and upper upscale hotels will be very similar.
To where it was essentially in 2019, and therefore, the best opportunity from margin improvement.
Keeping side might be at select service hotels is that a fair way to think about it.
Okay, well, so theres a few questions embedded in there I think.
On your first question.
The.
The housekeeping protocols will really continue to be driven by guest preference and will likely vary as you kind of move up and down the quality tiers.
On your second point, I think I tend to agree with you that in the luxury and upper upscale tier I think that the.
Expect the guest expectations should be much more similar to what they saw in a pre pandemic environment and then on your third question I'm not sure I necessarily agree with that for the simple reason that what's driving margin certainly there is the cost side, but there is the top line.
He says well and while it's a single data point, we saw over fourth of July weekend U S resort ADR up about 10%, but if you carved out just the luxury tier Jack Youll have to keep me honest here, but I think we were up close to 35% in <unk>.
And so at that sort of premium and rate.
You should expect some meaningful margin improvement, even if you are back to pre pandemic surface levels.
Yeah.
I appreciate it. Thank you for the task force. Thank you.
Our final question comes from the line of Patrick shows with coolest.
Good morning, Patrick.
Good morning.
1 of the more controversial topics right now are you.
You know what percentage if any.
Business travel may be permanently lost and certainly a new York Times article yesterday.
Drawing more fuel on that fire I'm wondering.
I'm wondering what your thoughts are around that question. Thank you.
Well again, we've shared a bunch of data points with you today that I think underpin our optimism about the return of business transient demand.
I do think going forward. This blending of trip purpose that you have heard me talk about.
We continue to think it's great for our business and our industry.
And we continue to think it's here to stay for quite a while.
We are optimistic about the return of business travel we talk to about 700.
Corporate travel managers every month and we are hearing anecdotally from our customers, particularly those that are in <unk>.
Customer service business as law firms accounting firms consulting firms that it is critical to their business that they would be on the road and in person with their customers.
If anything going forward I do think it may be a bit more difficult to determine precisely looking at a guest walking through the lobby exactly what their trip purposes.
Not asking you at the front desk or you hear for business or are you here for leisure or both.
But I do think youll see a lengthening of stay as a result of this blending of trip purposes and.
In fact.
That length of stay is is measurable and we continue to see that through the second quarter of this year.
Yeah.
Okay.
For the economy.
Of course, thanks Patrick.
At this time there are no further questions I would like to turn the floor back to management for any additional or closing remarks.
Great well again, thank you all for your participation and interest this morning.
I Hope you hear our optimism about the pace of recovery, we're seeing in many markets around the world. We're excited ourselves to be back on the road. We hope you are getting out there as well and we look forward to seeing you in our hotels in the weeks and months ahead, thanks and have a great day.
Okay.
Thank you for participating in today's conference call. You May now disconnect. Your lines at this time and have a wonderful day.
Yeah.
Okay.
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