Q4 2021 Marriott International Inc Earnings Call
Would you please continue to standby.
[music].
Okay.
Good day, everyone and welcome to today's Marriott International's fourth quarter 2021 earnings call. At this time all participants are in a listen only mode. Later, you will have an opportunity to ask questions. During the question and answer session. You may registered to ask a question at any time by pressing the star and one on your Touchstone phone.
Please note this call maybe recorded and I will be standing by should you need any assistance.
Now my pleasure to turn today's program over to Jackie Burka, Senior Vice President of Investor Relations.
Thank you good morning, everyone and welcome to Marriott fourth quarter 2021 earnings call on the call with me today are Betsy Dawn, our vice President of Investor Relations.
Our Chief Financial Officer, and Executive Vice President business operations, which only has a while our chief Executive officer.
Thanks, Jackie before we begin our prepared remarks I wanted to take a moment and reflect on this debt, which marks the one year anniversary of barneys passing.
I know everyone on this call, especially our Marriott associates, Miss our Dear friend and inspirational leader a great deal. We can take comfort knowing his amazing legacy lives on and the incredible work of thousands of people around the world, where a Marriott name badge, let me turn the call back over to Jacky to get us underway and discuss.
This quarter's results.
Well, let me quickly remind everyone that many of our comments today are not historical facts and are considered forward looking statements under federal Securities laws.
Statements that 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.
In our comments in the press release, we issued earlier today are effective only today and will not be updated as actually then.
Please also note that unless otherwise stated our revpar occupancy and average daily rate comment.
Black system wide constant currency results for comparable hotel and include hotels temporarily closed due to COVID-19.
Revpar occupancy and ADR comparisons between 2021 and 2019 reflects properties that are defined as comparable as of December 31, 2021, even if they were not open and fully operating for the full year 2019, or they did not meet all the other criteria for comparable in 2019.
Additionally, unless otherwise stated all comparisons to pre pandemic our 2019.
During the same time period in each year.
You can find our earnings release and reconciliations of all non-GAAP financial measures referred to in our remarks today.
Faster relations website, Tony Thanks, Jackie.
We're very pleased with the remarkable progress we made in 2021 across the entire global portfolio. Despite the ongoing challenges of the COVID-19 pandemic we.
We finished the year on a real high note with the emergence of omicron, having a limited impact on results in the fourth quarter.
In December global ADR was 3% above 2019 levels in occupancy for the month.
Further ground compared to December of 2019, driving driving global Revpar to an 11% decline versus 2019.
This was a 53 percentage point improvement from the Revpar decline in January of 2021.
In the fourth quarter Global Revpar was 19% lower than pre pandemic levels global occupancy for the quarter came in at 58% 12 percentage points below 2019, while ADR was only 2% shy as 2019 levels.
In the U S and Canada fourth quarter, Revpar declined 15% compared to 2019.
Results were driven by strong ADR, which was less than 2% below pre pandemic levels.
Further strengthening of already robust leisure travel and steady improvement in the recovery of business transient and group demand also helped results.
Fourth quarter group room revenue in the U S and Canada was down 32% versus 2019.
9% point improvement from the third quarter decline.
With booking windows still much shorter than usual in the quarter for the quarter bookings were up 45% versus the fourth quarter of 2019.
Group cancellations ticked up late last year and early this year due to omicron, mostly for arrival dates in January and February but those cancellations have slowed more recent new.
New group bookings have also been gaining momentum, especially in the year for the year.
In fact, just last week Salesforce held a large company meeting in New York City that was book just one month before the events. It was the largest internal meetings Salesforce has held since the start of the pandemic with over 25000 room nights across 11 of our properties.
While special corporate demand in the U S and Canada, we're still well below 19 levels. There was gradual improvement in the fourth quarter relative to pre pandemic levels bookings in the quarter were down 33% 11%.
Excuse me 11 percentage points better than the decline in the bookings in the third quarter.
Weekly bookings around the end of last year were impacted by omicron, but they have recovered since the trough in early January .
All of our international regions, except for greater China posted sequential Revpar recovery from the third to the fourth quarter as more borders reopened and travel restrictions ease.
<unk>, China's fourth quarter, 27% Revpar decline compared to 2019 was in line with the decline in the third quarter as their zero Covid policy. Once again resulted in the walk down to several cities.
The middle East and Africa, or EMEA region performed particularly well in the fourth quarter.
Really demonstrating the resilience of travel demand.
With relatively high vaccination rates and low travel restrictions during the quarter the middle East has become a safe easy place to visit.
Led by strength in the UAE fourth quarter, Revpar and meet our rose 8% in 2019, driven by 20% higher ADR excuse me, 8% above 19, driven by 20% higher ADR.
Fourth quarter occupancy in the top 65% the highest of our regions leisure demand was remarkably strong benefiting from a significant increase in international visitors room nights from international guests Rose nearly 60% from the third to the fourth quarter.
Throughout the pandemic strengthening our valuable loyalty platform and engaging with our various bonds wide members have been key areas of focus in the fourth quarter of 'twenty, 152% of room nights globally, and 58% of room nights in the U S and Canada were booked by bonds members.
And global membership grew to over 160 million members at year end driven by strong digital sign ups.
Turning to development, both room additions and signings were strong in 'twenty one.
Despite ongoing challenges associated with the pandemic.
Despite industry wide pre construction and construction delays some labor shortages and supply chain initiatives. We added a record 86000 gross rooms, and 517 properties, leading to six 1% gross rooms growth for the year.
Our global net rooms growth was three 9% above our previous expectation given deletions were towards the low end of those expectations or deletion rate for 2021 was two 1% or one 2% excluding the exit of ADH service properties Trust hotels.
We are also pleased that we continue to grow our share of rooms globally in 2021 around 15% of all global Newbuild rooms opened under our brands compared to our year end room share of 7%.
This share is expected to continue as we had 18% of all global rooms under construction at the end of 'twenty one.
21 more than twice our current share of open rooms.
Our development team signed franchise and management agreements for approximately 92000 rooms during 2021, and our yearend global pipeline totaled roughly 485000 rooms.
The composition of our pipeline dovetails nicely with current demand trends.
Leisure demand has led to recovery and we are well positioned to continue growing our lead in resort destinations, including in the high growth all inclusive space.
We've also been seeing strong preference for our luxury properties with luxury rooms accounting for more than 10% of our pipeline. We are poised to further expand our industry leading portfolio in this valuable high fee segment.
Conversions were a significant growth driver in 2021 accounting for 21% of room additions and 27% of signings with the breadth of our roster of conversion friendly brands across chain scales.
And the meaningful top and bottom line benefits associated with being part of our system. We anticipate that conversions will remain an important contributor to growth over the next several years.
For 2022, we expect gross room's growth to approach, 5% and deletions of one to one 5% leading to anticipated net rooms growth of three 5% to 4%.
While signing activity has been picking up nicely 2022 gross room additions are expected to be impacted by the diminished construction starts the industry has experienced throughout the pandemic, particularly here in the U S.
As a reminder, average construction timelines are currently around two years for a limited service deals and often longer for full service deals yet given the improving global environment. The attractiveness of our brands are strong development activity, our conversion momentum and our industry leading pipeline work.
<unk> said over the next several years, we will return to our pre pandemic mid single digit net rooms growth rate.
Before I turn the call over to <unk> I did want to share a few highlights of the company's ESG efforts over the course of the year.
The board of directors and our management team are keenly focused on these important areas as we're committed to making a positive and sustainable impact in the communities, where we live and work in June as part of our diversity equity and inclusion efforts, we announced we were setting new internal diversity goals for our group of Vice President incentive.
Ralph.
The new targets aimed to achieve global gender parity by 2023 and acceleration of our prior timetable and two increased representation of people of color in the U S to 25% by 2025 in.
In July we updated our human trafficking awareness training, which will be made widely available to the entire industry more than 900000 associates have now taken training in this area.
And in September we pledge to set science based emissions reduction targets in line with the one five degree Celsius emission scenarios.
As I finished my first year as CEO I want to again, thank our incredible associates for all their hard work through these challenging times I've spent most of the last few months on the road traveling across the U S from New York to Los Angeles, and also abroad and have seen firsthand their dedication to serving our guests and.
So proud of all we've accomplished over the last year and continue to be very optimistic about our outlook for 2022 and beyond leading.
Thank you Tony.
Fourth quarter results reflect the clear resilience of travel our strong focus on cost containment and the benefits of our asset light business model gross fee revenues reached 831 million in the fourth quarter.
Non revpar related franchise fees were again, particularly strong totaling $186 million in the fourth quarter, 19% ahead of 2019 levels driven by robust global card spending and new account acquisition as well as outstanding performance in our branded residential business.
Incentive management fees, our IMS totaled $94 million in the quarter just under half of these fees were earned at resort properties with IMS from our comparable luxury resorts up almost 45% compared to the fourth quarter of 2019.
Our owned and leased portfolio generated $19 million of profit a nice increase from a loss of about $50 million in the fourth quarter of 2020 as results improved at hotels in the U S and Europe .
Our operating teams have done extraordinary work to adapt quickly and return these hotels to breakeven profitability or better despite continued lower than normal occupancy levels.
G&A and other expense totaled $213 million in the fourth quarter higher than prior expectations as a result of higher compensation costs, including true ups and higher legal expenses.
Full year 2021, G&A and other came in at 823 million, 12% lower than full year 2019, reflecting ongoing savings, resulting from our significant restructuring activities in 2020.
At the hotel level, we have partnered with our owners and franchisees throughout the pandemic working diligently to lower costs bring down breakeven occupancy levels and drive cash flow.
With the recovery well underway, we're committed to delivering consistent and positive guest experience that is while keeping hotel operating costs down.
Many of the cost reduction and productivity enhancement initiatives, we put into place will be maintained as occupancies rebound.
While the labor environment is slowly improving we're keeping a close eye on wage and benefit inflation.
We're optimistic that our cost reduction efforts to mitigate inflation in future years.
As always we are also carefully managing cash outlays at the corporate level. We were pleased with our cash flow generation during 2021 and with our year end liquidity position of over $4 8 billion, which covers near term debt maturities with significant cushion.
Our full year cash flows from the loyalty program were positive before considering the reduced payments received from the credit card companies. After factoring in these reduced payments, which effectively repaid around one third of the total $920 million we received in 2021.
Royalty cash flows were modestly negative.
Looking ahead to 2022, there is still too much uncertainty and volatility to give specific revpar or earnings guidance.
But I will again share some general observations and provide color on certain specific items, where we do have some visibility.
I'll start with some thoughts on the first quarter of 2022.
Crime meaningfully impacted global group and business transient demand in January historically, the lowest occupancy months of the year, while we saw minimal disruption to leisure travel global Revpar for the month declined 31% compared to January of 19, primarily.
Due to lower occupancy as rate was just 4% below 2019.
We expect to see the recovery pace pick up nicely in February and March given weekly bookings across customer segments have now returned to pre omicron levels.
However, with some countries reinstituting strict travel restrictions earlier this year, we could see first quarter 2022, revpar compared to 19 levels take a step back from the 19% decline in the fourth quarter of 'twenty one versus 2019, we then expect significant forward.
And in the global recovery each quarter through the end of the year.
Following the temporary delta related slowdown during the third quarter of last year demand picked up meaningfully through the end of last year that bolsters, our optimism that by the end of the year for 2022 fourth quarter gap to 2019 fourth quarter Revpar will narrow meaningfully compared.
To the 19% decline in the fourth quarter of 2021.
As additional markets reopened and more employees return to the office, we expect robust ADR sustained strong leisure transient demand and significant improvement in business transient and group.
I also expect to see growth in trips that blend business and leisure.
International travelers getting back on the road should also drive further improvement in Revpar in 2019, nearly 20% global room nights were from cross border guests.
So far most global demand during the pandemic has come from domestic visitors cross border room nights in 2021 were down more than 60% compared to 2019, while domestic room nights were down 16% over the same time period, our fourth quarter performance in the middle East.
Illustrates how impactful the return of international travel can be.
We're encouraged by the Swift pickup in booking activity that we've seen in the last few weeks in places that are opening up such as Thailand, and the Cayman Islands.
Turning to fees at current Revpar levels, we expect the sensitivity of a 1% change in full year 'twenty to revpar versus full year 'twenty, one could be around $25 million to $30 million of fees as we've seen the relationship is not linear given the variability of IMS and the <unk>.
<unk> of non Revpar related franchise fees.
This sensitivity is no longer compared to 2019 as the compounding impact from new rooms growth contributions makes the comparison less relevant three years out.
In 2022, we expect continued growth from our non revpar related fees driven by higher contributions from credit card fees. We also anticipate profit growth from our owned and leased portfolio as the global environment improves.
For the full year interest expense net is anticipated to be roughly $350 million and our core tax rate is expected to be around 23%.
G&A and other expenses control total $860 million to $880 million still well below 2019 levels, but higher on a year over year basis, primarily due to higher compensation costs and assumed higher travel expenses.
As always driving cash flow will be a priority in 2022.
We anticipate full year investment spending of $600 million to $700 million, which includes roughly $250 million for maintenance capital and our new headquarters.
We expect cash flows from loyalty to be slightly positive in 2022 before factoring in the reduced payments received from the credit card companies.
We made great progress in improving our credit ratios during 2021 and remain focused on bringing our leverage in line with our target of three to three five times adjusted debt to adjusted EBITDAR.
Assuming the recovery continues largely as anticipated we could be in a position to restart capital returns in the back half of 2022, we would likely begin by paying a dividend with a payout ratio a bit below our traditional 30%. We can then see more meaningful levels of capital returns, including.
Share repurchases, along with dividends in 2023 and beyond.
Over the last two years, our business has been tested in ways. We never could have imagined we're incredibly proud of how our teams have adapted and how well. Our company has performed we made significant progress in 2021 and are excited about continued recovery in our growth opportunities ahead.
Tony and I are now happy to take your questions operator.
At this time I'd like to ask a question. Please press the star and one on your.
Touchtone phone you may remove yourself from the queue at any time by pressing the pound key.
Again that is star one if he would like to ask a question and we will take our first question from Shaun Kelley with Bank of America.
Hi, Good morning, everyone, good morning, Tony and Lenny.
Good morning, good morning.
So Tony I, just wanted to start with development activity. So thank you for the the net unit growth guidance and I think.
It makes sense relative to where we are in the development cycle that I sort of wanted to get your sense a little bit longer term do you think this is the bottom and these levels are pretty sustainable just given where we are in the broader kind of capex and development cycle.
Or do you think Twenty-twenty just help us think through maybe 2023 and you know our the levels again going to be consistent with that can we even be a little bit better or do we need to be cautious there just given the timing on on openings in full service.
Thanks, Sean.
As we've said the last couple of quarters. The the the ripple effects of the pandemic create less visibility beyond 'twenty two than we might like.
With that said I think you heard the momentum on signings in my prepared remarks.
We continue to see good volume on the conversion front.
In the short term, obviously, we've got a bit of challenges in terms of construction starts, particularly in the U S. But in some ways that that causes us to think about it as a when not in this and in fact.
One of the statistics, we look at most closely as fallout from the pipeline. If we were seeing wholesale project cancellations that might cause us to think differently about the medium to long term, but in fact, what we saw in 2021 was about six 5% lower than our average fall out over the last 10.
Okay.
It's really encouraging and then maybe just as my follow up your comment on.
The revpar cadence lenient in your prepared remarks, what's interesting as we get to a kind of a <unk> 22.
Area, just just any possibility that we could actually see maybe a month or a point in 2022, where we actually returned to 2019 levels of revpar or kind of what's your what's your sense about that cadence that's it for me so let's start.
Thanks, very much and it is interesting when you look at December for example, you know the U S and Canada in the month of December was really was down only six percentage points compared to 2019. So it is absolutely. The case that you could see depending on the mix of business and exactly how countries.
<unk> open up and.
Kind of the classic occupancy from a seasonal pattern standpoint, I could imagine that it is possible.
That you have that happen, Sean I think though.
So much of this really depends on the global picture.
In terms of the pace of the recovery.
You need lots of things happening on all the points of business not just leisure, but also special corporate as well as group to see us get to that delightful place.
But at the same time.
I think we feel great about the momentum while the other comment I'll make is when you see countries open there.
There are restrictions.
They're kind of joked that our reservation centers feel is impressive and I do think that momentum gave.
It gives us confidence that we can see this resilience continued to build.
Thank you.
And we will take our next question from Robin Farley with UBS. Your line is now open.
Great. Thanks, just thinking about the the visibility of recovery can you give us some insight into what group bookings for the second half look like as you know understandably of course Q1 would have been in a very destructive biomarker for second half how is that compared to 2019 levels you know in terms of.
It seems like at some point there should be an accumulation of groups that haven't met in a while and that you know that should start to look at and I'm. Just wondering if you can see that turning point yet in your future group bookings.
Yeah, Thanks, Robin and <unk>.
Maybe I'll refresh some of the data that we shared with you last quarter.
I'm going to give you some comparisons between at the end of 19, what we saw is definite bookings on the books for 2020 , one and how that compares at the end of 'twenty, one what we see on the books for 'twenty, two and 'twenty three.
So at the end of <unk>.
December of 'twenty, one as we looked at definite bookings for 'twenty. Two we were down just a shade under 22% compared to end of 19 for 'twenty.
When we look at what's on the books for 23 at the end of 2021.
We're down just a shade under 15% versus what we had on the books at the end of 19 for 2021.
And so to your specific question we are seeing.
Steady and encouraging forward bookings in the group segment.
And the other thing I would point out Robin you heard in my prepared remarks, the comment about that big piece of sales force business that was booked just one month before we expect to continue to see improvement from the levels. I. Just described to you because we're seeing more short term bookings.
And that's been the trend over the last number of weeks or months.
Just to add one other point Robert when you look at Q1 Understandably was omicron clearly youre looking at a weaker group picture than you are as you get.
Into Q3, which is meaningfully better so your.
Your point is well taken that it shouldn't move as we go through.
Through the year.
The other part that is just fantastic is that rate both in 'twenty, two and 'twenty three already from what's on the books is up 3% to 4%.
Yeah.
Okay, Great. That's helpful. And then and then just one follow up question is.
In terms of the visibility of just sort of business transient.
Transient in total has that moved out and I know it's tough after the last six weeks because maybe it was moving out and now contracted a little bit but.
How far in advance you know I feel like pre pandemic can you just talk about a 30 day booking window and maybe last year. It was like a seven day booking window. So just wondering if you're seeing.
Transient you know a little more visibility or a little bit of improvement in the pace of that.
So the booking window has extended but it is not the way it was back in 2019, so it's improved.
But it is still the case that we're not.
Not back to where we are.
And I think clearly in Q1 Robin January is a great example, where you saw.
Special corporate particularly.
Weaker with what was going on with omicron. So.
I think part of this youre going to see it get.
It seemed more visibility as we get farther and farther into the year.
But it is a bit better than it was in 2020 and Robyn Let me just give you a little more granular information to try to address your question. This is a global number but if you look at the global booking window. It really got the shortest in the second quarter of 2020, where it was down to <unk>.
Five years.
Excuse me five days, if you look at our fourth quarter of 2021, it had risen to about 17 days so to <unk> point, certainly not back to where we were pre pandemic, but trending in the right direction.
Yeah.
Oh, great now that's very helpful data. Thank you.
Hello.
We will take our next question from Joe graph with J P. Morgan. Your line is now open.
Good morning, everyone. Good morning, good morning, Joe.
Throughout much of last year leisure demand was fairly inelastic to rate.
It's a fairly robust rate gain.
As you alluded to this morning.
Can you talk about leisure price elasticity, thus far in 2022.
Your forward bookings and are there any changes relative.
Last year I E are you seeing demand become more sensitive to further.
Maybe more pronounced in markets or chain scale segments, where service levels might be constrained by labor availability.
Of course.
Obviously, we're early in the year, but may be a good indication that addresses your question as we gear up for Presidents' day weekend here at AR at the end of the week.
This is a U S data, but the revpar numbers are pacing up about 12% ahead of where we were in 19 for Friday through Sunday and to your specific question about pricing power ADR is pacing up about 20% versus 19.
Great.
And then a follow up question on new development.
Can you talk about the cadence of net rooms growth.
Our net rooms growth rate. This year is it even throughout the year or is it more.
Heavy in the second half.
Lastly, how does the full service select service mix of net new room development 22 <unk>.
Compare to that mix the last couple of years.
Thank you.
Of course.
What I will tell you is pretty consistent for the last decade or more is our trans actors. They are a big fourth quarter team, we tend to see a big.
Pop in in signings volume in the fourth quarter.
But because our conversion volume was meaningfully higher in 'twenty one versus history.
When you have a deal like Sun wing, which I think was in the second quarter that can.
Impact quarter to quarter numbers.
But fourth quarter tends to be the biggest volume of sign ups and for openings Joe.
I think we definitely saw in Q4 of this year that you clearly saw a bunch of owners wanted to get ahead of.
This recovery that's moving forward. So we had a great fourth quarter, but you know what we have traditionally it's been fairly steady unless there is a certain group of hotels that if all kind of come on at the same time. So I would say, we've always tended to have some quarter to quarter variation.
<unk>.
But that should March forward fairly squarely throughout the quarters on the opening side.
I guess the only other thing to point out is just a reminder, that construction for a limited service hotel. It takes broadly speaking two years in full service takes longer. So as you start to think about 'twenty 'twenty and recognize that as you get into Q3 of 2020 you were in the depths.
The pandemic and starting to really see the impact on construction starts.
That will start to obviously that would have an impact as you go into 'twenty two.
Thank you.
Thanks, Joe.
We will take our next question from Thomas.
Thomas Allen with J P. Morgan. Your line is now open I am sorry from Morgan Stanley . Your line is now open.
Okay.
So.
Non revpar fees have been really encouraging.
Lee Thanks for the commentary that you expect growth in 2022 can you just give us a little bit more color. There I think I calculated your 2021 non revpar fees are about 15% above 2019 level.
What's giving you the confidence that that should continue to grow thank you.
Yeah. So first of all thanks very much just it just as a reminder, that our credit card fees make up roughly two thirds of our non revpar related fees and so obviously, that's a big driver.
They ended up up 4% over 2019 levels for the full year in 'twenty, one and that was with a really a quite a weak Q1.
We were still in there.
The heaviest part of the pandemic so.
As we continue to see great card acquisitions and <unk>.
Credit card average spend I think we feel very good about those I think residential branding fees that business has been doing extremely well and we expect to continue to see strong.
Openings.
Those which is when we get.
The fees and then we've continued to have application and re licensing fees. There's obviously our business continues to grow.
On the franchise side, so we feel quite confident in the growth of that fee stream.
Based on our continued strong economy.
Yeah.
And as a follow up way not asking for 2023 guidance, but there is.
I mean, when we think about starts right like there is some impact from openings and closures.
Some impact with starts now.
But like for residential branding fees for example, does that looks like it's going to continue to grow as you go past 2022.
That's a good reminder, actually Thomas to remember that while we do get <unk>.
Annual management fees that that is the smaller part of the fee stream that we get from residential and those are overwhelmingly onetime fees that we get.
When the.
The unit is ready for occupancy.
In that regard even in 'twenty, two I would expect our fees to be a little bit lower than they were in 'twenty. One because it was 21. It was we just had.
So many sale.
Sales in residential so I expect them to be a bit lower although still meaningfully higher than our traditional levels of residential branding fees and yes, you're right. They're lumpy because you can have one unit of 100 units that goes into sales and closings literally within a quarter or two.
Two and then another one might not happened for two more quarters. So it is likely to be lumpy and again.
Overall, we're really pleased with new signings that were getting in the residential branded business. So I think you'll continue to see that business grow very nicely.
Thank you.
Well take our next question from Patrick Scholes with Truth Securities. Your line is now open.
Great. Thank you.
Good morning, everyone.
Thanks, Good morning.
Good morning, Tony.
And then a follow up question.
Turning my first question at a high level question.
Last year in March and April we certainly saw a very large acceleration in U S leisure demand.
What that means is we certainly have a very tough comp for U S leisure demand coming up.
As far as your intuition, Tony do you think U S leisure demand once we hit those tough comps in April onwards, could've could actually clip.
Last year very strong level.
I'm curious what you think about that.
Of course, thanks Patrick.
We continue to be really optimistic that there is still a significant tailwind for leisure demand and I think part of that is because of the evolution of the way folks work.
The incremental flexibility that you're seeing in working from home working from anywhere.
Has been an accelerant for leisure demand and if anything we expect further acceleration in that regard and then when we look at our forward bookings, we already have more leisure on the books for months further out than we did in the same months last year. So we continue to be quite bullish on on accelerated growth in leisure.
And remember.
Leisure was already growing.
Much more rapidly than business transient even pre pandemic and maybe the last part of my answer would be you heard <unk> talk a little bit about how modest cross border travel has been.
We've really only seen domestic leisure travel and as more and more borders open we think that influx of international leisure travel will also.
Serve to accelerate the pace of leisure demand growth.
Okay. Thank you that's definitely encouraging.
Good point on the international.
Shifting gears on my follow up question here its really its been a tough sledding for the hotel industry in China due to the zero Covid policy.
Revpar really still significantly down in China have you seen any impact on your pipeline given how much the in China, given how much the industry is struggling in.
Thank you.
That's good question Thankfully the answer is no. We continue to see really strong momentum both on the signings and the openings front and I think in many ways, our owners and partners in China.
Are the mirror image of our owners and partners in other areas of the world. They.
They don't try to time the market for the next quarter or two they tend to be long term investors. Many of the projects that are getting done are parts of larger mixed use projects and the hotel components in some ways define those projects. So they are critically important so we've not seen any sort of means.
<unk> full slowdown quite the contrary, we continue to see really strong demand for our brands from a development perspective across China.
Okay.
Good to hear thank you very much.
One quick follow up one.
One quick follow up for you on that when you look at how many rooms. We've currently got in greater China. It's around 140000, and our pipeline is only about 20% to 25% less than that because the pipeline for greater China. So its really youre looking at doubling that business potentially in not too long.
Yes.
Excellent good to hear.
Thank you.
Thank you.
And we'll take our next question from Smedes Rose with Citigroup. Your line is now open.
Hi, Thanks, I wanted to just circle back on your commentary around conversion activities, which I think you said, there's about 18000 rooms in 'twenty one.
And I know you had said that you think it will continue to be strong, but maybe you could do you think it can surpass what you saw in 'twenty, one and maybe you can talk a little bit about where you're seeing the conversions coming from.
Our regional basis, if it goes to you out there.
Sure so.
I will remind you that one of the most significant contributors to our conversion volume in 'twenty. One was the conversion of about 7000, all inclusive rooms in the Caribbean with song Wang.
And I raise that not to apologize those sort sorts of large portfolio conversion opportunities are a meaningful part of our strategy and something that we'll continue to look for.
But in terms of baseline conversions, we are seeing elevated interest from the owner and franchise community for our brands and so we expect to see really strong volume continuing into 2022 and beyond.
And as we talk with our owners and franchisees not only do they like the flexibility of some of our soft brands. They like the fact that we've got conversion friendly platforms across multiple chain scales and they are focused not just on the ability of the companys revenue engines to drive topline revenue.
Also some of the margin efficiencies that result from our affiliation with our brands.
And Smedes just as a reminder, 27% of our signings.
In 2021 word for conversions one of the things that's been really gratifying to see is a number of owners who want to do a conversion, but with meaningful investment in the property.
Yes, I think thats a great point.
They may take 12 months to actually get opened but theyre turning it into a.
Beautiful.
Representation of one of our brands and putting meaningful investment in it.
Whether it opened specifically in 'twenty, two or 'twenty three it's all going to be great for our guests and frankly to our associates and for the owners and that 27% <unk> was about 10 percentage points higher than what we saw in the signings in 'twenty and in 19.
Great. Thanks, Thanks for that and then I just wanted to ask you. When we were out at the analyst meeting when we met with a lot of owners and there continues to be a lot of discussion as you guys have commented on as well of helping to reduce.
Their costs are being affiliated with large brands and I was just wondering do you think there's a lot more to go there or do you feel like you're sort of streamlining of brand standards are changing.
Customer expectations.
It's kind of reset now or how is that sort of relationship sort of.
Coming out I mean, we've heard frankly like just a broad range of commentary wondering how you're seeing it from their side.
Sure. So I think first of all I think the partnership during the pandemic between us and our owners and franchisees have never been better in terms of trying to manage these dramatically lower occupancy levels and as I said in my comments I think there is quite a bit of the savings that we've put into place.
That is permanent that will mean.
Kind of a significantly lower cost and significantly better productivity as we move forward now as you know we've got the reality that for more complex hotels there.
It's a much higher percentage of costs that are labor related and we're obviously seeing a lot of pressure on that side just like every other.
Industry in the U S. So there we are.
We will continue to find ways to try to.
Improve the margins.
Rising occupancy obviously always ultimately helps you when you are spreading costs at a hotel.
But it also means you've also got to make sure to have enough people there to deliver the service that our guests expect and we are committed to making sure that we deliver those experiences that bring them back to our hotels over and over and then the last thing I'll mention is just.
The great part about our business as we do reprice our rooms every day and so when you think about what's been going on with our ADR that has been a fabulous mitigation of what's been going on in the labor cost side. So you know.
We will.
Certainly continue to find new ways, but we are determined to make sure to deliver what our customers want.
Thank you I appreciate it.
We will take our next question from Michael Bellisario with Baird. Your line is now open.
Thanks, Good morning, everyone.
Good morning, just a question for you on loyalty in your top customers, maybe help us understand how are they spending today versus pre pandemic levels and then when you think about.
The lifetime value of that say top tier platinum customer has your view changed on who that customer is who that platinum customers on a go forward basis are you breaking up can you start the question from the beginning.
Okay.
Thanks can you hear me better.
Yes.
Just a question for you on loyalty and your top tier customers.
How are they spending today and where are they spending differently versus pre pandemic levels.
And then when you think about lifetime value.
The top tier platinum customer have you has your view changed on who that customer is going forward given the changes in travel patterns today.
Okay, I said, Michael I apologize you were breaking up a little bit I think I heard your question I think maybe our our penetration rates, especially in the U S or maybe the best indication.
When we went back to 57% penetration in the fourth quarter, which is almost back to where we were pre pandemic. So we're quite encouraged about.
The penetration rates, the passion and the enthusiasm we see within the bond Boyd.
And as you heard in my prepared remarks, the pace at which the programs continues to grow and I think one of the really exciting things for US was as our credit card platforms continue to grow they really gave us a unique opportunity to stay engaged with those most valuable bond voice customers.
Even when they had hit the pause button on the volume of travel they experienced prior to the start of the pandemic.
And just to add fuel to Tony fire I mentioned, two things number one we have started doing credit card programs in other countries and found them to be.
Really well received by the customers and seeing nice.
Card acquisitions on that front and then also just when you think about the growth in our digital share and that is very much tied to the bond Boyd platform and when you look at our digital share compared to 19.
The share of reservations has gone up almost 500 basis points on our digital channel and overall, we've gone up 300 basis points in our direct channels.
Up to 76%, so I think that all.
Ties very well into the power of bond boy.
Yeah.
Next question.
We will take our next question from Richard Clarke with Bernstein. Your line is now open.
Hey, good morning, Thanks for taking my questions. Just first just following up from some of the questions you've had already on on inflation and particularly with regard to your ear incentive fees and the owned and leased portfolio profitability.
If we get a full revpar recovery kind of into 2023, you know is that enough to get the incentive fees back to pre pandemic levels or what's the dynamics that will kind of keep us away from that and then similar question on the owned and leased profitability.
As inflation going to hold back the recovery there.
Right so.
Couple of things you are right to point out that nominal level.
Revpar is not the same as real and so when we think about it for example, now the real recovery of Revpar is about three points worse relative to the nominal just because of in 'twenty one.
To your point about inflation at.
At the same time, one of the things I think is what's been so impressive about the operating teams as we used to think about breakeven levels for our full service hotel, a 40 or 50% occupancy and what you're finding is that with the great work that they've done on.
Managing the hotel and dramatically lower occupancies that they've been able to return these hotels to either neutral or profitability at dramatically lower levels of breakeven occupancy and so I think that will really help offset on the inflation side. The other comment I'll make is on the.
The incentive fee side is just a reminder, that it depends a whole lot on where.
So just when you when you think broadly speaking we.
We're at almost 72% of our hotels were earning IMF in 2019, and we are now still a tad under 50%.
And where you see the.
The biggest difference is really domestically in the U S and that is that with owners priorities that is going to mean, you really need to get back to those hurdles of levels of.
Actual real profits before we're going to get.
Our incentive fees now internationally, no surprise, where you've got quite a bit more.
Hotels without the owner's priority there you already seeing dramatically higher percentages of hotels, earning IMF. So I think we've got some great potential in the international hotels, where there has been such restrictions on entering the country and they're more dependent on international travelers.
I think of Asia Pacific outside of China, as an example bear.
And in the U S. I think as you heard me say in our in our comments.
The IMF that we're getting from the resorts that have just been fantastic and in many cases are already above 2019 levels. So when you think about the large cities in the U S and their greater relative dependence on international travel I think it delivers a lot of confidence that we will get back.
I just think predicting whether that is 23 or not is probably a bridge too far but certainly moving in the right direction.
Thanks, and just as a follow up last year, you talked about I'm trying to cut some of the kind of cost reimbursement.
These are for the underlying hotels that the help how that profitability in.
Q4, it looks like that that cost reimbursement revenues about 85% of 2019 levels recovered basically in line with your other fees. So just where are we in that process of sort of lowering that.
Sort of reimburse and contribution from the arenas.
So a couple of things one is a reminder that in.
85% of our reimbursed cost are based on our topline revenues of the hotels. So overwhelming part like for example, our sales and marketing fees are contractually set at a percentage of revenues at the hotels.
So they are by nature going to move up and down the other the other thing is.
To recognize that we worked very hard on.
Certain parts of the fees, where we were able to.
To impact.
The fixed and floating component and so we do believe that there is more efficiency as we grow larger in terms of what we can do for the hotels.
And as an example, when your digital share your direct share of reservations is.
Growing as well as it is it's just a reminder that those are some of the lowest cost reservations for a hotel.
As possible.
But we did lower our fixed costs by roughly 30% for the system, but as I said before overwhelmingly the charges are based on a function of hotel revenues.
Okay. Thanks, Thank you.
Well take our next question from Vince <unk> with Cleveland Research. Your line is now open.
Thanks for taking my question you spoke about delivering the service that the guest expect and when I hear that I think about food and beverage I think about housekeeping I'm curious kind of what percent of the way back you are as it relates to your breakfast buffets and select service hotels three meal a day.
Restaurants in more full service and you can you remind us what percentage of guests are kind of.
Are you on the opt in model and what percentage of guests are opting in for housekeeping.
Sure. So on housekeeping, we continue to evolve our approach today.
Our select tier hotels. It is an opt in approach daily housekeeping is available at the discretion of the guest.
And at luxury we are doing daily housekeeping, we're testing those options today, we're using those learnings to try and strike the right balance between guest expectations and economic realities for the owners and as we work through those tests, we intend to launch.
Definitive approach some time here early in 2022.
Great and how about on the food and beverage side.
What percentage of the way back are you there.
Yes, we're here.
So we're getting there it's.
We are largely back to where we were in the markets that have seen the most rapid recovery. So if you are lucky enough to visit our hotels, particularly in resort destinations youll experience food and beverage services and offerings very similar to what you saw pre.
Pandemics.
An example of that we just had our board meeting down in South Florida.
Most of US had to order in room dining because the restaurants couldn't offer us reservations prior to 10 45 P M and they were full in.
In those markets, where we've seen demand recover more slowly.
We are moderating the pace at which we bring back our food and beverage offerings and trying to have that pace match the pace of demand recovery.
That makes a lot of sense my second question's on distribution with special corporate being down I imagine Otas contribution is up but.
Can you just remind us I think pre pandemic I think you were in the low double digits for Otas contribution what did that end up being in 2021 and then.
I think digital direct channel was growing pretty fast, maybe even faster than I O T. A how has that evolved and where do you see that going in 2022.
Sure.
So I think a couple of things in that and that's just a reminder that in 2019.
You also had special corporate is classically done through what we call GDS and that is what is obviously taken the biggest dip.
So now when you look at kind of their percentage share, they're down 600 basis points as compared to 19 now the otas are up.
With all this leisure business by 200 basis point than they were at 14% in 2021, but at the same time direct share of total room night is up to 76, 3% and that's actually up 340 basis points. So actually our direct channels have grown meaningfully more than that.
Otas the Otas have clearly obviously.
Benefiting from the leisure business.
And GDS.
Classically more related to business travel has been the one that has lost the most share and the only other thing that I'll mention it because I just find it interesting that also within the direct.
Share growth is the movement.
After a voice to digital and I think that all makes sense. When you think about our bond boy.
Technology, and our App and how many downloads we get that our guests are feeling more and more comfortable using the digital channel.
Which again is an incredibly efficient channel from a cost perspective and from a value delivery to the customer.
Great. Thank you.
And we will take our next question from Rich Hightower with Evercore. Your line is now open.
Hi, Good morning, guys. Thanks for taking the question good morning.
So just on the development pipeline and as I think about supply chain delays and alike.
Maybe help us understand if we go back to the beginning of 2021 Whats your outlook was.
Rooms growth at that time, how many of those projects got delayed versus your original outlook in may be pushed into 2022, and then likewise, you know what what sort of.
Cushion do you give to the 2020 to forecast as you think about ongoing ongoing delays and so forth.
Yeah, I'll take a try at that one we may chime in.
Think about it a little bit I think about the pipeline a little like a.
Conveyor belt, we've got some projects one of the reasons that.
Our openings were so strong in the fourth quarter is we saw some projects that in our earlier forecast. We assumed would open Q1, 'twenty two and they actually got done a little more quickly and opened in December .
We do see some delays that come out the back end.
But I think the maybe the most relevant statistics or the pace at which shovels are going in the ground and the lengthening we've seen in the construction cycle you heard leaning in her remarks talk about roughly 24 months start to finish as an average for our select service hotels.
Here in the U S.
Theres not a lot we can do to accelerate that if anything we've got some challenges with supply chain and the like but that 24 month seems to be holding its one of the reasons. We continue to be so focused on conversions in the year for the year.
And.
As Tony said, we do for what it's worth when we build our budget. We do go project by project country by country. So it is a quite detailed estimate but as Tony pointed out there are some that finished a little bit earlier and some that end up being a little bit later and we do our best every year at estimating but.
The other part that I would point out when we talked about where we were at the beginning of 'twenty. One is that we actually expected deletions to be higher.
And I think you all will remember that my comments then reflected.
Probably about 50 basis points of an expected COVID-19 related hedge.
It was hard to predict at that point where exactly.
All of these hotels would would go as we moved through the pandemic and I think happily.
With a lot of work on everybody's part, including the owners and revenue management and on the cost side that.
And the banks have been very good partners to work with as well as we have seen deletions come in better than we expected.
And that has also ended up helping the net rooms growth number even compared to where we were.
Four months ago.
That's really helpful color and if I could just add one follow up maybe back to I think one of your.
Francis on the leisure side.
And thinking about demand and pricing power in that segment, if we look at.
Some of the nontraditional.
Short term rental companies for instance, airbnb and so forth.
Everybody sort of talks about their leisure customer the same way and a lot of this is the business has improved meaningfully with work from home in a hybrid workforce and all that kind of stuff I mean would you say that there is.
More or less or about the same customer overlap as you think about your tour leisure customer versus what we see in the short term rental space and how has that changed over the course of Covid.
Well I think.
If you look, particularly at the performance we've seen in our luxury tier resorts in our full service resort.
One of the things, we hear from our customers pretty clearly.
Is their desire for a full complement of services and amenities and as we've said in response to versions of this question in the past that's probably the most significant differentiator between our product offering in some of the short term rental offerings that are out there.
The thing I'll mention is clearly in the beginning of the pandemic. When you were kind of imagining searches.
More people wanting to get away there.
Roger.
Proportion of searches that were for places that are out of the way truly.
Places, where people felt comfortable going where they could be away from from others and we have seen that gap narrow in terms of the searches for kind of classic.
Room sharing type places as well as hotels, we've seen that gap narrow, which I think makes sense given the.
The progress as we move through the pandemic.
Great very helpful. Thank you.
And we do have another question and that will be from Stephen Grambling with Goldman Sachs. Your line is now open.
Hey, Thanks for sneaking me in on the owned and leased segment can you give us a little bit more color on some of the puts and takes that could impact that segment revpar and margin performance versus the system wide trends in 2022, and maybe even tie in how youre thinking about any asset sales there possible given how strong the transaction market has been.
Sure.
I think on the asset sales, we will obviously continue to be opportunistic Steven and.
It really depends on where the hotel is.
Both in terms of its stage of Capex as you know in a number of hotels that we own we really want to get them to be great representations of our brands and in cases, where the markets are really not recovered we are not going to feel compelled to rush that sale. So in that regard it will really.
<unk>.
Very we've also got JV interests as you know for example, our St. Regis printer meter JV was sold during 2021 that market was doing great. The hotel was in great shape, and we were able to get a really good sales price.
On that asset so I think it really does depend a lot on the situation.
Remember that owns leased also has termination fees and that also.
I would expect not to be growing.
But also to continue to provide somewhere in the ballpark of $40 million in fees a year and then on the owned leased profits I think you will continue to see progress, but do remember that we have a chunk of leased hotels and there you obviously need to get to where you're covering your fixed rent.
To the extent it is fixed rent.
Which will mean, it behaves a little bit more like a U S owner's priority, where you need to get to a floor before you're actually getting any profit. So I think we.
Look forward to seeing the numbers get better and better but in terms of getting back to the full levels of 2019, I think it will take a little bit of time.
Makes sense and perhaps as a big picture follow up Tony now that we're coming up on the roughly one year Mark as you're taking over as CEO I'm curious how you could characterize what are your top priorities are now positioned the company not only for this unique recovery, but longer term and how they may have shifted over the course of the year, particularly given you've met with folks in the field more recently.
Sure. Thanks, I don't think they've shifted meaningfully I mean, I think we are encouraged as you've heard this morning about the pace of demand recovery.
But the priority is really continue to revolve around our key constituents, leading with our associates certainly our guests and as we've discussed at length. This morning, the economic health of our owners.
Awesome. Thanks, so much.
Okay well. Thank you all for your questions. This morning for your continued interest in Marriott and with increasing frequency. We look forward to seeing you on the road. Thanks have a great day.
This does conclude.
This concludes today's program. Thank you for your participation you may disconnect at any time and have a wonderful day.
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