Q2 2022 Marriott International Inc Earnings Call
[music].
Is about to begin.
Need audio systems during todays program. Please press star zero.
[music].
Good day, everyone and welcome to the Marriott International's second quarter 2022 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 by pressing star one.
Touchtone phone. Please note. This call may be recorded it is now my pleasure to turn today's program over to Jackie Burka. Please go ahead.
Thank you good morning, everyone and welcome to Marriott second quarter, 2022 earnings call.
On the call with me today are Tony Capuano, our Chief Executive Officer, Lineal Berg, our Chief Financial Officer, and Executive Vice President of business operations, and Betsy Dahm, 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.
Also note that unless otherwise stated our revpar occupancy and ADR comments reflect systemwide constant currency results for comparable hotels and include hotels temporarily closed due to COVID-19.
Revpar occupancy and ADR comparisons between 2022 in 2019 reflects properties that are defined as comparable as of June 32022, even if they were not open and 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 for 2019 are comparing 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 on our Investor Relations website, and now I will turn the call over to Tony.
Thank you Jackie and thank you all for joining us this morning.
We are very pleased with our second quarter results, which were driven by robust demand for our brands around the world.
<unk> for the quarter Revpar in all regions outside of Asia Pacific had more than fully recovered to pre pandemic levels, leading to June global Revpar, 1% above 2019.
Occupancy for the month rose to 71% just five percentage points below pre pandemic levels with global ADR unimpressive, 8% over the same months in 2019.
Demand across all customer segments improved during the quarter.
Record leisure demand strengthened.
Second quarter global leisure transient room nights, 14% above the 2019 second quarter.
Group demand experienced the greatest acceleration in the U S and Canada group Revpar nearly fully recovered in June down just 1% to 2019 compared to down 17% in March group revenue pace for the back half of the year has also continued to improve June .
In the year or fourth year, new bookings were up 15% compared to those bookings in June of 2019.
At the end of the second quarter group Revpar for the remainder of 2022 was pacing just a few percentage points down to 2019, we expect additional short term bookings will further bolster group revenues, which could lead to second half group Revpar in the U S and Canada being even.
To even up slightly compared to 2019.
Our sales team remains focused on driving group average rig which has been steadily rising for new bookings at our hotels in the U S and Canada ADR for in the year for the year group bookings made in January was just about 2019 levels, but by June the rates had risen to up 16%.
Business transient demand also strengthen albeit at a more moderate pace as workers return to the office in greater numbers in the U S June business transient room nights were 9% below the same month in 2019 versus down about 20% in the first quarter.
Do you have a weak trends in the U S and Canada suggests that travelers are continuing to combine leisure and business groups.
Occupancy midweek has continued to recover in June Monday through Wednesday occupancy was still around 10 percentage points below 2019.
Occupancy on Fridays and Saturdays Saturdays.
Fully recovered and occupancy on Thursdays Sundays typically known as shoulder nights with close to 2019 levels.
With nearly all major countries around the world having opened their borders rising cross border travel was another key driver of solid recovery during the quarter. However, cross border travel is still not fully back to pre pandemic levels. So there is still additional upside, especially from greater China, where stringent.
<unk> restrictions remain in place.
While we are closely monitoring consumer and macroeconomic trends, we have yet to see signs of a slowdown in global watching demand on the contrary the pent up demand for all types of traffic the shift of spending towards experiences versus goods sustained high levels of employment.
Lifting of travel restrictions and opening borders in most markets around the world. A few went trap and is leaning will discuss we expect to see continued revpar recovery through the end of the year.
As travelers get back on the road as you get increasing numbers are 169 billion envoy members are more actively engaging with our powerful platform.
Monthly active users of our App digital visits and direct digital bookings, which helped drive the owner and franchisee profitability all reached new highs in June .
Additionally, more members are earning and using points outside of a hotel stay as a result of our focus on enhancing the platform's renewable numerous collaborations.
Number of Bon voyage co brand credit card loan versus climbing globally with card acquisitions and total card spend both hitting record levels in the second quarter.
Remarkably a number of global card accounts rose, 16% from the end of 2019 through the end of the second quarter of this year in July we introduced a new credit card in China and the initial response has been tremendous.
Turning to the development front the pace of deal activity continues to pick up in the second quarter. We signed another 135 deals a second quarter record following a record first quarter.
Additionally, despite supply chain issues labor shortages cost inflation and rising interest rates the number of deals falling out of the pipeline remains below historical levels.
Interest in conversions remains particularly strong given the breath of our roster our conversion friendly brands across chain scales as owners continue to seek out the meaningful top and bottom line benefits associated with being part of the Marriott portfolio.
Conversions represented 30% of room signings in the quarter in the court one win to highlight some recent landmark agreement for eight hotels in Vietnam within Perl, our new owner to our system.
The deal includes six conversion hotels that are expected to add 1700 rooms to the system.
Conversions also represented 25% of the roughly 17000 rooms added to our system in the quarter.
While construction timelines have lengthened a bit this year with most markets due to supply chain disruptions and labor shortages, we still expect the number of room additions to ramp in the second half of the year.
For the full year gross additions are still anticipated to approach 5%.
Given our announcement several weeks ago that we are suspending all operations in Russia, We now expect a one 5% to 2% deletion rate for 2022.
While our expected expectations for deletions outside of Russia remains at one to one 5% the deletion of 6500 rooms in the country represents almost half a percentage point now.
Now as a reminder fees from Russia represented well under half a percent of global fees. In 2019, we have not been recognizing fees from Russia for many months now and the financial impact of these rooms, leaving us to minimums. So our net rooms growth for 2022 could now be three to three 5%.
Or three 5% to 4% a form of factoring in the deletions in Russia.
We remain confident that over the next several years, we will return to our pre pandemic mid single digit net rooms growth rate.
Timing, but largely depend on when new construction starts which have trailed well below 2019 levels for the last two years really begin to accelerate particularly here in the U S. Construction timelines in the U S are currently just over two years for a limited service hotel and longer for full service properties.
Looking ahead with the largest footprint in the industry strong owner of affinity for our brands and the improving global travel environment I am bullish about the company's future growth prospects for development and for the company overall.
I want to take a moment and thank all of our associates around the world their commitment to taking care of our guests has helped produce our outstanding results and I am so very proud of their dedication and resilience and now I will turn the call over to leading to discuss shock discuss our financial results in more detail.
Thank you Tony.
Global Revpar continued to rebound sharply and Marriott reported outstanding financial results in the second quarter record quarterly global fees and adjusted EBITDA were both 7% above the same quarter in 2019.
Second quarter Global Revpar was down only 3% compared to pre pandemic levels looking at the regions in the U S and Canada Revpar came in ahead of our expectations largely due to stronger than anticipated growth in ADR and group demand compared to 2019 Revpar in the U S.
And Canada was up 1% in the quarter and up 3% in June .
It has improved each month this year, reaching 9% about pre pandemic levels in June .
Occupancy further strengthened from the first to the second quarter on both an absolute basis and versus pre pandemic levels June occupancy of 76% was within four percentage points of the same month in 2019.
In June U S and Canada, Revpar more than fully recovered across all market types primary secondary and tertiary for the first time since the pandemic began.
<unk> has been very encouraging to see demand come back so powerfully in major cities like New York, where Revpar increased 7% versus June 2019.
When borders opened in Europe , the room nights from international guests more than doubled in the region from the first quarter to the second with this strong return of international travel Europe has experienced the swiftest revpar recovery of all of our regions. This year Revpar in Europe topped 2019 levels in June are remarkable.
57 percentage point increase from January <unk>.
Cross border travel also helped drive strong second quarter results and the Middle East and Africa and in the Caribbean and Latin America area.
Second quarter, Revpar rose, 16% in EMEA and 13% in calendar compared to 2019.
Asia Pacific, Excluding China saw rapid Revpar improvement during the second quarter as the region is now mostly open with India and Australia more than fully recovered second quarter Revpar was down 22% compared to 2019, given the lack of travelers from greater China and the <unk>.
The rigorous travel restrictions remain in place in Japan, one of our largest markets in the region.
Greater China continues to lag the recovery of other regions due to its strict zero COVID-19 policies revpar during the quarter declined more than 50% compared to 2019 as a result of the lockdowns in many cities, including Shanghai Beijing.
Total company gross fee revenues totaled $1 1 billion in the quarter, driven by higher revpar rooms growth and another quarter of significant growth in our non revpar related franchise fees.
Those fees totaled 204 million in the second quarter, driven largely by growth in our co brand credit card fees, which rose a remarkable 38% year over year.
Incentive management fees or IMF increased meaningfully in the quarter, reaching $135 million over half of our IMS came from U S and Canada, where we earned more <unk> than we did in the second quarter of 2019.
At the hotel level working closely with our owners and franchisees to contain operating costs, while delivering superior customer service remains a key area of focus.
Margins at our U S managed hotels were three percentage points higher than 2019 levels in the second quarter, despite meaningful wage and benefit inflation, we are keeping an eye on wages and benefits as industry staffing challenges persist in certain markets. Yeah, we remain optimistic that.
Our cost reduction efforts could offset this inflation in future years.
G&A and other expenses totaled 231 billion in the second quarter, primarily due to higher incentive compensation accruals as well as increased travel expense.
With Covid now essentially endemic global global borders overwhelmingly opened and business somewhat more predictable, we're providing guidance for the third quarter and the full year. The full details are in our press release, there is still a higher than usual degree of uncertainty in our outlook, especially as it relates to greater China.
But we are encouraged by the positive momentum and demand across customer segments and robust ADR is that in the vast majority of markets around the world.
We expect the global Revpar recovery to continue each quarter through the end of the year, driven by improving occupancy and ADR compared to 2019 in both the U S and Canada and internationally on a worldwide basis compared to 2019, we could see revpar flat to up three.
Percent of the third quarter and down six two down 3% for the full year compared to 2021 global Revpar in the third quarter could be up in the mid 30% range and for the full year it could be up around 50%.
For the full year, we're now anticipating G&A expenses of 890 to 900 million due to higher compensation accrual accruals as well as travel expenses, but still well below 2000.
And we expect adjusted EBITDA of three 7% to $3 8 billion above our prior full year peak in 2019.
We now expect full year investment spending of $600 million to $650 million. Our guidance now includes roughly 200 million for maintenance capital and our new headquarters loyalty is still expected to be a slight use of cash for the full year before factoring in the reduced payments received from the credit card companies.
At the end of the second quarter, our leverage was in the low end of our targeted range of three to three five times adjusted net debt to adjusted EBIT Dar we.
We resumed share repurchases during the quarter and have already bought 448 million of stock as of July 29. In addition to paying our dividend in the second quarter and <unk> 30 per share.
Our capital allocation strategy remains the same we will make investments that enhance our growth and increase shareholder value, while returning any excess capital to shareholders through a combination of a modest cash dividend and share repurchases, we remain committed to our investment grade rating.
Given our outlook for further global recovery and our powerful business model that is generating significant cash beyond our investment needs. We expect to return more than $2 2 billion to shareholders. This year. This level of capital returns is included in the guidance we provided today.
Looking ahead, I'm very optimistic about our future Marianne is incredibly well positioned given the breadth and depth of our unparalleled global portfolio are powerful Marriott envoy loyalty programs and the best team in the business, Tony and I are now happy to take your questions operator.
Yeah.
Okay.
At this time, if you'd like to ask a question. Please press star one on your Touchtone phone you may remove yourself from the queue at any time by pressing the pound key once again that is star one to ask a question.
Our first question from Shaun Kelley from Bank of America.
Hi, Good morning, everyone I wanted to go ahead.
Wanted to start off.
Pretty much where you left off Leidy on capital return program I feel like once every 10 years or so we get this quarter, where everything kind of comes together on that and obviously, it's a major increase from where we found ourselves at just a quarter ago could you talk about the levers there and then sort of where does this take you as it would relate to you.
Your longer term goals around your your your leverage range does this keep your solidly in the middle of that do you.
Or where would it put you relative to that kind of at the at the end of the year and maybe.
Give us a little teaser for what what this could mean for 2023 as well.
But you know Sean I think you said it best in your question, but it really is back to where we were in terms of the way that the model fundamentally works as I said in my statement.
We are.
At the low end of the three to three five times adjusted debt to EBITDAR at the end of Q2.
And we've given you a model that keeps us squarely in comfortably in that range and we obviously want to keep our flexibility both.
Both in terms of investment opportunities as well as taking advantage of our excess available cash. So I think you'll continue to see us work move forward with with the exact same approach that we've taken for some time.
Great and maybe just as a very quick follow up.
Tony you have a lot of great color, just kind of walking us through group leisure and a little bit on the business transient side, particularly the day of the week commentary could you just talk specifically around leisure Theres a lot of fear out there around the ability to lap.
On the incredible rate gains that have occurred just what are you seeing maybe across some of the resort properties or areas, where you know that the recovery happened a little faster in consumer demand patterns have changed any signs of weakness or softness that would concern you at all at this stage.
Thanks, Sean the the short answer is not really the already robust leisure demand that we've seen in the last couple of quarters continue to improve.
Leisure room nights were up 14% to 2019 in the quarter and they were only up 11% in the first quarter. So we continue to see acceleration.
And we continue to see more and more of this blended trip purpose in my remarks, I talked a little bit about day of week patterns and so I think that's quite encouraging us to us as well and then finally, we've not talked a lot about international cross border travel while were seeing improvement we're not back.
Where are we worked REIT, Devon, and we think that represents some upside on the leisure.
<unk> as well.
And then the last thing I would say is.
All of those are comments about demand levels, we continue to see really encouraging pricing power on the leisure side as well, it's a little early to talk about the winter holidays, but as we look at Labor day for instance, we continue to see double digit increases in ADR.
Relative to where we were pre pandemic.
Very helpful.
Well thank you both.
Thank you Sean.
Our next question comes from Joe Greff from J P. Morgan.
Hi, good morning, everybody.
Hi, Joe Hi, Joe.
Tony I was I was hoping maybe you can give us some sense of corporate rate.
Negotiations for 2023 corporate rates.
Over the last couple of years, they've been sort of non event because corporate demand has been relatively low.
How are you thinking of of corporate pricing.
And maybe how are those negotiations you know different now versus what they had been in the past.
Of course, so as you know.
For business transient we rolled over our special corporate rates since the beginning of the pandemic.
Just now starting the negotiation process for 2023.
And so again, it's early but we can certainly imagine those rates being up high single digits year over year in 2023.
Great.
And then Tony just switching topics you mentioned about net rooms growth accelerating and this is before the impact of Russia, which.
Looking at it as sort of a one time thing, but when you look at 2023 2020 for 2025.
Room's growth and during some period seeing it accelerate.
From where you are now does that require more meaningful.
Financial assistance for Marriott to third party hotel owners or is that just a function of kind of getting through.
Sort of a longer construction timetable.
I think much more the latter now I was quite thrilled with our conversion volume both on signings and openings in the second quarter. It is a competitive market for conversions I'm quite pleased that we had more conversion openings than any of our peers in the quarter.
And we'll continue to try to do smart conversions.
Each means we'll use the same capital discipline.
Come to know us for even pre pandemic I think to really see acceleration and this is an industry comment as much as a marriott comments, particularly in the U S. You have seen a slowing in construction starts.
Just over the last quarter, we have seen that start to tick up although not to levels. We saw in 2019.
But I think we will do our best to continue to drive conversion volume and do everything we can to get shovels in the ground you may know that.
I had the privilege to spend a little time with.
With the administration last week and one of the things that we spoke to the administration about was seeking assistance to resolve some of the supply chain issues that continue to slow some of the construction starts.
Joe just to one one follow on we've talked about two record quarters of signings. So far this year and to your specific question.
They did not involve a greater than usual element of capital from Marriott for those signings.
And then maybe just to put a fine point on your question Joe.
Our confidence in our ability to get back to that mid single digit net unit growth. There's a couple of things in the release. The fact that we had quarter over quarter growth in the pipeline. The fact that we continue to have more than 200000 rooms globally under construction and that we continue to see.
<unk> volume in both signings and openings on the conversion front combine to strengthen that confidence.
Excellent color. Thank you.
Thank you.
Our next question comes from Patrick Scholes from tourists Securities.
Hi, good morning, everyone.
Good morning.
A question for you on the <unk>.
Back half guidance or implied back half guidance.
You say that.
His hire same.
While at the same then your internal assumptions as of last May last earnings.
Yes, it is theres no doubt that the recovery.
<unk> has accelerated faster than.
And then we had originally anticipated and I think it's both in rate and Ark in various parts of the World I think the cross border.
It has been obviously incredibly encouraging to see that that pop to Europe . As an example, meaningfully faster than expected, but but yes, I think it is stronger than our expectations. Both a quarter ago, and then frankly, a quarter ago was better than we expected a quarter before that.
Okay great.
Your question.
This goes back to the lingering one about what percentage of business travel maybe permanently gone in.
And in my data research for the higher end customer look like that.
Down 20% to 25%, but.
But my question with that is how much do you think that.
That higher end customer you know it has shifted to Thursday and Sunday night.
And how much has the smaller and medium sized businesses, you know offs offset that perhaps a loss from the higher corporate customer.
Well Theres no question that the rapid improvement in Occupancies in the shoulder days has been a maybe a bit of a surprising but encouraging development.
When we think about business transient demand.
The small and medium size businesses. They are back they are backup of 2019 levels of volume as you point out are the bigger corporate customers are they are not quite back yet, but even there we continue to see a steady improvement, albeit not necessarily as rapid as we might like.
Okay.
Okay. Thank you very much.
Thank you Patrick.
Our next question comes from Robin Farley from UBS.
Great. Thanks, two questions with them.
On group for 2023 are.
Are you starting to see that I think a quarter ago. It may have been down 10 or 15% below.
Group in 2019 at the time for for 2020, just what if you're starting to see.
Hey.
Groups sort of stepping up a little bit more because it seems intuitive at some point that that could actually be higher than 19, but I'm wondering if how it is shaping up right now.
Sure. So maybe I can give you a couple of statistics and leaning may provide some color as well.
But when we look at bookings for 'twenty three.
During 2022.
We are down.
Down about 2% in revenue versus where we would've been a for the bookings in 2019, but interestingly ADR is up 16%. So we continue to see that strong.
Pricing power and and we're even more optimistic Robin as you heard in our prepared remarks, because of the shorter booking window and route even through the back half of this year and most certainly into 'twenty. Three we expect those numbers to continue to improve as we see more and more short term book.
Yes.
So Robyn plan a couple a couple of comments.
Thank the major theme, we've got is in the quarter for the quarter in the year for the year.
Yeah.
In June the benefit of that really got us to where group Revpar was only down 1% in the months. So when we look at the rest of this year for what's on the books.
Currently we are seeing low single digits for the rest of this year in terms of group revenue. While next year, we're still kind of in that you know.
15% down, but I think you need to continue to think about this booking pattern, which is much closer to the actual event.
That has been filling in really nicely. So it's not that different for 23 versus a quarter ago.
Except for what we're seeing in the quarter for the quarter and even in the back half of 'twenty. Two we're seeing some really great fill in business that has got is pretty close to 19 levels, where we could end up actually exceeding 19 levels in the back half of this year.
And that's that's exceeding in terms of rate not necessarily group room nights, but just in terms of total group revenues.
And that's that's total that is definitely in total group revenue again.
It's obviously, where we're seeing it fill in is not just rate. It's also ark as as we fill into a business, but but you're right.
The rate on group has been performing incredibly well.
Okay, great. Thank you and then just the other question was on <unk>.
In terms of conversions.
Which seem to be doing really nicely.
Is this I guess, how long do you think.
We'll be sort of a tale of conversions that are a result of the pandemic in the downturn from what you've seen historically.
When there are downturns kind of how how.
Much after in other words is it sort of.
A year of higher conversions.
A year out or two years I guess, how should we think about.
What trajectory the conversion demand.
We follow I continue to be quite bullish robin on the trajectory of conversions for a few reasons.
Number one on.
Unlike some some conventional count terms, we've experienced in the past where early in the downturn you saw a lot of distress.
The impact to our business was so severe that you saw the lenders being much more creative and accommodating with owners. So you didn't necessarily see.
Florida distressed assets changing hands in the market as demand and performance have recovered there is the potential that there may be more assets in play number one.
Number two there.
The portfolio of conversion friendly brands, we have particularly our soft brands tribute autograph and luxury collection is more robust.
Then we've ever armed our trans actors in any other.
Recessionary environment and I combine those two factors and it drives my bullishness about that trajectory.
Great. Thank you.
Of course.
Yeah.
Our next question comes from Smedes Rose from Citi.
Hi, Thanks, I just wanted to ask you sort of conceptually is the recovery kind of continuous which so far it's been driven by such strong rate, which we've seen a great kind of flow through to owners.
With lower Occupancies, but you know as the world sort of continue to normalize hopefully.
Sure would you expect to see occupancy get back to pre pandemic levels and potentially.
You know maybe a significant slowdown in REIT in order to get there or do you think there's just sort of a structural change where owners are like you know, we're going to charge higher rates, even if it means sacrificing occupancy.
Kind of simple.
As leaning mentioned in response to an earlier question. We do believe the recovery will continue to be driven by both occupancy and rate. You also heard her refer a bit to some of the murky to us beyond the end of the year, but we do expect both occupancy and rate continue to improve through the year.
End of 'twenty two.
We continue to be pleased with the pace of rate recovery through the first half of this year.
So one other comments needs and that is.
The numbers are right has not.
Kept up with.
Kind of real.
Right. So in that regard I think while it's fabulous and where we're thrilled to see.
The consumers love traveling and don't want to put it off at.
The reality is that that there is inflation in that we are pricing these rooms.
On a very frequent basis and that's on real rate basis. They are not.
Back to 2019 levels.
Okay. Appreciate it thank you.
Thank you.
Our next question comes from David Katz from Jefferies.
Good morning, everyone. Thanks for taking my question.
I wanted to just good morning.
I just wanted to drill down a little deeper on for corporate travel. If you could color is in just a little bit.
Theres so much Dave.
Data and news for out there about.
Certain cities versus others urban versus non urban corporate is there anything that you can share that you've you are picking up in your flow.
With respect to urban versus not and those various segments.
Well, what I can tell you some of this may be a little more anecdotal but.
The early days of a recovery, we're clearly dominated by leisure destinations trade.
Trailed significantly by what we saw in the urban core.
Many of the major urban markets across the country and across the World. We continue to see a reasonably steady and encouraging improvement in terms of both occupancy and rate.
Okay.
And we hear anecdotally from our corporate clients, we're seeing more and more return to the office, which is driving business demand.
And when we look at some of the big.
Our major markets that I think are decent indicators for us.
Look at New York for instance that had an 86% occupancy in the quarter.
You look at.
San Francisco, 78%, Washington D C, 76%, Los Angeles, 80%, you are seeing steady volumes of demand recovering in many of those markets that were trailing the leisure destinations.
Understood and just as a quick follow up.
Linear in your comments you made are I think kind of a passing comment about labor.
And if you could go just a little bit farther.
As to whether you are still seeing wages continue to increase.
Whether there.
Flat or taken some other direction and within that.
The international element within the United States and the degree to which that Labor force is starting to return.
Or whether it hasnt, yet and what those outcomes might be it would be helpful. Sure.
Yes, we are seeing.
Continuing to see hourly wages go up and when I look at it compared to 19 are the reality is overall and this comment is actually regarding the U S and Canada.
Then it is it has kept up with inflation, if not just a teeny bit higher than that.
Yeah.
That slowed the pace of increase has slowed.
One of the things that I think is interesting is to look at the.
Physicians that we're trying to fill if for example normal staffing levels were that we were all we were trying to fill the final 95% to 100% of the positions we needed at the hotel level right now we're at 93%. So it's definitely improved it is not back to where we were in 19.
Gene in terms of the labor shortage.
But we're definitely seeing steady improvement and the wage increases have slowed outside the U S. It's much more varied really depends on the particular market and I would say Europe , probably has seen some more similarities to the U S. While in Asia Pacific for example.
There's really been far less of the kind of pressures that we've seen in the U S.
Understood Thanks very much.
Yeah.
Our next question comes from Brent mature from Barclays.
Hello, Good morning, everybody. Thanks for taking my questions.
Curious if you could unpack a leisure demand a little bit more and maybe let US know if you are seeing greater dispersion.
And pricing elasticity between your luxury your luxury end in your more middle more middle brands.
Okay.
So a couple of things one of the easiest ways to think about luxury is that that rate has continued to stay very strong.
But what we've also seen is that the markets that were previously weaker like a new York or San Francisco, the luxury hotels in those markets.
Are now filling yet they on average are not necessarily quite as high as in some of the resort markets. So it actually makes it look on a blended basis like the gains in ADR in luxury are not as strong well while the reality is it's just the opposite that there.
I think one of the most encouraging things to see is that the overall luxury portfolio.
<unk> is continuing to gain at both <unk> and rate.
And then as Tony was talking about earlier I think it's also particularly encouraging to see that the premium market.
It's the Sheraton renaissance's are in kind of all markets really are recovering now more in the second quarter meaningfully than they were in the first quarter.
So we really don't expect that we are depending on a continued additional ADR gains in luxury three.
Through the rest of this year, but we do continue to see really strong demand. So I think it is this.
It floats all boats.
In view of what we're seeing which is demand across all segments continuing to strengthen and I think just to give some context to that.
We still saw in the second quarter in the U S and Canada luxury rate up 23% in the quarter versus 19.
So lots of questions around how much runway we have for luxury.
Another really solid quarter in terms of the luxury pricing.
Okay.
That's helpful. Thanks for that and then just to follow up on on business travel.
When you think about your large portfolio of corporate accounts I was just curious if you could give us a sense of how much of your demand mixes.
Earlier stage companies within technology biotechnology.
And other other slices of the corporate world that that could potentially be Iranian expenses faster than average.
Okay.
Yeah, So maybe I'll try.
<unk>.
Smbs represent now about 60%, 65% of our business transient demand, which is a bit higher than what we experienced pre pandemic.
The bigger corporate clients continue to steadily improve and over time, we expect to get caught maybe not all the way back but closer to where we were in terms of the mix of SME.
<unk> versus large corporate clients, but right now it's in the 60% to 65% range that is the category I think you were talking about.
Okay. Thanks, so much Tony I appreciate it and we of course.
Yeah.
Our next question comes from Michael <unk> from Baird.
Thanks. Good morning, everyone first just a point Michael just a quick modeling question I think you've given the sensitivity of $25 million to $30 million of fee revenue for one point change in Revpar. What is that updated range and then how might that ratio change looking out to 2023 and a more normalized growth.
<unk>.
Yes sure.
Compared to 'twenty, one, it's $25 million to $30 million.
Per point of Revpar in 'twenty two versus 21, we're.
We're not in a position yet to talk about 23, all of that budgeting work, but I you know I would expect it to continue to.
To be somewhat similar.
There is as you know depending on what part of the world.
The improvements happen, it's obviously more per point of Revpar compared to 19, you get into the weeds on differences in comp sets et cetera, but it is probably closer to 40 million per point, if you're comparing a point of revpar in 'twenty, two or up to a point of Revpar in 19.
Got it that's helpful. And then just one follow up on group.
Can you maybe provide some details on what group planners are asking for differently today, and then maybe how booking patterns are either the same or different today versus pre pandemic.
Sure again, this will maybe be a bit anecdotal.
Just held the event called the exchange, which was where we hosted about 500 corporate and association meeting planners are in general sessions and in some smaller executive forums, we got a chance to talk to them.
Essentially asks the question you just asked I would say the two themes I heard most notably.
Number one they gave us high marks for our flexibility on issues like attrition during the pandemic.
And I think they are hopeful we would continue to show that level of flexibility into perpetuity, which as demand improves we are tightening up a bit and I they understand that intellectually there just.
Wishing for the good old days, where they had maximum flexibility. The other theme, we heard loud and clear is an increasing focus on the company's efforts around all things ESG and an increasing number of our both corporate and association booking contracts they are asking for.
For not only our publicly stated goals, but for reports on our progress against those goals.
And just one other interesting stat that I think is helpful is that length of stay for.
It's up almost 25% compared to 2019.
As is the average size for new bookings. So again I think this all continues to emphasize that.
Association's companies organizations.
Wanting to get their people together.
And then one final point that I forgot about from some of the conversations at the exchange.
Asked us from a technology perspective to do everything we can to make it easier for them to tack on a couple of leisure days to their reservation pre or post meeting, which was just another confirmation that this idea of blended trip purpose will likely endure well beyond the end of it.
Yeah.
Very helpful. Thank you.
Okay.
Our next question comes from Richard Clarke from Bernstein.
Hi, Good morning, Thanks for taking my question just a first one on China to what extent is China.
<unk> environment now for signings, but not a normal environment for construction. So how much of that is the bridge back to your mid single digits unit growth, you're expecting to get back to you.
So.
There's a couple of questions embedded there I think our deal volume and our openings are off peak, but they are steadily recovering.
The vast majority of our operating hotels and the vast majority of the projects in our pipeline are domestically owned and so those domestic entities continue to benefit from the central government encouraging domestic travel across China and many of those hotels are benefiting.
From increased volumes of domestic travel, albeit.
Some pauses when certain markets go into lockdown and so our expectation is a steady improvement, but we have not embedded in our guidance any sort of wholesale lifting of the zero policy that we've seen over the last couple of quarters.
Okay. Thanks, so much maybe just a quick quick follow up if I may I noticed youre kind of capital returns guidance says that depends on whether you do any disposals. This year I mean is that like clear you're looking at the owned portfolio again are there any potential disposals to come.
We're always looking but the numbers that I gave do not assume any additional asset sales this year.
Yes.
Okay. Thank you Raj.
The next question comes from Ben side telephone Cleveland Research.
Great. Thanks, I'm really encouraging to see margins ahead Imf's ahead. It sounds like cost reduction efforts are certainly helping to offset the labor wage pressure, but as you dig into that I'd be curious, how you're thinking about the customer experience from the average bond void guest.
Theres been some surveys out which can be lagging I'm talking about how the consumer feels about scaled back breakfast offerings changes in housekeeping. So as you look at things more recently, how do you think the guests this feeling today versus summer of 2019.
I would say, it's very much a work in progress, but we are really encouraged by the metrics that we monitor through our guest satisfaction surveys in particularly the intent to return numbers, we're not quite back to where we were pre pandemic, but we have made meaningful and steady.
Progress on those metrics as you may recall from some prior earnings calls in the depths of the pandemic, we suspended some of those quality.
<unk> those are all back in place now brand.
Standard audits, our guest surveys and the teams. We just went through our quarterly business reviews. All of our teams around the world are keenly focused on driving and tend to return and we're pretty encouraged and I think.
It's reflected in the manner in which our most loyal Bon voyage.
Customers continue to engage.
Our top tier within bond boy. The ambassador tier has remained very active 96% of our ambassadors had at least one stay or points transaction in 'twenty. One they averaged about 100 nights and we see those metrics improving as well.
We have rolled out our new housekeeping protocols and the early returns from our guests as they like the certainty.
That that offers.
Okay. Thanks for all that color and then separately on distribution encouraging to see loyalty contribution exceed 19 levels digital bookings hitting all time high I'm curious, how you're thinking about kind of the next 12 months that ideal distribution mix between corporate grew.
<unk> and leisure as some of those buckets or are starting to recover more fully when we consider ADR differentials between those three and then maybe day of week occupancy needs.
How are you planning the business.
Over the next 12 months and maybe within that how are you thinking about otas as a percentage of the mix going forward.
So maybe I'll go in reverse order.
Pre pandemic are looking at a year like 19th we have seen steady.
Adoption and the percentage of total room nights that came out of the Otas.
During the first two years of the pandemic as you might expect we saw O T. A volume rise, but direct bookings rose more rapidly and I think it's reasonable to expect in the coming quarters that we would start to get back to the trend line. We saw threep endemic of the total volume of OTA.
<unk> contribution moderating I think your first question was really more around mix by segment.
Back in 19 in round numbers about 40% of our business was leisure.
37% was business transient, 20% was group and 4% was contract.
In the second quarter business transient had risen to about 32%.
Leisure transient was 43 group was 21 and contract was pretty steady at 4%.
But remember the leisure segment was already our most rapidly growing segment, even in 2019 before the pandemic hit.
And we continue to see expect to see leisure to grow rapidly and as I've said in some previous calls at this blending of trip purpose may make it that much tougher for us to tell you with absolute precision what that mix looks like.
And I think to your question about revenue management strategy as we think about going forward.
It has been very.
Very encouraging to see the strength of group and the strength of group right.
So as we think about all the possible outcomes for the economy over the next couple of years that strength in group is quite encouraging.
And then obviously on the transient side the booking window. There is about three weeks, so that that tends to which is frankly back to about where it was at 19.
And that will vary.
With customers' needs and wants as as we see things unfold.
Yeah.
Thanks for all that detail all makes sense.
Our next question comes from Bill Crow Territory Creston from Wells Fargo.
Hi, Thanks, good morning, everyone.
Can you provide enjoying your REIT.
Hey, how are you.
And can you provide more details on cross border travel regionally Hum, leading and lagging outside of Asia Pacific as compared to 19.
Any changes you've noted in spend.
Sure so so.
Let's talk Super high level that first which is that if a pre pandemic we were in call it 18% to 19% sort of cross border travel around.
Around the world that that number of cell.
And you know.
It was down in the you know a little bit north of 10% and then has has clearly moved back up several hundred basis points, particularly as we got into Q2.
But we are not back to the same level of cross border travel, obviously, particularly with Asia Pacific and greater China still being a very much domestic travel based the thing I did find interesting in Q2 in the U S was that we were pretty close to being back to the number of.
<unk> the percentage of international nights are we where our pre pandemic at 5% in Q2, we were at 4% I'm coming from cross border travel I think the biggest shifts that you saw was obviously.
Partly a function of the opening.
Kind of more comfort travel and then the strong dollar and that had a massive impact on.
Europe in the summer and you saw a very large influx of U S travelers coming into Europe , which helps their revpar tremendously.
And I might just add on that jewelry.
Was just towards the tail end of a quarter, where you saw the U S government rolled back the inbound international testing requirement and we think that's going to be another accelerant for cross border travel.
In fact, right after that policy change was announced the USDA came out and estimated that they thought that would drive five 4 million incremental visitors to the U S. In the back half of the year with about $9 billion of spend.
Yeah.
Okay. Thank you so much.
Yeah.
Okay.
And next question comes from Bill Crow from Raymond James.
Hey, good morning, everybody.
You talked about the murky.
You talked about the murky to us beyond the end of the year, but I'm just curious how much visibility do you actually have been able to labor day.
Well again as we talked about before are you you've got the the short booking window on transient, but you've also got holiday bookings you know when you look at December when you look at Thanksgiving Columbus day, as well as Labor day.
And I think across all of those we continue to be.
I'm reminded that people are not willing to give up travel and that youre seeing it in the strong rate and strong early bookings for for those periods.
They are obviously overwhelmingly leisure bookings.
And group also continuing to fill in very nicely. So I think we will.
When we look at what's on the books as we move into.
Either even September and October while you're right that the percentage that is on the books is is still relatively low on the transient side.
Pace of those bookings is very encouraging.
And then if I could follow up on that on the holiday bookings.
It's interesting Wyndham talked about Florida.
Revpar being down double digit comp.
Compared to 2021 in July .
And I'm curious if we were to look at it on a one year basis instead of going back to 2019.
What your thoughts are on it.
Holiday bookings.
You know I'd have to I can get Jackie and Betsy to get back to you on the specifics for December 22 versus December 'twenty, one I think again the.
The overall comment that I'll make is that we continue to see really strong bookings for the end of the year one of the things that I talked about in luxury is the reality.
That as you see some of the other luxury market start to fill in that aren't necessarily as high ADR as some of the resorts.
Starts to muddy the waters, a little bit, but that's a good that's a good issue.
Remember that right now the percentage that is on our books for that period is probably under 5%. So its really quite small and making big sweeping statements with that small amount on the books, probably doesn't make sense, but when we think about the pace.
For the holiday periods, we continue to be really encouraged.
Yeah, that's perfect and if I could just ask one quick question on the on the development side and any change in the composition of the signings save from full service to select service given construction cost than financing environment.
On the siding side, we've seen a bit of a slowing in.
Our.
Our select service here in the U S. But some of that may be because the high volume of conversions are disproportionately full service what I can tell you is in terms of monthly.
Approval volumes coming out of our our development committees.
We are seeing exactly what we would've expected, which is our large multi unit long term developers and owners of select service hotels gearing their development organizations back up and that's driving the sort of approval volume we've seen through the first half of the year.
Terrific. Thank you for your time.
Of course.
And our last question comes from Duane <unk> from Evercore ISI.
Hey, Thanks, Thanks for taking the question and most have been asked but just just on group recovery.
Can you contrast, the type of group events that happen in a month like June .
Group events that happen in a month like September in a sense business was competing with leisure this summer.
And I think you threw out the June down two on group relative to 19.
Would you expect that down to kind of maintain or would you expect that gap to hold or narrow as we get to a more business dependent period like September . Thanks, Thanks for taking the question.
Yeah.
So I'll just give you.
One comment.
Aye.
I think the shift won't be a massive shift I think theres still going to be a lot of social group events going into the fall as well.
So when we look at what's on the books.
It was only down 1% right now for Q3 and here we are.
You know barely into Q3, so I think we as we said before we've got the possibility that actually crude ends up higher.
Higher than 2019 relative.
So Q2, when it was still down a little bit. So you know we.
We are seeing great demand on the part of corporate customers forgetting their people together and I think youre going to continue to see the social events as well.
So I wouldn't necessarily.
No a huge swing based on your comment that it then it is more business oriented.
Quarter. The only other thing I will point out is that August is typically a seasonally quieter month for us and group just because of the realities of a family vacations and people not being in school. So I think August two you should expect what we've always seen which is a.
Relatively seasonally more light period on the group side.
Thanks very much.
Yeah.
Yeah.
Yeah.
Yeah.
And that is all the questions. We have I will now turn the conference back over to our speakers.
Well. Thank you all for joining us, it's a compelling and exciting story about the resiliency of travel and the resilience of Marriott's business models. We look forward to seeing you all on the road soon and thanks again for your interest.
Yeah.
This does conclude today's program. Thank you for your participation you may disconnect at any time have a great day.
Okay.
Hum.
Hum.
Okay.
Okay.
[music].
Hum.
Hum.
Hum.
Hum.
Hum.
Hum.
Hum.
Yeah.
[music].
Okay.
Okay.
Okay.
Hum.
Okay.
[music].
Mhm.
Okay.
[music].
Hum.
Hum.
Okay.
Hum.
[music].
Okay.
[music].
Okay.
Hum.
Hum.
Hum.
[music].
Hum.
Hum.
Hum.
Hum.
Hum.
[music].
Okay.
Okay.
Hum.
Hum.
Right.
Hum.
[music].
Mhm.
Yeah.
Okay.
[music].
Hum.
[music].
Okay.
[music].
Sure.
Hum.
[music].
Hum.
Hum.
Hum.
[music].
Yes.
Yeah.
Hum.
Hum.
Hum.
Hum.
Yes.
Hum.
Hum.
Yeah.
Okay.
Okay.
Yeah.
Hum.
Hum.
Hmm.
Okay.
Okay.
Uh huh.
Yeah.
Hum.
Yeah.
Okay.
Okay.