Marriott CFO expects regional business to pick up first
Regional destinations that guests can get to by car will be the first to rebound, the chief financial officer at Marriott International said Monday after the hotel giant reported much lower-than-expected earnings as coronavirus mitigation restrictions ravaged the travel industry.
“We expect demand to return first in drive-to and leisure destinations,” Marriott CFO Leeny Oberg told CNBC’s Seema Mody. “As some beaches in the U.S. reopened, we saw transient bookings increase quickly.”
Marriott said the Ritz-Carlton Bacara in Santa Barbara, California, and hotels in Hilton Head, South Carolina, popular seaside destinations, were expected to reach approximately 50% occupancy based on reservations on the books.
However, Oberg said, “Sustained recovery of travel demand will depend on the continued containment of the virus.”
Shares of Marriott closed about 5.5% lower Monday after the company said it earned an adjusted 26 cents per share in the first quarter, well below estimates of 80 cents per share. Revenue of $4.68 billion beat expectations. Marriott said business was improving in China and stabilizing in the rest of the world, although at extremely low levels.
Recovery in China has been a narrative hotel executives have been hanging their hats on. Marriott, the world’s largest hotel operator, has seen occupancy across the mainland climb from below 10% in mid-February to above 30% as of Monday. Hilton and Hyatt have also reported a rebound in travel in China in recent weeks.
But many experts caution that domestic travel is behind the recent uptick in China whereas in Europe, which is dependent on foreign travel, occupancy is much lower. In fact, Marriott said Europe will be the last geographic region to recover, with roughly 75% of hotels currently closed.
Regardless of region, returning to pre-coronavirus levels will take time, according to conversations with experts and executives.
“So far, group cancellations have been concentrated in the first half of 2020, although we are starting to see cancellations show up for the third and fourth quarters,” Oberg said.
“In North America, 85% of them have been for March through June arrivals,” she added.
Many hotels rely on airlines to drive occupancy and sales, especially in locations that can only be reached by plane. “That non-drive-to demand will also depend on airlines adding back capacity,” Oberg said.
SunTrust Robinson Humphrey, which has been compiling travel trends and data from various firms, sees corporate travel rebounding in a meaningful way after summer.
“I’d say the chatter is the earliest one might see corporate business travel return is after Labor Day,” SunTrust travel and hospitality analyst Patrick Scholes told CNBC over e-mail. “While some states are starting to open up, corporations will be far more conservative regarding sending their employees out on the road just yet.”
“Unlike many states that seem to be ignoring the recommendations of health officials, corporations in the ‘real world’ are following those recommendations,” Scholes wrote.
Looking ahead to next year, bookings are looking far better, Oberg said. “We have not seen meaningful 2021 group cancellations so far, but it’s a fluid situation.”