Marriott’s Premium Brands Are Driving Results. Now It’s Adding Midscale Hotels.
25.08.2023 - 13:06
/ skift.com
/ Sean Oneill
/ Marriott International
One under-recognized reason Marriott International raised its 2023 outlook for profitability on Tuesday was that its hotels are nearly all premium or better.
The vacationers, road warriors, and group meeting planners who can afford its properties were relatively insulated from economic concerns in the past year compared to the population as a whole.
So it’s counterintuitive that the hotelier’s strategy is to expand its share of more affordable hotels — which presumably would expose it to more swings in demand.
The world’s largest hotelier reported strong second-quarter performance.
The company saw operational strength across its portfolio.
Nearly all of Marriott’s more than 30 brands are premium or above, ranging from Courtyard to The Ritz-Carlton. This year Marriott has taken steps to add more affordable hotels one or two tiers down. Called “midscale,” this category means hotels that are fancier than “economy” while still being “affordable.”
A couple of factors drive Marriott’s new fascination with midscale hotels.
There’s something of an irony in Marriott’s move modestly downscale. The more it adds “affordable” properties to the mix, the more exposed it will become to travelers who are less resilient in economic downturns.
Yet it’s been precisely because Marriott’s customer base has been disproportionately more financially robust that the hotelier has been able to outperform many other types of businesses in the post-pandemic recovery. Marriott’s stock price last week hit an all-time high, having rallied 18.6% over the past few months, while the S&P 500 index has risen only 10%.
Suppose Marriott succeeds in diversifying its customer base by adding more affordable hotels. In that case, it will expose itself more to the volatility of travel buyers whose booking patterns are linked to macroeconomic trends. In the next economic downturn, its fortunes might not prove as resilient.
But that’s tomorrow’s problem.
Or perhaps it won’t be a problem. Expect that Marriott executives will make a case to investors during a day of presentations on September 27 about why they believe they will be able, over time, to convert customers who enter the Marriott system by staying at affordable hotels to “trade up” to pricier properties during repeat stays.
Many investors won’t care whether Marriott’s strategic shift toward adding more midscale properties creates complications in the future. They’ll have pocketed any potential price gains thanks to an expected short-term earnings boost from hotel development growth and can move on if necessary years from now.
This handy 20-chart fact-book provides investors the key comparisons of Hilton and Marriott in order to make investment decisions into 2023