Marriott International CEO Arne Sorenson said last week that
a larger loyalty-program base, lower costs and better cross-marketing among its
30 brands will enable the world's largest hotelier to offset the impact of
flattening demand, an increase in room supply and the challenges of integrating
the 11 brands that formerly constituted Starwood Hotels.
Sorenson said that only 16% of the combined 85 million
Marriott Rewards and Starwood Preferred Guest loyalty members belonged to both
programs, giving the company an opportunity to gain substantial incremental
business. He also said that Marriott will cut costs at both the corporate and
property levels, primarily by negotiating more favorable OTA agreements for the
former Starwood properties. Such cost-cutting will be essential, as Marriott is
poised to expand its presence, both via room numbers and brand count.
While Marriott and the former Starwood properties will now
account for about one in seven U.S. hotel rooms, the combined company accounts
for more than a third of the domestic development pipeline. Globally, Sorenson
forecast that next year Marriott will boost its room count, which currently
stands at about 1.2 million, by 6%, or about 70,000.
Marriott is tasked with overseeing a glut of brands,
especially in the upper-upscale market where Marriott legacy brands, such as
its eponymous badge and Renaissance, had competed against Starwood's Westin and
"If we had not merged with Starwood, would we try to
build 30 brands from scratch? Probably not," Sorenson said in a Nov. 8
conference call with analysts. "They all have substantial capital that has
been invested in them, particularly by the hotel owners who have made
deliberate bets about which flag they put on their hotels. And we don't have
the power to, nor the desire to, try and convince them that those bets have not
been good bets."
Sorenson made the comments the day after Marriott released
its third-quarter earnings results, which included eight days during which
Marriott owned Starwood after closing on the $13 billion acquisition Sept. 23.
The results suggested that Starwood's performance lagged that of Marriott,
whose legacy brands boosted the company's global RevPAR by 2.5% from a year
earlier. In contrast, Marriott's pro forma RevPAR, factoring in Starwood's
third-quarter results, rose just 2.2%.
Moreover, demand growth will likely slow. Marriott
forecasted that RevPAR in both the U.S. and worldwide will advance about 1%
"Clearly, North American demand growth continues to
moderate," Sorenson said, citing declines in demand from both oil and
natural-resources sectors as well as from inbound international travelers. "Corporate
customers are clearly cautious."
Sorenson reiterated Marriott's previous estimate that it
will cut the combined company's annual expenses by $250 million and that its
business would benefit from "the portfolio effect" of cross-marketing
all its brands via their websites, loyalty programs and mobile apps.
With such economies of scale in mind, the company will be
able to withstand the challenges of running a larger company amid slower demand
growth, he said.
"One of the New York tabloids ran a story suggesting
that we had buyer's remorse and maybe didn't really want to close the
[Starwood] deal," Sorenson said. "That story had zero factual
support. We never lost any enthusiasm for completing this transaction, and now,
seven weeks [after the] close, we are as enthusiastic as ever."