Marriott International : 2020 Q4 Earnings Call Transcript with Q&A 259.4 KB

Marriott International, Inc.

Fourth Quarter 2020 Earnings Conference Call Transcript1

February 18, 2021

Operator: Ladies and gentlemen, thank you for standing by, and welcome to Marriott International's Fourth Quarter 2020 Earnings Conference Call. Today's call is being recorded. I will now turn the call over to Jackie Burka McConagha, Senior Vice President, Investor Relations. Please go ahead.

Jackie Burka: Good morning, everyone. We are all truly heartbroken by the recent unexpected passing of our President and CEO, Arne Sorenson. He was an exceptional, visionary leader but more importantly, an exceptional human being. He will be deeply missed. As you are aware, Arne decided to reduce his schedule to fully focus on his health earlier this month. In consultation with the Board, Arne asked Stephanie Linnartz, Group President of Consumer Operations, Technology and Emerging Businesses, and Tony Capuano, Group President of Global Development, Design and Operations Services, two long-time members of our leadership team, to jointly oversee the company's day-to-day operations. Stephanie and Tony will continue in this capacity until our Board appoints a new President and CEO, which is expected to occur in the next two weeks.

Stephanie and Tony are joining us on our call this morning. As usual, we have Leeny Oberg, our Executive Vice President and Chief Financial Officer, and Betsy Dahm, our Vice President, Investor Relations, with us as well.

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 and the press release we issued earlier today are effective only today and will not be updated as actual events unfold. Please also note that, unless otherwise stated, our RevPAR and occupancy comments reflect systemwide, constant currency, year-over-year changes for comparable hotels and include hotels temporarily closed due to COVID-19. 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 Leeny.

Leeny Oberg: Thank you, Jackie, and good morning. Like all of you, my heart is very heavy at Arne's passing. I feel incredibly fortunate to have worked with such a wonderful and talented leader and to count Arne as a good friend. So many of you have reached out to us with your

1 Not a verbatim transcript; extraneous material omitted and edited for clarity and misstatements.

condolences for his family and for Marriott and have shared your fond memories of him, and we have been comforted by your kind words.

Stephanie, Tony and I wanted to share a few stories with you about Arne as well this morning. In the hospitality business, work inherently includes a lot of travel. Most days when Arne was on the road, he would lead an early morning group run around the hotel's neighborhood with as many associates as were interested. As a fellow runner, I would join the crew and watch Arne somehow find a way to spend time with every runner in the group. He'd run ahead with the quick runners and then run back to the walkers and find a way to connect with each and every person. He'd ask them about their families, their roles at Marriott, and their points of view about their markets. The run would be over at 6:30 and he would then move on to a full day of meetings and at least five more hotel tours. You could tell he fed on these connections with people and that he cared about them deeply. I have learned so much from him and I will miss him tremendously.

We are all committed to honoring our incredible leader by building on his legacy, and we, of course, want to update you on our business this morning as we move the company forward. Today we will cover our usual earnings call topics, with Stephanie focusing on the customer and demand side of our business and Tony discussing our rooms growth and development trends. I'll cover our financial results and liquidity. Given the uncertainty around the pace of vaccinations and therefore demand recovery, we will not be providing earnings guidance today. We will, however, share what we can about our outlook for 2021 in a few key areas. We'll plan to take your questions after our prepared remarks.

And now I'll turn it over to Stephanie.

Stephanie Linnartz: Thank you, Leeny, and good morning. This week, we lost a wonderful friend and mentor. Arne was an incredible leader, both for Marriott and the industry. And he was fun, in a competitive way. Like Leeny, I also remember the countless times we ran together and he would always beat me. Always. But what I will remember the most about Arne was his humility, his lack of ego and his passion for developing others. Arne and I attended The World Economic Forum in Davos together for the past six years. The first year I attended, I went to everything with Arne - taking it all in and learning so much from all of his interactions. The second year we went, pretty much as soon as we arrived, he pushed me out of the nest, so to speak. He encouraged me to schedule my own meetings and do my own media interviews. He believed I was ready and in typical Arne fashion, he empowered me to grow. He knew it was best for me and for the company. That's what true leadership is - believing in your team and helping your teammates believe in themselves. I am honored to have worked with him, and we are all committed to building on his legacy. I know Arne would want us to talk about business so let me start us off.

COVID-19 has impacted our business to an extent we never imagined, making 2020 by far the most challenging year in our company's history. Full year worldwide RevPAR declined 60 percent, with average occupancy of just over 35 percent compared to 73 percent for full year 2019. In

2020, occupancy and year-over-year RevPAR changes showed steady improvement from the trough in April through the summer and into the early fall. However, with spikes in COVID cases in many markets around the world, we saw the global pace of recovery flatten in the fourth quarter and in the first few weeks of 2021. Currently over 94 percent of our hotels are open.

Recovery trajectories to date have varied greatly by region. Mainland China, where there has generally been a sense that the virus is under control, has led the recovery and strongly exemplifies the resiliency of demand. Occupancy reached 60 percent in July and remained above that level through the end of 2020. Fourth quarter RevPAR in mainland China was only down 12 percent year-over-year. We saw additional proof points of the ability for demand to recover quickly in other areas as well during the fourth quarter, including the Maldives and Dubai. Occupancy in both markets jumped to over 60 percent in December after their governments eased travel entry restrictions.

In the fourth quarter many countries around the world reinstituted strict temporary limitations on traveling and gathering to combat rising virus cases. Demand in the U.S. was clearly sensitive to spikes in COVID cases and government travel advisories, as we saw during the traditionally travel heavy holiday period from Thanksgiving through New Year's. Many cities in Europe also shut down. Similarly, in China, we have recently seen several markets essentially on lockdown in January and February for several weeks at a time in order to fight the spread of the virus, leading to a meaningful drop in occupancy in these markets. Overall occupancy in mainland China year to date has fallen to an average of around 40 percent. The good news is that once these temporary shutdowns are lifted, we have seen demand return quickly. For example, occupancy in Chengdu and Qingdao recently jumped from around 20 percent to over 60 percent in just two weeks after their local governments announced the virus outbreaks were under control and removed travel restrictions.

Our worldwide occupancy and year-over-year RevPAR decline in January were roughly the same as we saw in December. Looking ahead to the rest of 2021, booking windows remain very short, and there is still a large amount of uncertainty. While vaccines are slowly rolling out, the pace is too uncertain to be able to predict when occupancy will move meaningfully higher. But as the year progresses, assuming wider distribution of effective vaccines, we are optimistic that the pace of recovery will pick up speed and accelerate throughout the year.

In the U.S. and Canada, we are encouraged to see some small green shoots of increased demand for corporate and leisure transient bookings, as well as in group lead volume. While still down meaningfully year over year, transient booking pace and visits to our direct booking sites have been improving recently. Occupancy over Presidents' Day weekend was the strongest we have had for a long weekend since the beginning of the pandemic, led by leisure demand, and we are also starting to see a bit of momentum behind special corporate bookings.

Group revenue pace in the U.S. and Canada for 2021 is also still down significantly compared to group revenue pace for 2020 at the same time last year, though the declines are less severe for the second half of the year. In January we had a very strong month for group bookings in 2022

and beyond. Additionally, this business was booked at average daily rates 11 percent higher than business booked in January 2020 for stays in 2021 and beyond. These are encouraging signs that there is strong demand for travel in future years once real progress has been made in containing the virus.

As we think about marketing in this environment, our teams continue to analyze the latest consumer trends to help shape our recovery strategy. We are keenly focused on personalization and localization, on capturing more leisure as well as "bleisure" travel as the lines between work and home blur, and on increasingly leveraging our digital direct channels and, in particular, our Marriott Bonvoy app. We recently released our updated, redesigned Bonvoy app with the goal of better meeting the travel shopping needs of today's leisure traveler.

The power of the Bonvoy platform has become even more evident during the pandemic, as many of our more than 147 million members have continued to interact with us in ways other than staying in our hotels. Our Marriott Bonvoy credit card holders have remained particularly engaged. Global credit card spending on our cards for 2020 was down only 16 percent year-over-year, in marked contrast to the steeper decline in RevPAR. And while not material from a financial perspective, one of the most significant expanded offerings to members recently has been our whole home rental platform, Homes and Villas by Marriott International, or HVMI. We grew the number of units on the platform from around 2,000 at launch less than two years ago to approximately 25,000 today. And we saw increased demand from our Marriott Bonvoy members, with over 90 percent of HVMI room nights in 2020 booked by members.

We continue to focus on driving demand to our hotels and on engaging with our members, with creative content and special offers including our Escape to Luxury and Bonvoy Escapes promotions. Additionally, early last year we extended elite members' status through early 2022, and we recently credited their accounts with another deposit of elite night credits to give them a head start toward elite status in 2022.

Before I turn the call over to Tony, I want to thank our incredible team of associates around the world who have shown true dedication and resilience throughout these challenging times. Tony?

Tony Capuano: Thank you, Stephanie, and good morning. Arne was a remarkable person. I'm proud to call him a friend and mentor. One of my favorite trips with him sums up how truly special and unique he really was. After we acquired Starwood in 2016, Arne wanted his senior leadership team to do an eight-day whirlwind trip around the world. He wanted to visit as many properties as we could to welcome our new associates and show them that the Marriott "people first" culture was real. And he wanted each of us there with him. As we toured property after property, Arne made a point to meet as many people as possible, to shake every hand and to look each person he met in the eye. He was so sincere and genuine. He also made sure to spend time with his leadership team outside of these meetings. In particular, I remember one overnight flight to the Middle East. Towards morning, Arne woke us all up and brought us to the lounge in the back of the plane so we could just spend time together and enjoy each other's company. This was classic Arne. He wanted to build a cohesive team that, while not afraid of some spirited