Reflections on the Economy and Marriott's Prospects for 2009

December 9, 2008

Sorenson, arne color photo_high res preferred Hi, I'm Arne Sorenson, Marriott's chief financial officer, guest-blogging for Bill Marriott, who wanted me to share with you our reflections on the economy and Marriott's prospects.  With the slowdown, our stock value has eroded meaningfully in the past year.  Just because we have plenty of company doesn't make the decline any easier.  Before things get better, we're going to have to navigate through a tough 2009.  We said last October that we expected revenue per available room or RevPAR, one of the industry's key performance measures, to be down at least three percent in North America next year.  Just about a month ago, Bill Marriott reported that our business outlook had further weakened.  Industry-wide data has also been showing continuing RevPAR declines.

Despite this, and even though the U.S. has been in a recession since December 2007, we have much to be thankful for.  First and foremost, we have a terrific management team, beginning with Bill Marriott, who has been through significant downturns before and has noted that each time we've come back stronger.  We also have a great brand lineup which helps deliver strong returns for our hotel owners and franchisees.

Our business strategy of managing and franchising hotels protects us in slowdowns and primes us for better days.  Marriott is a remarkably resilient cash flow generator, even when business slows.  Our balance sheet is in good shape and we have access to cash through our revolving line of credit, which has over a billion dollars remaining available.  Because of our excellent financial shape, the revolver, as it is called, is free of many of the complex restrictions companies can often experience.  In fact, with our solid cash flow and more modest investment spending in 2009, we expect our debt levels will decline next year.

We're laying tomorrow's foundation with a deep, record pipeline of new managed and franchised hotels - about 130,000 rooms in our pipeline at the end of the third quarter.  One half of these are already under construction and another ten percent, or so, are financed.  We're confident about our planned hotel openings to our system in 2009 and through most of 2010.  What's more, in downturns hotel owners tend to want to convert hotels to global brands.  During the slowdown earlier this decade, from 2001 to 2003, over 20,000 hotel rooms joined our system from competitor brands.

Today, we're increasingly nimble in responding to demand trends.  This includes our timeshare business, which we believe will weather the downturn just fine.  Our timeshare business depends on consumers and while consumers are more cautious today, they haven't stopped in their tracks.  As always, we're calibrating our timeshare investments to match customer demand, with a goal of timeshare generating cash in 2009, even in a difficult economy.  We continue to offer financing for qualified purchasers and expect to be able to securitize these loans in 2009.

As we close out 2008 with the near-term business outlook remaining uncertain, we are confident in both our industry and in our company over the long term.  Our wonderful people, working in great places around the world, will continue with a sense of purpose, to build economic prosperity in the communities we call home.
Happy New Year, and thanks for helping us keep Marriott on the Move.

Reflections on the Economy and Marriotts Prospects for 2009

Note:  The foregoing contains "forward-looking statements" within the meaning of federal securities laws, including statements concerning the number of lodging properties we expect to add in the future; anticipated future debt levels; cash expected to be generated by our timeshare business; and similar statements concerning anticipated future events and expectations that are not historical facts.  We caution you that these statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including the depth and duration of the current slowdown in the lodging industry and the economy generally; supply and demand changes for hotel rooms, vacation ownership, condominiums, and corporate housing; competitive conditions in the lodging industry; relationships with clients and property owners; the availability of capital to finance hotel growth and refurbishment; and other risk factors identified in our most recent quarterly report on Form 10-Q; any of which could cause actual results to differ materially from those expressed in or implied by the statements herein.  These statements are made as of December 9, 2008, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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To Dawn Brinningstaull:
Could they be any clearer that there will be a $250 charge for smoking in your room. If you are a loyal customer you would see that $250 charge several times even before you get to your room. It plastered all over the folio as well.

With the downturn in the economy many companies are cutting back on their travel budgets, including my own. When this has happened in the past, it was difficult to achieve the highest levels in frequent guest programs, what another hotel brand I used to stay at did in the past when the economy was in recession was grant extra credit toward qualification for one of the top tiers in the current year toward elite qualification in the next year. This would be greatly appreciated by your best customers who may not be able to achieve the top levels easily due to travel restrictions in 2009. Thanks for the wonderful travel experiences this year.

More people are buying RV's and I would like to see Marriott maybe look into adding camp grounds at some resort locations, or plan some in the future.
This is a very do able venture for Marriotts portfolio. Even with gas prices as they were RV's still rolled.

I am a loyal Marriott client. I have been Gold or Platinum for the last three or four years. With the tough economic times, I am not travelling as much as in the past few years. However, I do want to maintain my loyaly to Marriott. During the economic downturn, would you consider lowering Gold and Platinum levels to maybe 40 and 65 stays? Would be a benefit to maintain loyalty.

I'll always been a loyal Marriott customer and booked multiple rooms for large family gatherings. This last November, I was surprised by a charge to my credit card for $250! The rooms were $99 a night, we had two rooms for two nights. It appears that a friend staying in the other room smoked inside. I can understand the need to penalize customers for smoking in a non-smoking room; but $250!! It was more than I paid for the two nights lodging. I'm sorry, but it is unreasonable. I'll have to reconsider where I will lodge for New years Eve celebrations.

Arne, I have to say you guys are missing the boat by cutting out amenties in the rooms. As a platinum member who exclusively stays at Marriott properties I am confused why your properties are eliminating lotion in the rooms. I understand the slowdown in the economy, however, I truly believe there are other ways to save some money for the rooms to keep flat or increase your RevPar. In business, the little thinhs often add up to being quite important. My last two stays, marriott Oak Brook, IL and Marriott CY, Independence, OH have eliminated some of the amenties in the room. Why not eliminate one of the notepads and pens or eliminate the conditioner. I recently stayed at the Hyatt in DT Atlanta and not only did they have all amenties in the room, they also provided a trial size toothpaste and shaving kit in their room. I believe that most business travelers going through airports and renting cars appreciate the little things. In a bad economy, like now, people are more willing to switch when the competition continues to offer the same or more for the money. I would be careful in eliminating some of these low cost items.

I would like to express my gratitude to everyone in Marriott hotel for hard work.
For development of my relationship marriott hotel.
I am about to develop new stragegy prominent project with marriott.

You're right about the tough economic times and I would very much appreciate if I could get any type of discount on my reservation Confirmation Number: ********
Residence Inn New York Manhattan/Times Square... It's a fortune....I've never been to NYC and wanted to treat myself for a well-deserved 45th birthday gift but it's too pricy...
Emine Mutaf

Mr. Marriott, in these hard times have you considered lowering the cost of your rooms? Typically your costs are in line with other hotels, but for the presidential inauguration you all have chosen to inflate your prices. Granted I had the option of not booking the room, but I feared that the room would no longer be available. Now I find that Hilton has the same room for $300 cheaper (total price), but I'm obligated to keep the room or lose my money. Can someone show a bit of compassion and help me out?

Love your nonsmoking policy and the fact you have clean/recently-renovated rooms. My work has been sporatic and my travel has decreased in the last few months. As an independant contractor, I fight to stay in Marriott hotels, as your rates are in line with the other chains. I hope to increase my work and will stay loyal to you. Also love being able to trade points for merchandise.

In this serious downturn we are in; what if Marriot offered a free room with internet to displaced customers or the public. Maybe 1 per hotel for 30 days.

Was going to book a trip to Aruba and stay at the Marriott again in March or April of 2009. The room rates were $500 a night!!!!!!!!
No thank you...we booked a trip to Las Vegas with our friends at a fraction of the cost.

Before I state my concern, I would
like to first state that, overall, I find Marriott and the rewards program to be a great asset. On a professional level, I use Marriott whenever possible and on a personal level my family like to the do the same. Next, comes my concern. I was very excited to receive via hard copy mail a flyer from Marriott indicating a special promotion of 25% off room rates for this upcoming winter/beginning this month, December, and going through the early spring. Because my daughter is graduating from her undergraduate program in Philadelphia in two weeks and we will have to have two rooms for two nights in order to accommodate our immediate family as well as her grandmother and aunt, I was very excited about being able to take advantage of this offer. This is especially true since due to very tight finances, this celebration must take place less than a week before Christmas and so take most of our resources to be there, leaving us with a very sparce holiday. However, after placing my call to the Marriott Rewards Program, I was very disappointed to learn that this discount did not extend to the rooms that include 2 bedrooms but only applies to the studio units, even though there is nothing in the flyer that indicates that there is this restriction.
To be honest, I feel that this is unfair, especially since it was not noted right up front that these units will not receive this discount and also places larger families like ours with five family members at a disadvantage. In addition to this, we are booking two two bedroom units for two nights each and will have to pay for two cars for two nights each. This a far amount of business to be giving the Marriott during these economic times and I feel that this should be recognized and that this 25% discount rate should be applied for both units for both nights or we should at least receive free parking to offset the fact that we are not getting any type of discount on these units even though it has been stated that this promotion is otherwise is in effect.
I also tried to remedy this situation by being willing to use my Marriott rewards points for these two units but was told again that I could use these points for the studio units but not for the two bedroom units. I cannot do this for a # of reasons including the fact that we need to be able to offer privacy to family members who are joining us for our daughter's graduation such as my mother-in law who is in her 70's and therefore need the separate sleeping areas.
I would welcome hearing from you about this matter because it will affect my willingness to make reservations with Marriott in the future because I feel that I can obtain the accommodations
I need for my family at a lower price with another hotel and with more flexibility/willingness to respond to
my needs financially and more willingness to negotiate - re: offer me something please for the business I am giving you which is greater than most customers right now!!
Sincerely, Diane Strock-Lynskey

I have a suggestion. I would like to be able to reserve a specific room we enjoy to be located in. Every year we return to our home location, and sit on the edge of our seats as to where we will be placed. I believe if we are home owners, we should have first choice as to our room locations, the folks that trade to our location should be the ones that shouldn't have an input as to where they stay. Also, I would like to see that we be aloud to bring our small dog- 15 pounds and under. We would gladly pay an additional fee if necessary and then have a portion returned upon our check-out. We cannot have children, so our dog is part of our family, and I don't think that I am alone in this request. Please consider my inputs and provide back to me your answer. We pay hefty annual fees, and I believe we should be comfortable when we arrive.
Thank you,
Mr. Boulter

can you guys look at extending or cutting back the requirements for elite status...i am coming up short this year and won't be able to keep my gold status because of the cut backs in the would make sense to do this as to not lose customers to other chains of hotels because they lose their status with Marriott....great chain of hotels but don't make us lose our benefits because of the economy...thanks!

Dear Mr. Marriott,
I have stopped considering Marriott Hotels as an option for my travels. I cannot support a company whose leaders are tied to a religious faith that practices discrimination against anyone, but especially against me and so many of the important people in my life. The Mormon church's massive support of Proposition 8 in my state of California and in battles against homosexuals in other states pains me greatly, especially considering how much acceptance they have asked of Americans over the years. Even though I understand that you did not directly contribute to the effort in out state, you do perform an obligation to tithe to your church and that money goes into the funds that were used against my community.
If I hear that Marriott Hotels includes the protection of homosexuals in its policies and that the leadership of the company renounces the behaviors of the Mormon church, then I will certainly reconsider this boycott. Until then, though I will miss the very nice accommodations of your company's properties, goodbye.
Former Marriott Rewards Member Mitchell Lord

I was also very disappointed,as a Marriott Vacation Club new owner (one year) of the discontinuance of semi-annual points with an outstanding mortgage on the timeshare, especially with the extremely high interest rate on the mortgage. The points made it more palatable. If the point program must be discontinued (hopefully only for a short period of time) I would think that the owners could at least have automatic silver elite status each year that we owned our property. As many have said, we are loyal to Marriott and have demonstrated that over many years as the accumulation of our points would testify.

In your Iowa city Mariott when the college game crowd is not in town your hotel becomes empty. I prefer to stay at your hotel during these times and am silver Marriott. However, I get discounts from the Sheraton which are less than 50% what your lowest rate is. I cannot pass that up not that I do not want to because I prefer to stay with you guys but your people will not negotiate with me. I am willing to pay more than the Sheraton offers me at these times but not that much of a difference. If I had someone at your hotel to work with that would help me. It looks like I most likely will not continue to stay at your hotel now.

I have a suggestion for how to cut costs for travelers while generating new business for Marriot. I find myself the sad owner of many frequent flyer miles, some earned through Marriot stays. I can not use these miles due to new fees from the airlines, reduced number of seats available, and many other aggrevations from airlines. I have stopped leisure travel. WHAT IF... Marriot offered a 10-15% discount on room rates by using frequent flyer miles through an agreement with the airlines (who don't really want us to use those miles for air travel!) I would happily fly again knowing I could save on hotel rates with my miles rather than go through the frustration of trying to redeem them with the airlines. I get to use what are effectively dead miles, you get more bookings and the airlines get the miles off their books.

Marriot treats you better that's the bottom line. I lived in a Marriot nine months on business last year my experience was great a two different locations in Indianapolis. Oh and love those rewards! Go Bears!

Dr. Mssr. Marriot & Sorenson,
Just got the link to the blog and plan on following along.
Marriot hotels are without a doubt the best value for the dollar spent, and it's always a pleasure to stay with you. I stay at the Fairfield in Hazelton, PA at least 3 times a year and am always treated wonderfully.
Unfortunatly with the downturn in the economy, as an independent businessman, I have to keep my actual dollars spent as low as possible, forcing me to stay in hotels that certainly don't meet your standards, but I will stay when I can.
It would be great to see a premium hotel chain come up with a program that could make it affordable for independent businessmen to stay on a regular basis.
Take care and good luck,
Dan Doyle

I just wanted to let you know the Court Yard by Cleveland Ohio airport was just wonderful. My husband is in a wheelchair and your staff was very helpful especially at breakfast. I would also like to make a suggestion why not make all of your rooms handicap accessible. With all of us baby boomers getting older you are going to need more of them. The bathrooms seem to be the difference. Why not get ahold of Craig Hospital in Colorado for some design ideas. They specialize in spinal cord injuries.

In these times of economic downturn, would it make sense to pay attention to details by giving customers a small break to encourage staying at Marriotts?
My suggestion would be to offer HS internet access and local phone calls as part of the room fee. Many hotels offer free access to the internet and some are backing off of charging for local calls. Example: Recently I stayed at a hotel in Chicago (not a Marriott) and it was $12.95 per day to use the internet. Companies pay for my stay, but the more I can save them, the more they are willing to have me come work at their site.
Many are cutting back on travel and using webinars, internet, and teleconferences. If you can get their costs down a bit, they may give in a bit more to travel.
Food for thought.

Great blog post, Mr. Sorenson - thanks for sharing your insights and vision with us. With this severe economic downturn affecting business travel, Marriott might consider extending our current 2008 Elite status through 2009 for it's most loyal customers. This would certainly sustain Eite customer loyalty and market share in an increasingly competitive pricing and service environment. Marriott has ALWAYS been known for it's forward-thinking management - this action would go a long way towards solidifying that position. I look forward to staying with Marriott through the tough times.

I agree with several of the bloggers... why not include a more realistic view of the year, when existing loan holders were deprived of points for carrying their loans (and although the devil was in the printed details), this was certainly not mentioned in our sales meeting. I am very unhappy that Marriott chose to do this, and then Arne and Bill's lie by ommission in their rosy outlook devotion to customer assistance. If the outlook is so good, why cut back on benefits to your loyal investors???