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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We have always been very loyal to Marriott and own several timeshares. The maintenance fees are getting to be too much to handle. We're thinking of selling our deeds. I hope that something can be done to cap these soon before people are completely pulling out of Marriott.

With the economic slow-down and the cut-back on traveling for 2009, would Marriott consider carrying members' stays in excess of 75 into 2009 to help with the 2009 Marriott Rewards requirements? Hopefully 2010 will be a better year for travel.
Thanks for operating a great hotel chain!

I have stayed at more Marriott's than I can count over the years and probably accumulated well over 1,000,000 points (all used up by now) since I joined the HG program.
When I traveled for business I was always able to get the military rate at most hotels, but now since I am semi retired (fully retired military), I can no longer qualify for that rate. Consequently, I now go to other hotels that do extend the military rate to me.
It would seem to me that if you opened the miltary rate to military retirees as well as active duty personnel and government contractors, you might fill many more rooms with people like me who now go to other hotels. Personally, I would much rather stay at a Marriott, but the economics just don't work.
Just my humble opinion.

I agree strongly with Kim Brandley on her comment about Marriott dropping the bonus points for timeshare owners who finance through Marriott. I too am a newer owner and love the property in Hawaii and plan to go often, but I am quite disappointed that you have discontinued the bonus points plan. The salesman referred to this perk as one that would continue to reward us as we could use those points for other Marriott stays. Guess I'll be moving my loan to another source with lower rates now.

I've stayed at Marriott's across the country and have not been disappointed. I also helps that my son is employed at Barony Beach Resort on Hilton Head Island. ;-D

A thought considering the economy and discount hotel websites: If Marriot is choosing to be part of the discount hotel website (Priceline, Expidia, etc.) process, why not extend the same first rate serivce to those customers as you do to the business traveler or the full price guest? Allow room requests or withdraw from the discount network!!

I agree with two previous posts about the ending of reward points for Marriott Vacation Club Owner bi-annual loan incentive. We recently bought into Marriott's Lakeshore Reserve at Grande Lakes Orlando. This is our second pre-construction Marriott proprty purchase(Aruba Surf Club). I consider it a great insult to punish those who show the greatest amount of faith in your company by investing 10's of thousands of dollars on properties not yet built. We are the last people Marriott should look to take benefits away from since we have the most invested in the company. We have shown our good faith in Marriott, please return the favor and restore the loan incentive Reward Points.

I have maintained my Platinum status for many years, but this year due to our corporate policy in reducing our expenses, I may not earn it. We have been asked to stay in properties for net $150 including all taxes. With the dollar amount, I am excluded from staying at my regular courtyards in MD, VA, KY, TN, IN. I hope you will perhaps make some consession for your loyal customers, who want to stay loyal.

I just switched from Hilton as a Gold member back to Marriott. I realized that you have more opportunities to use fewer of my points for personal travel and in this economy, that's what breeds loyalty. I'm doing all my business travel with you now. Sometimes it takes a little time for the prodigal son to figure it out, but I'm glad things haven't changed too much ;)

What is the value of Marriott Rewards, if the blackout dates really penalize using them around peak dates?

As a Federal Employee appreciate the direct access to your hotels that accept the government per-diem rate. Now they only need to recognize our new GSA (SmartPay 2) travel credit cards that have the federal tax exemption numbers on them.

I just received an e-mail from the Marriots thanking me for my continued busines and loyalty to the marriott family. I purchased two Marriott timeshares this summer under a payment loan program that promised accumulating points over the term of the loan provided loan was paid with marriott Credit card at speificed interest rate (10%). The sales presentation emphasized the benefits of these points. Well, Marriott notified me a couple of weeks ago that the promised points had been revoked. Loyalty is a one way street for the Marriott family.

I am a Marriott Vacation Club owner. I purchased a second week in August of 2008 expecting to earn 25,000 points every six months with the Marriott loan program. When the plan was removed a few weeks ago I was extreamly upset. I feel that I was mislead by Marriott. One of the reasons I own only Marriott time shares is I trust. With the removal of the program Marriott removed a good deal of my trust.

Mr Marriott...i have been a fan for years. Always stay in Marriotts and have two timeshares.
I live in Palm coast Florida and our town needs Marriott to take over a project that CENTEX walked away from called Palm Coast Resort. they destroyed the old Sheraton and then left the project. it is right on the InterCoastal Waterway and a tennis club and spa is partially complete next door..Would you check it out...please call or write and i wlll be glad to tell you more..I am an executive coach and have no vested interest in the real estate!
dr. Patrick Williams

Arne/Bill--I love the Marriott corp and try to use some of your principles at my dental office. Arne, Greetings from Bend, OR and hi to Nathan and Susan.

So I read several things from your blog post:
1. You are expanding the Marriott brand with more rooms and hotels...some under construction and some only financed.
2. You are towing the company line. I'm sure your boss appreciates the praise, this is his blog, after all. As CFO, I expect nothing less.
Which leads me to the following questions:
1. As a business traveler who stays in a number of hotel family's during the year (usually 250-300 nights per year)...what is your strategy to keep your average room cost down despite this aggressive expansion plan?
2. The plan is to capitalize on the failing global market and buy up competition like family run businesses and small boutique hotels.
Which leads me to another question: How do you compete with brands like Hilton, Hyatt and Starwood (all of whom I stay with regularly, along with Marriott) regarding quality, pricing and availibility even in this troubled market while you are actively expanding? Shouldn't the focus be on rewarding returning customers even more to ensure market reliability and solid corporate rates?
I appreciate your attention and hope you address these questions, as I'm sure many of your other customers would be interested to hear your response.

Marriott is a terrific operation, and We use hotels often when visiting our family, but you are just too expensive in this economy - - and, we have to add on parking fees!

I frequently stay at Marriott and Courtyard by Marriott when traveling; I always have a positive experience. I enjoyed your podcast, it's great that you offer the public a platform of connectivity and expression.
Kind regards,
Michele Abrams
CEO, Chief Eternal Optimist
InspireNotes TM

I love staying at Marriott Hotels, I would love to be able to make a reservation through the hotel as a member and know that I am getting the lowest price. In this downtown turn why not offer your members the lowest price? I would rather call and make a reservation and be confident the price is the lowest. You can still sell blocks to these other vendors charge your members a lower price.

I was frankly stunned to see the increase in points required for Marriott stays for 2009! I had no knowledge of this change or would have used my points in 2008. To increase the points by a factor of 300% doesn't look to be prudent, in my opinion, especially in an economy that needs changes in the other direction. Timing is horrible and,of course,will undoubtedly influence travelers plans in choosing Marriott in the future-certainly will mine? I use Marriott principally for the fact your hotels are great and the choices good. However, secondarily I stay with you a great deal so that I can accumulate points to be used for a nice get away sometime in the future. You've just cut that use sharply-all in one year! The motivation for using my Marriott Rewards Visa has now also changed. Other options look better! Regretfully, Dwight Jasmann
P.S. I was living and working in Hong Kong in 1990 when you opened the JW Marriott. Was looking forward to spending a nice time there again with my points(several hundred thousand) but now that has changed!

I love Marriott. It seems to get better all the time. My next stay will be Marriott Surf Club in Aruba. Can't wait to see it again.

Thank you for sending a positive note. I am so tired of all of the bad news on a minute-to-minute basis that it is refreshing to hear something nice. I have always loved Marriott and when I get a chance to leave town again, I'll stay at a Marriott. I would love to find a way to bring the people together to turn our economy around in each of our local communities.

I am a Marriott Vacation Club owner who owns 3 weeks of timeshare. For my recent purchase in May 20008 I took out the Marriott loan since part of the loan program was that for every six months you had a loan, you received Marriott points. I was just notified that this points practice is stopping as of 12/31/08. I think that is terrible for existing loan holders who took these loans because of receiving these points. So much for the incentives and encouraging the economy.

I have always loved the Marriott hotels and I used to stay at them quite often. I have had to start staying at other hotels because the prices have gotten too high for me. Of course, I realize that Marriott is one of the best hotel chains and are consistantly high quality hotels. I wish I could afford to stay there but it just is not possible any longer. I agree with Ron riggi that it would be helpful to lower prices so more people could take advantage of your wonderful hotels.
They have the best frequent visitor program in my opinion also.
Good luck to all of you at Marriott in these tough economic times.

FAMILY! That is what Marriott is all about. Because our family is sooo spread out, across the US, holidays are always a matter of much juggling. When we head to Orlando we always stay on the club floor at the Ritz Carlton. The staff and the manager there are fantastic. A part of the family. Our relatives who live within 3 hours drive come there and celebrate with us. Otheres fly in. What could be better. Orlando Grande Lakes on the Club Floor is our home away from home.