Marriott CEO Tony Capuano says the company hopes 'to start paying dividends and buying back shares' as soon as the recovery and a borrowing restriction allow.
Marriott InternationalTony Capuano was named CEO of Marriott International last month on a sad occasion. The lodging company’s longtime top executive, Arne Sorenson, died earlier in February following a battle with pancreatic cancer. The new CEO, however, was well prepared for his assignment.
The 55-year-old Capuano, a company employee since 1995, was most recently Marriott International’s group president, global development, design and operations services–a position that familiarized him with building and renovating hotels around the world as well as the day-to-day operations. Based in Bethesda, Md., Marriott (ticker: MAR) has more than 7,600 properties in 133 countries and territories.
His veteran background will help as he navigates the pandemic, which has hit the lodging industry hard. Marriott’s revenue per available room plunged by 64% in 2020 from 2019, global sales plummeted, and the company managed to earn an adjusted 18 cents a share, down from $6 the previous year. Though things are far from normal, there are signs of improvement, especially in places like China. In February, global occupancy was 37%, up from 31% in January. The stock, which took a big hit during the pandemic, is up about 15% this year.
Barron’s recently spoke to Capuano about his new job, the company’s outlook, and the pandemic’s impact on business. This is an edited version of that conversation.
Barron’s: Tony, you took over last month from longtime CEO Arne Sorenson, who was highly regarded at the company and in the industry. What set him apart?
Tony Capuano: I’ve often thought that listening is one of the skills in business that is in short supply, and Arne (pronounced ar-NEE) was maybe the best listener I have ever met. It allowed him to connect people and to connect with people in a really personal way. It also just made him a better decision maker, because he wasn’t focused on what he was going to say next. He really sat back, thoughtfully listened and considered different viewpoints. That was one of his most remarkable attributes.
Do you see yourself making any changes to the company in terms of overall strategy or priorities?
Our core model will stay very much intact. I don’t see us radically departing from that model. In the short term, we are keenly focused on driving demand, driving business recovery and ensuring the safety and confidence of our associates and guests around the world as we emerge from the pandemic. This isn’t a new shift, because Arne [Sorenson] started it. But we’ll continue to look for new revenue opportunities that are tangential to our core lodging business. That includes things like the Ritz Carlton Yacht, which offers high-end cruises, and our Homes & Villas by Marriott platform, which handles private home rentals. We’ll continue to look for those sorts of opportunities.
What’s the outlook for Marriott and things getting back to normal now that Covid vaccines are being rolled out at a good clip?
I am enormously optimistic about the long-term prospects for travel and tourism. In the short term, there is an important and obvious relationship between the rollout of the vaccines, the ability of certain governments to start to get their arms around the virus, and the impact that has on traveler confidence and related demand growth.
China might be the best illustration of that. The government there has largely gotten their arms around the virus. They’ve done a good job of broad distribution of the vaccine and, perhaps not surprisingly, we’ve seen occupancy levels essentially return to pre-pandemic levels. What is most notable in China is a disproportionate share of that demand recovery has been domestic travel, as opposed to international travel. But China provides a great road map for other markets around the world as they look to chart their recovery.
Overall, we are quite encouraged by the way leisure demand has continued to lead the recovery. But as the vaccine gets more widely distributed, as infection rates drop, and as mortality rates drop, we are seeing some really encouraging signs of recovery in business and even in group travel.
Do you think it will take the rest of this year into 2022 for business travel, which if you include group travel typically accounts for about 70% of Marriott’s business, to return to normal?
If this were a conventional economic recession, I would have a lot more confidence giving you expectations on the timeline and the steepness of the demand recovery. The challenge with the pandemic is that we feel like we make good progress, and then you see a spike in infection rates–and it slows us down a bit. So, it is a little hard to say. But we are encouraged by week-over-week demand growth trends in many markets around the world.
Is the pandemic going to permanently change the lodging industry?
I see two areas where some of the evolution that we’ve experienced through the pandemic will likely continue, even when the virus is behind us. No. 1, you’ve seen Marriott really ramp up its efforts on contactless elements to the guest experience. So whether that is booking through the Marriott Bonvoy app, checking in online, using mobile keys, or using the chat functionality, as opposed to picking up the phone or walking down to the front desk, guests have gotten increasingly comfortable with that technology. The efficiency of those technological advances will likely endure even beyond the pandemic.
The other trend we’ve seen is that because leisure travel is leading the recovery, we expect to see a really rapid acceleration of the blending of business and leisure travel. In the past, you had road warriors who unfortunately had to miss family vacations, because they had so many meetings. While they don’t for a moment believe Zoom or Microsoft Teams is a permanent substitute, they say, ‘Perhaps I can join my family for that vacation and handle a couple of less intense meetings through technology.’ I expect you will continue to see a blending of those two trip types.
Moving on, are there any areas or niches you think offer particularly good growth potential?
We continue to see, both from our development partners and from our guests, rapid growth of interest in lifestyle brands. As we’ve built the breadth of our brand portfolio, we’ve got lifestyle offerings at multiple price tiers. So those range from Moxy to Aloft to Element Hotels and then up through W and Edition at the luxury end.
In addition, we announced last month that we were adding 19 all-inclusive resorts in the Caribbean and Latin America from a deal with Sunwing Travel Group’s hotel division. We see really rapid growth and lots of runway in front of us to continue to build out our all-inclusive portfolio. The other segment that has performed best over the last year is the extended-stay segment. With TownePlace Suites by Marriott, Residence Inn and Element Hotels, we continue to see really strong demand for those brands as well.
Following up, could you elaborate on what a lifestyle brand is?
It starts with a unique design sensibility, often tailored to the local market. There is a particular focus on public spaces in the hotel. Other elements include active lobbies and active beverage outlets [such as bars]. These hotels often have the potential to serve not only their community of in-house guests, but to serve the local community as well. An example is the London Edition property, which features a restaurant called Berners Tavern.
In another follow-up, are all-inclusive properties so named because you don’t have to leave the premises?
You don’t have to leave, and it is also a different pricing model. So, in effect, you are paying a single price per person for your room, for your food and beverage experiences, and for many of your excursions and leisure activities.
Marriott operates an asset-light model in which you don’t own many of your properties, choosing instead to franchise or manage them. How have hotel owners been holding up during the pandemic?
The owners have certainly borne a disproportionate impact from the challenges of the pandemic. We’ve taken lots of steps in terms of delaying renovation requirements and suspending some of the requirements that we put on them to help them navigate the financial challenges of the pandemic. The good news is that the vast majority of our owners are paying their bills and they are staying afloat. They are watching as keenly as we are the pace and steepness of the demand curve recovery. But we feel pretty good about overall owner health.
Franchising is a big part of Marriott’s business along with managing properties. Where do you see that mix going forward in terms of growth opportunities?
On a global basis, we’re about 55% franchised today [in terms of fee mix].The mix of franchise versus managing varies, sometimes significantly, from market to market. If you look at our pipeline here in the U.S., 80% of the pipeline is select service, or limited amenities. And that’s disproportionately high in terms of being franchised. My guess is that over the next three to five years, you will see that 55% global mix toward franchised probably tick up a few points.
Where is the company expecting to grow the fastest over the next few years?
Last year, about half our growth was domestic and about half was international. China continues to be a very strong growth market for us. But one of the things that I’m quite happy about is while we’ve put significant energy and resources toward our growth in China, it has not been to the exclusion of other markets across Asia-Pacific. We continue to see really strong growth prospects in Japan. So, our overall net-unit growth is reasonably well mixed across the world, but Asia Pacific gives us lots of hopes. In the Middle East, we continue to see reasonably good growth, and, as I mentioned earlier, leisure in the Caribbean and Latin America gives us lots of optimism as well.
Marriott has 7,600 properties around the world, including this Residence Inn in Dubai.
Courtesy of Marriott InternationalYou had to furlough thousands of employees last year due to the pandemic. How quickly do you see those people returning to work?
When I think about all the challenges we’ve had to wrestle with as we managed through the pandemic, without question the most painful part has been the impact it has had on our associates. At a high level, it has impacted about a quarter of our workforce around the world. We’re anxious to bring back as many of those associates as we can. But the pace at which we can bring them back will be dictated by demand recovery. In Asia-Pacific, where we are seeing occupancies returning to pre-pandemic levels, we’ve had the good fortune to bring lots of our associates back. In other markets that are still struggling, we’ve not been able to bring them back as quickly as we would like.
Last year, as part of the moves that Marriott made to preserve capital during the pandemic, the company suspended its dividend. What are the prospects for reinstating it and when?
That was a difficult decision for us. Prior to the second quarter of 2020, we paid a dividend every quarter since we went public back in the mid-1950s. One of the most immediate steps we had to take to stabilize the company’s financial position was to negotiate a covenant waiver on our revolver, or credit facility. We’ve done that through the end of 2021. But one of the conditions of that extension of the covenant waiver is that we’re precluded from paying a dividend or buying back shares while that waiver is in place. So we’ll work through that. Our objective is to remain an investment-grade company and hopefully as business recovers, we’ll get past the covenant-waiver period and be in a position to start paying dividends and buying back shares as soon as demand recovery puts us in a position to do so.
Looking ahead, what most concerns you?
Two things. We are an associate-centric company, and so every day I worry about our associates. This has been terribly difficult for them and we are anxious to get them back working on a full-time basis as quickly as we can. From an external business environment, the thing I worry about the most is the unpredictability of the pandemic. We see really, really encouraging signs–and then we see people perhaps get a bit overconfident and let their guard down and you see a resultant spike in infection rates. It just feels like we are so close to the finish line, and I worry about people not having the patience to cross that finish line.
Thanks, Tony.
Write to Lawrence C. Strauss at lawrence.strauss@barrons.com
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March 18, 2021 at 06:00PM
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