Marriott’s business is booming and prices are rising — except in China

Don’t expect any discounts from the world’s largest hotel company — except in one notable case.

Marriott International reported a whopping $772 million profit for the second quarter on Wednesday morning, boosted by strong demand for group travel as well as ongoing strength in markets like the U.S., Europe and the Middle East. What’s more, its Marriott Bonvoy loyalty program now has more than 210 million members.

But while many countries in the Asia-Pacific region, such as Japan, show strength in hotels, the situation is different in China.

The country, a hugely important market for hotel companies like Marriott and for outbound tourism to countries around the world, is facing a number of domestic economic problems, while Chinese tourists spending in luxury markets are starting to travel to other countries in the Asia-Pacific region.

“[Performance] “In China, revenue declined approximately 4% in the quarter due to macroeconomic pressures resulting from weaker domestic demand,” Marriott CEO Anthony Capuano said on the company’s earnings call on Wednesday. “The region was also impacted by an increase in high-end outbound travel.”

According to Marriott’s financial report, average hotel room rates in China fell about 5% from April to the end of June.

A Truist Securities report released Wednesday after Marriott’s earnings results showed that there is fatigue in China around “revenge tourism” after lockdowns drove much of the industry’s comeback from the COVID-19 crisis. In addition, other economic issues such as high unemployment, a real estate crisis and weaker consumer spending were also factors.

Marriott executives, however, note that cities like Macau and Hong Kong are still performing strongly. But while high-end Chinese travelers may be venturing to other Asia-Pacific countries, they have yet to return to pre-pandemic levels in the U.S.

“Tourism [from China] “Travel between the United States and China certainly hasn’t returned to pre-U.S. levels, and we still expect to see really strong travel demand from mainland China,” said Leeny Oberg, Marriott’s chief financial officer and executive vice president of development, before adding: “But I’ll point you to the overall macroeconomic picture in mainland China again, which means that overall travel spending hasn’t recovered as quickly as we’d hoped.”

No need to discount room rates

While room rates may be falling in China, travelers shouldn’t expect to find bargains anywhere else in the world where Marriott has hotels. Globally, the average nightly room rate at Marriott has increased 3% over the past three months.

Average room rates rose slightly more than 2% in the United States and Canada, while rates in the Middle East and Africa rose nearly 11%. Room rates rose 6% in Europe, while rates in the Asia-Pacific region outside China rose slightly more than 5%.

The company has seen increased demand for leisure, business, and group travel. Of course, Marriott Bonvoy also plays a big role: 71% of all hotel nights in the U.S. and Canada are booked by Bonvoy members.

While there have been reports of Softness at the lower price point of the hotel industry, Marriott executives reaffirmed that there is still strength in their overall business — especially in their more expensive hotel brands. Travelers may skip a fancy dinner or extend a trip to cut costs here and there, but there is still plenty of runway for growth.

“I think one interesting thing is that globally, the U.S. and Canada, and frankly all the other regions, ancillary spending is a little bit softer than we expected,” Oberg said. “I think that suggests that consumers in general are probably being a little more cautious about having a fancy dinner or taking an extra trip when they go on vacation. That’s really the only thing. It’s not a trade-off in any meaningful way.”

Capuano added that Marriott’s luxury portfolio showed the largest occupancy recovery of any market segment since last year.

MGM partnership shows strength

While Marriott has broken its recent earnings streak by announcing or at least alluding to new brands, company leaders have pointed to strength in ongoing partnerships with companies like Starbucks And MGM Resorts International.

The deal with MGM is a big win for Bonvoy members looking to earn and redeem points when visiting Las Vegas, and it looks like the partnership is a win-win for both parties.

“I think from both companies’ perspectives, we’re very excited about the volume of transient and group leads that are coming through our system, the number of people who are considering linking their MGM Rewards and Marriott Bonvoy accounts, [and] “The number of groups is unique in the MGM portfolio,” Capuano said. “So on all fronts, we’re very excited.”

Think of it as the Las Vegas jackpot without the poker tables or slot machines.

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