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Why Hotels are Selling Experiences - Not Just Rooms (ft. Marriott International CEO)
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for Friday, July 31st it's Brew Markets Daily and I'm Ann Berry. Travel one of our absolute favorite topics here on the show and with people jumping on planes, trains and automobiles for the FIFA World cup, great concert lineups. The summer has shown insatiable demand for experiences continues on. Clearly, therefore, travel is also one of America's favorite buckets for spending. Which is why we were delighted to have the chance to sit down with the CEO of Marriott International, Anthony Capuano. His vantage point at the top of the 10,000 property $100 billion market cap hotel leader uniquely positions Anthony to see what's really going on at the intersection of hospitality and AI, how the K shaped economy is manifesting in hotel trends and just where in the world travelers are looking to for their next destinations. We cover all this, plus some personal insights into what has inspired Anthony his career path to the top of the hospitality world. So here it is, my conversation with Anthony Capuano, President and CEO of Marriott International. I'm catching you and I'm grateful to catch you at a busy moment because your next set of earnings coming up next week. So not quite there yet as we speak, but you are hot off the FIFA World cup and I know you can't dig into the numbers, but give us a sense just from the very interesting seat that you have. Was this a strong showing for the hospitality industry, the World cup delivery?
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Absolutely. You know I was lucky enough to attend the final and I saw some of my colleagues there. I think it was a terrific event for all three of the host countries. I think it reignited passion for the sport here in the States. I think the host cities did a fantastic job. As always happens during World cup, there were some characters that emerged. I think the Americans will be forever enamored with those from Norway and Holland who was featured prominently in one of our Bonvoy ads. The Bostonians really embraced the rowing of the fans. It was a terrific tournament and I think great for the countries and great for the hospitality industry. On our last earnings call I talked about our expectations that we thought it might add 40 basis points of RevPAR to the US market 35 basis points globally. And I'm excited to talk about the actual results next week. But a bunch of the travel CEOs coordinated by US Travel wrote a letter to the US that was published in the Wall Street Journal just thanking them for being such terrific hosts for representing the country so well. So I think both qualitatively and quantitatively, just a fantastic event.
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Well, you almost threw away a comment in there which was about the featuring of Marriott Bonvoy in of the ad campaigns that we saw around the World Cup. So let's start there if you don't mind. I happen to be wildly curious about loyalty programs and the data treasure trove that they have a tendency to be. So hit the highlights for us Anthony, on the sheer scale of the Marriott Bonvoy program at this point.
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Sure. So as as of the end of last quarter we had over 280 million members globally. We'll give an update on on the the membership next week during our call. It is a fascinating program. It just celebrated its fifth year in its current iteration as Marriott Bonvoy, which was the result of blending the Marriott Rewards program with SPG following the Starwood transaction. Like many of these programs in travel, it started relatively humbly as a platform that allowed you to enroll, earn points for hotel stays, and ultimately accumulate and redeem those points for hotel stays. And while that's a foundational component to the program, it has evolved dramatically and we have big aspirations for its continued evolution. It is a platform that allows our members to access once in a lifetime experiences. You talked about World Cup. The night before the final we had some lucky members who stayed in a transformed luxury suite at the stadium that had been turned into a Marriott room. We had all sorts of on field experiences both at the final and during the course of the tournament. We tend to see our members index strongest in three areas, music, sports and culinary. And so right now in Paris you've got a Celine Dion set of concerts where we are a sponsor and you're seeing Marriott Bonvoy members take advantage of that relationship. We did the same thing with Taylor Swift during the ERAS tour. And so there are almost limitless opportunities for us to open up experiences to our members around the country and around the world.
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So when I was ticking around doing my homework Anthony, in preparation for today, I read somewhere that members account for roughly three quarters of the room nights that Marriott sees bookings for in the United States and Canada. And as I read that I could not help but wonder has the importance of the loyalty Program changed. Given that there is this question right now around who is really going to own the relationship with travelers? Will it be AI agents? Will it be booking agents, Will it be sort of the traditional players? How do you think about the role of the loyalty program in trying to own a relationship that's at risk perhaps of being disintermediated by AI?
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Yeah, it's a good question. I mean, we are, I think AI is in its early days in terms of how precisely it's going to impact travel, more specifically the distribution landscape. What I do know is this our members are passionate. It is in some ways the most important brand in our portfolio because it represents the connective tissue that ties together such a diverse collection of brands and such a diverse collection of destinations. We have the ability to control the stay, we have the ability to figure out what booking engines give you the full complement of benefits that the program offers. And we'll continue to have that control. At the same time, as we watch the AI companies move into the travel vertical, we've chosen a strategy of working very closely with them. So whether that's some of the work we're doing with Google, some of the work we're doing with Anthropic, we want to help them figure out how they're going to enter the travel vertical, how they're going to monetize that vertical, how we can partner to the great benefit of the end user. And we'll continue to do that work. I spent a week out in Silicon Valley with our leaders. We had our board out there a few months ago. Distribution, I think, will be the most interesting part of the AI travel story.
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And so when you say that the work you're doing with some of those large LLMs, the biggest players, what kind of work are you referring to, Anthony?
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That can be testing some of their early prototypes in ads. In the case of Anthropic, that's co creating with the Googles of the world to try and figure out what that agentic AI will look like for the end user.
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Let's talk about the diversity of the portfolio you have. So we're talking about over 9,900 properties across more than 100.
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Actually, we just opened our 10,000 hotel.
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Fantastic. And where was that, Anthony?
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That was in Ronthambore, India. New jw right by the big tiger preserve.
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Oh, wow. There you go. So you made it the 10,000 Sierra in the five digits and your portfolio, the banners you've got. And we're talking about some iconic luxury brands here. The Ritz Carlton St. Regis JW Marriott, you just mentioned you've also got the full service and premium. So just for folks listening, that's the Marriott hotels, Sheratons and Westons. And then you've got the likes of W Renaissance, Le Meridian. You've also got Fairfield by Marriott Residence Inn. We're really talking about the sort of full spectrum of catering to different kinds of travelers and those with different budgets. What are you seeing in terms of strength of demand and growth from different kinds of traveler and the budgets that they are actually able to command travel with?
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Sure. I thought you were going to go to a different place with your question, which might be a question I get often which sounds something like do you have too many brands? What's the right number of brands? Will you divest yourself of brands or consolidate brands? And so maybe I'll address that first and then I'll go to your specific question on performance metrics, I often give the same answer because I believe it to my core. I love the breadth of choice that our portfolio offers both to our guests and to our owners and franchisees. I ran early in my career our global development organization which is charged with growing our footprint around the world. And when I would get questions about our growth strategy, in many ways it was always the easiest question to answer because our aspiration, which to be sure is a lofty aspiration, I want to capture 100 cents on the dollar of your travel wallet. And in pursuit of that lofty ambition, I think the best way to try to achieve that is to make sure I have the right product everywhere you want to travel for every trip purpose. And that really underscores the strategy that you described, which is having a portfolio across every price point from brands in the mid scale tier like City Express and Four Points Flex, all the way through the ultra luxury tier with brands like Ritz Carlton Reserve and our partnership with Volga. And if we continue to execute against that strategy, I think even for the same traveler who might choose a more economical choice, traveling by themselves for one night, that same traveler, when they go on family vacation may choose choose something in the luxury tier. So it's a strategy we believe deeply in in terms of performance. One of the things we were excited about a quarter ago was to report RevPAR growth across every quality tier. And while we'd seen luxury leading the way for the last number of quarters, with this almost insatiable appetite for travel among the luxury consumer, we were really encouraged, particularly in the U.S. by the strength of RevPAR growth that we saw in the select brand tiers. Last quarter.
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And what do you think is driving that? Because the popular narrative at the moment is we have a K shaped economy. Those with smaller budgets, lower income demographics are cutting back spending on discretionary, including in travel, while the upper end of the K is, as you said, demonstrating quote, insatiable demand for luxury experiences, including travel. So if you saw strength across board, where is the evidence that the lower part of that K is struggling?
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So if you'll indulge me for a minute, I might try to play amateur sociologist. And one of the great benefits of the really strong credit card relationships we have with American Express, JPMorgan Chase, other partners around the world is the insights we get from that real time consumer spending data. And in a pre pandemic world, we saw some of the younger generations starting to shift their disposable spending away from consumption of hard goods towards travel and experiences. When we look at the data today, it appears that the pandemic acted as an accelerant to that trend across demographics. So irrespective of age, irrespective of household income level, you see this prioritization of spending on travel and experience. And while the lower income household is clearly looking for a more economical choice, they too are prioritizing travel and experiences for what limited disposable income they might have available. And I think that's what drove the sort of performance we saw a quarter ago in the select service tiers.
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Let's take a break and when we come back, more of my conversation with Anthony Capuano. Bitcoin is not a Gordian knot. It's not difficult to figure out if
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And now back to my conversation with Anthony Capuano, President and CEO of Marriott International. You've just spoken to an ancillary part of the value that's provided by your partnership and playing in the credit Card space. Anthony, would you mind just sort of pausing there for a moment and explaining to folks the role that your credit card partnerships plays in your financial performance. I know those fees have been up for negotiation. It is important thing the Street's looking out for.
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Yeah, of course. And so the credit, our credit card partners find real value in affiliation with our brands. That value gets monetized. The vast majority of that value flows into the Bonvoy loyalty program and funds a meaningful portion of that loyalty program. Marriott earns a royalty in sort of proportion to the value of our intellectual prior intellectual property. But the vast majority of the economics flow into the Bonvoy program.
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I want to go back to this demand for luxury, Anthony, and talk a little bit about some of your expansion into wellness. You thought I was going to ask you the question as to whether you have too many brands. I was going to go the other way and talk about the further diversification of your portfolio. You have introducing Lafay into into the portfolio. Could you talk about that? Because I think it hones in on a wellness trend that's interesting to unpack.
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Of course the we're very excited about this new partnership with lafay. Two resorts open today, both in Italy, one in Lago de Garda, the other in the Dolomites. Three other projects under development, including my favorite part of the world, Tuscany. But I think it speaks to something that we hear from our customers every day, maybe most loudly from our luxury customers and that is while they love laying on a beach, they want more substance from their travel. They want the ability to learn. They want the ability to impact their wellness. They want to learn traits that they can carry with them in their travels and to their homes. And you know, whether choose your term of art, whether it's longevity, whether it's wellness, it goes beyond simply the pampering services of a spa. It's about nutrition, it's about sleep habits, it's about using travel as a platform to improve your overall wellness. And it's something that we hear increasingly as a priority for our guests. And Lafay was a great way in the luxury tier to really accelerate our progress in that space. So we're very, very enthusiastic.
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You've also been adding growth in the all inclusive resort space. Talk about that if you don't mind, Anthony.
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Sure. So we started that business down in the Caribbean and Latin America space where it was well established. We have a great partnership with a group called Blue diamond that accelerated our growth. We also did an on bal sheet product project, excuse me, in Barbados, called Elegant, which is a set of resorts that we acquired ourselves and are going through comprehensive renovations again. So much of our growth is dictated by what we hear from our customers. And what we heard with increasing volume was a desire in certain instances for the option to use the all inclusive pricing model. Absent our entry into that space, it would run afoul of the strategy I described. I want to offer you exactly the product you want, everywhere you want to travel. If our loyal Bonvoy customer couldn't find an all inclusive offering within the Bonvoy ecosystem, I would in effect be pushing them into the warm, welcoming arms of some of my friends and competitors and I'd rather keep them in our ecosystem. The thing that's interesting is now that we have an established foothold in the Cala region, we're seeing more and more inquiries in other areas of the world where all inclusive is either established like the Middle east or where there's more and more growth in interest in all inclusive in some of the resort markets, for instance, of Southeast Asia. So we think there's a long Runway for growth for the all inclusive platform.
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Speaking of the Middle East, Anthony, what is the latest update there in terms of the impact on the war with Iran and what you're seeing in occupancy and the sort of general appetite for travel in the region?
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Yeah, I mean, we've clearly been impacted. We talked a quarter ago about some expectations of seeing Revpar down as much as 50%. We'll talk at length about that next week. But to state the obvious, the market has been tremendously impacted by the war in Iran. The good news, if there's any, I was in London with our EMEA general managers a few weeks ago, spent a lot of time talking with our regional general managers across the Middle East. They have a high level of confidence in the pace at which demand will recover when the conflict is resolved. They saw a really strong start to the year in January and February, and they believe in the resilience of demand region. I also would be not doing my job if I didn't talk about the resilience and the passion of our associates in the region who are navigating an extraordinarily difficult environment with the sort of commitment and grace that we've come to experience all around the world in the face of these sorts of challenges. To date, we've not seen much overflow of the impact outside of the immediate region. Maybe the one exception to that would be the big Middle East. Air carriers travel quite a bit into markets like India and The Maldives. And we've seen a bit of a secondary effect to those markets. But the bulk of the impact to date has been seen or been confined to the Middle east region itself.
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I want to talk a bit about your balance sheet and also your valuation before we sort of wrap with a little bit more on your own personal journey, Anthony, but before we get there, you did mentioned in the Cala region that there is one project that you're doing on the balance sheet and the hallmark of Marriott's growth has been an asset light model. Lots of franchising, focusing on high free cash flow. Do you think that's going to evolve? Are you feeling as though more control in some of these newer areas is something you need or is that sort of a one off?
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No, I. Well, I wouldn't say it's one off. Here's what I would tell you. We pioneered the asset light model in lodging. We are very pleased with how that market model performs. I think our shareholders similarly are pleased with how it performs. I don't envision any sort of material deviation from that model. But from the time we, we pivoted to an asset light model, we have in certain instances that we view as strategic borrowed balance sheet capacity for a short term to try and achieve a strategic opportunity or to seize an opportunistic deal that might be out there. An example of that would be when we launched addition hotels and we did London, Miami and Clock Tower in Manhattan on balance sheet. Another example would be we felt like W was ready for a bit of a reboot in terms of its global positioning. So we acquired the W Union Square in New York and did a complete reinvention of that hotel to demonstrate both to consumers and to the owner community what the future of W was likely going to look like. And we're happy to do that. We will, at the right point, recycle that capital. We won't be a long term holder. Just like with the three edition hotels, we got them up and running and established and then recycled that capital.
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Well, you said that your shareholders are pleased with the strategy. I'm sure they're very pleased with your share price performance as we're speaking right now, up over 34% over the past 12 months. All eyes will be on your upcoming earnings. When I look at the analyst community, Anthony, and Let's call it 26 analysts, roughly split between a buy or a strong buy, and then you've got a lot of holds and when you read this research, they're saying they love what you're doing at Marriott they are concerned that at peak valuation now at a 30% premium to historical trailing multiples, and the pressure is really on to demonstrate that there is more growth to come. When you're on the road meeting with your investors, what are those questions you're getting from them and how are you answering them when it comes to what could the next catalyst for your share price be?
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Yeah, I mean, they ask exactly the questions that you've described. And when we respond to those questions, I think we talk about RevPAR growth. We talk about RevPAR index performance, which is one of the best indicators of how the operating business is performing and one of the most important metrics that owners and franchisees evaluate when they make a branding selection. We talk about our pipeline, which a quarter ago was more than 600,000 rooms, roughly 4,000 additional hotels. And I think that gives investors a great deal of confidence about the future growth trajectory of the company. We talk about market share, particularly internationally, which is about mid single digit market share, which is a great statistic to underscore the Runway for growth we have for the next decade or more. But again, we've got to deliver and I think the share performance reflects the manner in which we've been delivering consistently over the last number of quarters.
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So I'd like to talk a little bit about the life of Anthony Capua. You're in Bethesda right now, so you're joining.
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You need a more exciting topic.
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No, this is going to. This is going to be an exciting topic and I'll explain why in a moment. So you're here. We were talking before we started recording. How many days do you spend on the road? How many nights are you on the road?
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Last year I think I was about 230 days.
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Got it. So. So that's a lot. And you've really grown up in this industry. Hospitality has been professionally what you've always known. So I have to ask, where has been your favorite location as you look back at all the places you've worked, which part, which place do you look at and say, that's what helped make me professionally, I loved it there?
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Oh gosh, that's an impossible question. The thing I would tell you, though, I'm of Italian heritage, my family is fortunate to own a home in Tuscany. I spend as much time as I can in Italy. I sit on a nonprofit board called Save Venice that restores art and architecture in Venice. And not only do I love Italy, the Italian culture, but it is a profound reminder to me every time I travel there about the manner in which that country celebrates the dignity of careers in the service of others. I tend to be a creature habit. I go to the same restaurants and I see the same waiters who've been there for 20, 30, 40, 40, sometimes 50 years, and it's celebrated. There is a real dignity in those sorts of careers. And sometimes I come back to the States and I hear people talk about working in a restaurant or working in a hotel while they look for, quote, a real job. And it's a little disappointing to me because I think it is such an exciting, rewarding, dynamic industry. I think about our company where thousands and thousands of our general managers around the world started in hourly positions. And I think it's not just a company in an industry where you can find a job, but you can build these exciting careers where, if you have an appetite for it, you can travel and live all around the world. And I just. I sing the praises of the industry to anyone that will listen. I just. I think the world of it. And even I was lucky enough to attend the hotel school at Cornell. And every day those students walk underneath a sign with A quote from E.M. statler, who was the founder of the school that says, life is service. And I think it's just an inspiring industry. And one of the great privileges of my role, I get to spend a lot of time with Bill Marriott, who is our chairman emeritus, but was chairman and CEO for four decades of this company. And I remember talking to him about why he loves the business so much. And he said, because if we do our jobs right, we have the privilege of being woven into the fabric of people's lives. And when you think about all the amazing things that happen in our hotels every day, it really is a privilege to be a small part of it.
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Well, I'm just back from the Biennale, so I'm delighted that you are as involved in trying to save Venice, because it is such a magical, magical place.
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Well, I hope you stayed with us. We have some amazing hotels.
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I have a question for you about this topic of dignity. And this is quite a personal one to me. Sure. In 2020, I was the CEO of a hospitality services business, and actually many of your hotels were my clients. And I was living in Vegas at the time. And I remember your predecessor, Arn Sorenson, coming to the fore, and he was clearly very sick. And he gave the speech that talked about the dignity of the work in hospitality. And I remember weeping as I watched that speech. And when he passed away, there you were, taking over at a very difficult time. February 2021, under very difficult circumstances. How did you keep the business going, Anthony? How did you step up in that moment emotionally and also just the enormity of what you were picking up at that moment in time?
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Well, let me start by thanking you for acknowledging that speech. My guess is that video will be used in business schools as a master class in communication for decades to come. And I think a perfect illustration of who Arnie was as a leader and as a human being. I'm not sure everybody liked the idea of him recording that video, but he was steadfast that he wanted and needed to do it. And it was exactly the message that our associates around the world needed in the face of what at the time was the most significant threat the company in the industry had ever faced. The early days of the pandemic. For me, I wish I could take credit for being the singular person that had to lead the company out of that crisis, but like everything at Marriott, it was a team sport. I mean, one of the great privileges that I had was inheriting this long tenured, battle tested leadership team that had led the company through the impact of 911 on travel, the impact of the great financial crisis. And so while we hate being put in a position to have having to navigate those crises, I got to lead a team that had the battle scars having gone through that. And it was that team that led the team out of the abyss that was created by the pandemic. I also, I mentioned earlier that I get to talk to Bill Marriott all the time. I try to talk to him as frequently as possible. And the ability to tap into that wisdom and that steady hand that had navigated the company through so many crises was invaluable. As we tried to figure it out, as you know, the biggest challenge was we really didn't know what equation we were trying to solve. We knew we needed to create liquidity quickly, but did we need to create it to navigate a week, a month, a year, a decade, forever? And so not really knowing what we were solving for was probably the most significant complexity that we had to try to navigate.
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And if there were to be another crisis, Anthony, what were the top three things that you would tap into? You've got the team, but you know you're set up for great growth. What are the three characteristics that you're going to take into any kind of change with you, whether it's growth or
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whether it's pointed out? Yeah, you pointed out the first one. I think Arnie taught people across business sectors the importance and the value of frequent and transparent communication with all of your stakeholders. So that would be 1, 2. We need to make sure we have the liquidity to keep the business going and to look at the challenges in front of us through the lens of all of our stakeholders. Every decision we had to make during that very difficult period we made through the lens of how will this decision impact our associates, how will this impact decision impact our guests and how will this decision impact our owners? I mean, you talked about the asset light model earlier. I mean, one of the things you have to remember. I'd love to take credit for this quote, but my friend Ellie who runs IHG said this on a panel that he and I did. He said the asset light model is great as long as you've got asset heavy counterparts on the other side of the table. And when you recognize that, it underscores the importance. The decisions we make have to contemplate how they will impact our owner and franchise community. And then I would say number three, we've got to think through a long term lens. I think there is a reflex to make short term decisions and some of those are critical to be sure, but they have to be evaluated through the long term. Next year, Marriott will celebrate its 100 year anniversary. I hope we position the company to celebrate its 200th anniversary a century from now. And one of the ways we can ensure we do that is to always apply that long term lens to every strategic decision that we make.
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Anthony Capuanu, President and Chief Executive Officer of Marriott International, thank you for joining. We'll be watching out for earnings next week. I'm sure there'll be a lot of exciting updates. Thanks for your time. We appreciate it.
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Thanks so much for having me.
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Well, huge thanks to Anthony for joining us. I can't imagine actually many more people busier than he is at the moment. So we'll be looking out for that earnings release next week. That's it for today's Blue Markets Daily.