Marriott's new extended stay brands continue to lead post-pandemic recovery

With the summer 2023 season quickly approaching, Marriott International CEO Anthony Capuano sits down with Yahoo Finance's Brian Sozzi to discuss the state of the consumer, post-pandemic recovery, and the company's announcement for a new extended stay lodging brand.

Video transcript

- We're officially closing in on summer travel season, and Marriott is expanding its options. The hotel chain is announcing a new extended stay brand geared towards guests seeking options for longer accommodations. Anthony Capuano, Marriott International President CEO joins us now. Anthony, always good to see you. Thanks for coming down here.

ANTHONY CAPUANO: Thanks for having me back.

- So we're ready, summer travel season is underway. What are you seeing in terms of demand?

ANTHONY CAPUANO: Well, again, the last time we spoke, I talked about the resilience of travel. And I think our Q1 results really underscored that resilience. Q1 was the strongest quarterly EBITDA the company has ever experienced. And Q1, normally, is a bit of a quiet quarter.

We saw strong recovery across price tiers and across geographies. And that continues. I was just looking at some July 4th data. RevPAR, which is obviously Revenue Per Available Room, the metric we use to track performance, is up about 10% year over year. Forward group bookings through the end of the year look particularly strong, and that's what caused us, during that first quarter earnings call, to actually raise global RevPAR guidance to 10 to 13%.

- You talk to a lot of people, a lot of global leaders, Anthony, what do you think is driving that? Because what I think a lot of investors hear the economy is slowing, maybe not doing as well as you would expect in this cycle, but that's not what we're hearing from your company and a lot of other hotel chains.

ANTHONY CAPUANO: I'd say two things. Number one, even prior to the pandemic, you saw a bit of this shift away from consumer spending on hard goods and moving those dollars towards experiences. It certainly appears, when we look at the data, that the pandemic acted as an accelerant to that trend. And maybe pre-pandemic, that trend was more limited towards younger consumers. It appears to be across demographics now.

And then I would say, secondly, the consumer remains strong. You saw the jobs report last week. And of course, there are sectors, like tech, where you've seen some job losses. But in general, unemployment is low, consumers are feeling a bit more confident, and that's driving travel demand.

- Is your business in the US back above pre-pandemic levels?


- Wow. In terms of all brands or there are certain brands in your portfolio-- what? 31 brands, you have?

ANTHONY CAPUANO: 31 brands, yeah.

- What's driving it?

ANTHONY CAPUANO: It's less about the brands and maybe more a little market-specific. So leisure destinations are well above where we were pre-pandemic. Urban markets that have some leisure element, New York is a great example of that, well beyond.

There are some markets, San Francisco comes to mind, that are still working their way back. But most geographies are back, even mainland China is back above where we were pre-pandemic. Despite the fact that international airlift is only about 40% of what it was prior to the pandemic.

- And what are you seeing in terms of business travel?

ANTHONY CAPUANO: Business travel is kind of the tortoise in "The Tortoise and Hare," slow and steady recovery. But you almost have to look at it in two categories. Small and medium sized businesses are long since recovered.

- Big part of your business, right?

ANTHONY CAPUANO: It is. About 60% of our business transient. That is long since recovered to pre-pandemic levels. The big multinationals continue to recover steadily, but they're not quite back.

- What about China?

ANTHONY CAPUANO: China-- mainland China has fully recovered. Greater China is getting dragged a bit by Hong Kong, which has not fully recovered. But again, most of China's recovery has been driven by domestic demand.

In April, total airline capacity for cross-border travel was only about 40% of what it was pre-pandemic. As that airline capacity continues to recover through the back half of the year, we expect lots and lots of upside.

- Are some of these trends in the US, in terms of RevPAR, Revenue Per Available Room, and even China, is that sustainable into the back half of the year?

ANTHONY CAPUANO: We think so. When we look at it-- now, the one caveat is most of the questions I get about demand patterns sounds something like, given the interest rate environment, given inflationary environment, given talk of recession, aren't you worried? We don't see it in the data yet.

The one caveat to that is for the transient component of our business, our booking window is only about 21 days. So that could shift a bit. If you started to see some real weakness for the consumer, weakness in consumer confidence, that could shift a bit. One of the things that does give me confidence, however, is the strength of our group demand.

When we finished up the first quarter, we looked at US group demand. For the remaining quarters of this year, total group revenue is tracking up about 26% to where we were a year ago.

- Before-- my newsroom knew we were talking so they had two questions. First up, in terms of developing properties, we're seeing a lot of concern. Rising interest rates could impact the commercial real estate market. Does that hurt your business in any way?

ANTHONY CAPUANO: Yeah. Most of our development partners are long-term investors in the sector, they understand interest rates' ebb and flow. What's more impactful to them is just constriction in the debt markets and the actual availability of debt for new construction. That challenge has been exacerbated by some of the challenges we've seen in regional banks as a result of SVB and some of the other failures.

It's one of the reasons you see most of the global brand companies so focused on conversions. We reported during the first quarter that nearly a third of both our signings volume and our openings were the result of conversions, and that will continue to be a strong focus.

- Second question. Big focus by you guys on extended stay. I would say even the hotel industry is really focused on this, 20 to 30 day stays. And we were thinking about it, well, who's staying in a hotel for 20 or 30 days? How do you think about it at Marriott?

ANTHONY CAPUANO: Well, it's interesting. If you look at the early days of the recovery from the pandemic for our company and for our industry, in many ways, our extended stay brands led that recovery, and we see that trend continuing.

You've got folks who have learned that they can work from almost anywhere. Some of them are nomads, some are choosing rather than signing a year-long lease with security deposits and first and last month, they're taking on temporary assignments.

They might be government contractors, they might be consultants, they might be construction workers, whatever it might be. And they are spending 30 days, 60 days, 90 days. And these sorts of accommodations really fit their needs to a tee.

- How much does it cost per stay, and how many of these will you have?

ANTHONY CAPUANO: Well, we think we'll have hundreds. I mean, we announced a new mid-scale extended stay platform today, and we already have active 350 projects under discussion.

- This sounds like a lot better than signing a lease.

ANTHONY CAPUANO: Yeah, for sure.

- Absolutely. Well, Marriott CEO and President, Anthony Capuano. Always good to see you.

ANTHONY CAPUANO: Great to see you.

- Thank you so much.

ANTHONY CAPUANO: Thanks for having me.