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Marriott CEO Talks Loyalty, Home Sharing and OTAs

During Marriott International's Q2 2019 earnings conference call, Arne Sorenson, president and CEO, spoke in depth about the Marriott Bonvoy loyalty program, its positive effects on the company, and how it's evolving to improve the guest experience.

"Marriott Bonvoy has a key element of our leisure strategy," Sorenson said. "Marriott Bonvoy membership totaled roughly $133 million at quarter end with strong signups in the Asia Pacific region in the quarter. Year-to-date, member occupancy penetration increased 160 basis points and in the second quarter alone bookings on the new Marriott Bonvoy app rose 70%. We are bullish about Marriott’s future."

Sorenson went on to explain that while Bonvoy was doing well, he expects it to become even more profitable in the near future.

"Typically, our loyalty program generates cash on an annual basis," he explained. "The cash we take in as folks earn points is more than needs to go out the door for either redemptions or the cost of the loyalty program."

In the current earnings report, Bonvoy profits were affected for three specific reasons: integration costs, meaningful marketing spend of the program, and the fact that redemptions through Bonvoy have been relatively high this year. He attributed the high redemptions to guests using the program for the first time and trying out hotels from Marriott's various portfolios, particularly at more expensive properties at high-occupancy periods.

"That obviously means that the cash going out the door is a bit higher than expectations," he explained. "But we are confident that the balance of that will even out over time."

Marriott's Home Sharing Business

Sorenson also spoke about Marriott's involvement in the home sharing space with its May 2019 launch of homes and villas by Marriott International. It currently offers guests 2,500 homes in the Americas and Europe to choose from. According to Sorenson, the number of homes Marriott offers is "tiny compared to many of the other platforms out there."

However, Marriott has concluded that it's worth the company's time to invest in this type of business for its leisure customers who appreciate having a loyalty program and a brand with a specific quality of service guarantee linked to their home-sharing stay.

"It's become painfully clear, crystal clear to us that this is not some fad that's going to disappear tomorrow, but this is something that is here to stay," he noted.

Sorenson even said that the company has heard from its customers that all too often home rentals are a "crap shoot" for knowing whether or not the experience will be a good one. Marriott took this to mean that its customers were asking the company to get involved in the home sharing market to fill their need.

"We got into it [homesharing] because we think it's a place where we can have a presence, we can provide more solutions to our loyalty members when they travel for different purposes. And we think we can make good economics over time," he added.

Since its launch, the company is seeing the majority of home sharing bookings come out of the Marriott Bonvoy program.

Direct Bookings vs. OTAs

According to Sorenson, system wide direct digital hotel revenue increased more than 20% in the second quarter and now represents nearly one third of property revenue globally, 38% of transient revenue alone. Meanwhile, property revenues booked on OTAs worldwide declined 2% in the second quarter. When asked during the Q&A portion of the call about OTA bookings in North America vs. international, Sorenson responded saying he believed OTA bookings were down more in the United States than the rest of world.

"We are working with our OTA partners to make sure that we are getting business from them when we most need it and not necessarily taking it when we don't," he noted.

In fact, he discussed how both bookings via direct digital channels and the growth of its Marriott Bonvoy penetration in the market should continue to make Marriott "less dependent on third-party platforms."

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