With Easter coming up its time to think
about a vacation and where you are staying is just as important as to where you
are going. It can really make or break a holiday. A favorite hotel
for many is Mariott (MAR). No matter where you travel around the world you know
you will receive consistent world class service and importantly a proper nights
sleep!
As a company MAR is quite different to what you might expect,
they don't actually own their hotels. MAR makes the majority of their
money from franchise and management fees. They typically team up with property
developers and offload the property to investors while MAR manage and run the
hotel. It is a capital light model which has allowed MAR to grow faster than
they would have otherwise.
Source: MAR hotel in Kuala Lumpur Malaysia
The model works because of MAR's brand and
distribution. MAR owns 14 different hotel brands ranging from the high end Ritz
Carlton to the flagship Mariott Hotels to Fairfield Inn & Suites by
Mariott. MAR is so successful with property developers because their rooms are
always nearly full. 20% of bookings are made online through Hilton.com and 50% of
room nights are made from MAR reward members. These rooms would be hard to sell
without MAR's loyal audience and distribution.
Source: Mariott investor day
Booked out?
Supply growth from the industry has been
muted since the crisis. One of MAR's main peers Hilton was taken private by Blackstone group near the top of the market in 2007, due to overleveraged competitors MAR has grown to around 9% room marketshare. MAR is dominant in North America but
is set to become even more so with around 20% of hotels in construction.
Check in to Chinese tourism
MAR is pushing hard into China. MAR
received an unexpected marketing boost when Xi Jinping the President of China traveled to
the US and stayed exclusively at MAR hotels. MAR market share in China is growing
with 15% of room supply but 23% of room revenue due to their premium brand. MAR also believe that they will benefit from Chinese tourists visiting the US, according to MAR the
US has a supply of only 5 million rooms. They estimate over the course of the
next decade there is the potential for an extra 40 million inbound visits from
China, often staying for a week that is 280 million nights a major shock to the
system!
The bad news is that the US government is 5% of overall MAR travel
so the budget issues have and will impact MAR profitability. We think this focus is too short
term with the Chinese opportunity MAR is one way to check in to growth in the
Chinese travel industry.
Jason
Disclosure: Decisive has no
position in MAR
The material in this article is
for informational purposes only and in no way constitutes a solicitation of
business or investment advice. The material has been prepared without regard to
any client's or other person's investment objectives. Before making an
investment decision you should consider the assistance of a financial adviser
and whether any investment or service is appropriate in light of your
particular investment needs.
