BETHESDA, Md. — Marriott International held a conference call on March 19 to provide an update amidst the rapidly evolving COVID-19 outbreak.
“The travel industry is being impacted in unprecedented ways by COVID-19. As the virus and efforts to contain it have spread around the world, demand at our hotels has dropped significantly,” said Arne Sorenson, president and CEO of Marriott International. “We’re working tirelessly to take care of our associates, our guests, our owners and our other key stakeholders. The situation is changing by the day and there is still tremendous uncertainty, but we feel it’s important to share an update on some of what we’ve seen to date and describe key measures we’re executing to mitigate the impact of COVID-19. While we cannot predict today how long this crisis will last, we know it will get behind us. And when it does abate, lodging demand will rebound. We’re confident our company has the expertise and the resources to weather this crisis.”
“COVID-19 is fast becoming the most-significant event to ever impact our business — and that includes the 12-month period after 9/11 and the financial crisis of 2009,” Sorenson added.
In response to the current situation, Marriott has been implementing business-contingency plans to mitigate negative financial and operational impacts. On the property level, these include measures such as closing food-and-beverage outlets, reducing staff and closing floors or even entire hotels.
“We’ll have many [hotels] that close…we know there are hundreds of hotels that are either closing or looking at closing,” Sorenson shared.
The company has also temporarily deferred most brand standards to help owners and franchisees, including delaying renovations due in 2020 by one year, deferring required furniture, fixtures and equipment funding and suspending brand-standard audits.
“Some owners actually want to accelerate renovations because they think there’s a cost advantage to moving forward with that, both in terms of the cost of renovation and the displacement that will be avoided by doing it now,” Sorenson added.
At the corporate level, Marriott will make significant cuts (50 per cent) to senior-executive salaries, requiring temporary leaves in North America, shortening work weeks around the world and cancelling non-essential travel and spending. The company estimates these cost-cutting measures will reduce 2020 corporate general and administrative costs by at least US$140 million.
Sorenson and J.W. Marriott Jr., executive chairman and chairman of the board, will not collect a salary for the balance of 2020.
The company has also taken steps to dramatically reduce costs related to programs and services that hotels reimburse it for, such as marketing costs, to be more in-line with the expected decline in funding given that systemwide revenues are expected to be lower.
“We’ve moved very forcefully and in a way that is heart wrenching for many of us and breathtaking in lots of respects,” said Sorenson. “I’m worried we’re cutting so deeply that the rebuilding process maybe more challenging than we anticipated and, to some extent, that we might regret having moved as aggressively as we’ve moved. On one level, we hope that’s the problem we confront, because that would imply that we’re coming back sooner and stronger than the scenarios that are causing us to act now with the kind of aggression that we’re implementing.”
“I am hopeful that, if we treat our people well and the health crisis goes the way we expect it to, this will be an interlude, a leave, a furlough; that we will quickly be able to pull back the people we need to pull back,” Sorenson continued. “I think there will be pent-up demand from our customer base and that will come back…very substantially — probably quite quickly — by comparison to what we’re wrestling with today.”
Offering insight into the current state of the lodging industry, Sorenson noted, “It’s encouraging to see the trend lines in China and the entire Asia-Pacific region starting to improve. However, as the virus has spread, there has been a sudden sharp decline in demand throughout the rest of the world.”
Marriott’s North-American and European markets have seen occupancy levels below 25 per cent over the last few days, compared to around 70 per cent a year ago. The company foresees the potential for further erosion in performance in the weeks ahead, until there is a sense that the spread of the virus has moderated in these regions.
While the company has experienced historically high levels of cancellations for stays through the first half of this year, Marriott reports there have not yet been meaningful group cancellations for 2021 related to COVID-19 and many group customers are at least tentatively rebooking for later in 2020.