How is the hotel market today?

The recovery continues to progress. We are enthusiastic about the resilience of travel, about the strength of our model, the enthusiasm of our guests to get back on the road and the resilience of our people, [but] we are reminded every day about the unpredictability of the pandemic.

Previously when we spoke [in September – for that interview see –  Marriott CEO Tony Capuano on when business travel will return we were talking about the recovery of China and how all three segments (leisure, business and group] had returned to pr- pandemic levels. My guess is that now when we do our next earnings call, China will be one of the most challenging markets because of the zero covid policy there.

The Omicron variant is a perfect example. January was a bit challenged. The best news about our business is we reprice and re-list our inventory every day, so that Omicron variant pops up, we see a decline in performance, and as soon as folks better understood the implications we see it ramp up just as quickly.

What about staffing for the business? It must have caused problems with the isolation periods required because of Covid?

Generally staffing is back, other than some of the efficiencies that we identified by necessity. In some of the more challenged recovery markets, [such as] big urban business transient-driven markets, we’ve still got a way to go to get back to pre-Covid staffing levels.

In the UK particularly, lots of staff were made redundant and now there is a staffing crisis, pushing up prices just as other inflationary pressures are going up. Will hotel room prices rise as a result?

The travel and tourism sector was among the hardest hit in terms of job loss and furloughs. There is some sub set of the folks who were impacted who likely have left the sector permanently. We’ve had good success and continued success in back-filling those vacancies, but many of the candidates we are seeing, while they are excited and energised about coming into the sector, they may not have deep or any experience and so that creates a steeper training curve for us.

On the inflation question, in our industry we have been through lots of inflationary cycles and I suppose in some way the name of the game is to take advantage of inflation as it relates to our pricing power and try and ensure we manage the impact of inflation on the cost side of the equation.

The margin efficiencies we have identified by necessity over the last two years, we believe that, at worst, [they]  can be maintained in a way that they will offset the impact of wage and operating cost inflation and ideally we will continue to see margin expansion, both because of those cost efficiencies and because of accelerated revenue growth.

What are the cost efficiencies?

I think we have looked at a broader span of control for some of our managers. We have also looked at some of the opportunities that are created by technology innovations, although I’d want to pause on that for a minute, because I do think there is a natural reflex to say ‘Great we’ve got all this technology that allows you to just eliminate jobs’, and while there will be some efficiencies in that regard, I think we are way more enthusiastic about technology creating capacity for our associates to more deeply engage with our guests.

Many of our guests have not travelled much or at all over the last two years… and we think one of the best ways we can drive recovery is to more deeply engage with our guests when they arrive at the hotel and technology is a way of driving that engagement.

All of us whether it’s with an airline or a hotel have had the experience when you are staring at the top of the head of an associate because they are tapping away at a keyboard, so replacing that with a warm, welcoming smile and some real conversation goes a long way to reminding people why they love to travel.

The change in Marriott Bonvoy’s Rewards also saw the removal of the rewards chart

I’ll say two things. Because of our business model, almost every decision we make we’ve got to look at through multiple facets, namely how does this decision impact our associates, how does this decision impact our guests and how does it impact our owners? And we try and strike the right balance to meet the needs and expectations of each of those constituents.

On Rewards, of the 8,000 hotels, something like 200 of the hotels had the cost of dynamic pricing increased beyond the parameters of the programme, so it’s a relatively small – the lowest and highest cost in the old matrix in terms of points, so it’s a fairly modest percentage of the entire portfolio that now at premium or peak times has a points redemption cost that’s above the high end of the range previously.

There will be inevitably some guests who will be frustrated with those couple of hundred hotels. On the other hand it gives a level of flexibility of our guests to take full advantage of cheaper opportunities to visit a resort or a hotel that’s been on their wish list for a while and [they now] have much more clarity and simplicity around how to maximise the use of those points for redemption.

So those who have a lot of points can get the availability?

Yes, but for those that maybe don’t have as many points, to say rather than going to that beach resort in July when it’s at its peak maybe we decide as a family to go in May or September when the crowds aren’t as big and I can get a pretty compelling bargain in terms of a redemption rate.

What’s your feeling about further acquisitions and mergers in the industry

Rightfully most coverage of Marriott’s mergers and acquisitions focusses on the Starwood transaction because of the sheer scale and size and transformative effect of that acquisition, but if you look at what we were doing before and after we have had a fairly consistent cadence of bolt-on acquisitions: AC hotels, Protea Hotels in Africa, Gaylord Hotels in the US, Delta Hotels in Canada, and those transactions had pretty similar DNA. They either filled a gap in our brand architecture or a geographic gap in our footprint and we believed that they were scalable and had growth implications regionally or even globally.

The reason I believe you’ll continue to see a pace of activity across the industry is that there are lots and lots of terrific small brands around the world, but increasingly the benefits of scale will lead some of those management teams to conclude that “We are an inflection point and we either have to invest meaningfully in technology and our loyalty platform, or risk being eclipsed by some of the scale players”. And some will choose the path to the right and make those investments in an effort to build scale organically, some will take the path to the left and conclude that a transaction with a player of scale is perhaps a better strategy for them and their employees and their investors.

So how many brands? If you have any more a traveller would need to look at Marriott Bonvoy to check if it was a Marriott hotel.

I certainly think that Bonvoy serves a number if important purposes. There are some folks I meet who say ‘It would be great if you had a brand like Ritz-Carlton’ and I say, “We do have a brand like Ritz-Carlton.” But Bonvoy gives us a great platform to educate consumers about the portfolio. I love the breadth of choice that a thirty-plus portfolio offers both our guests and our owners, but obviously your responsibility if we are going to run a portfolio like that is there is a clear and distinct and well positioned for all of those 30 brands.

Whether it expands? Possibly. I don’t feel the need to do it just to get scale. We already have leading scale, but the same lens we have applied to previous M&A transaction will continue to apply.

The example I would give is Protea Hotels. Prior to that transaction, we didn’t have a single operating hotel in sub Saharan Africa. But with a stroke of a roughly 200 million dollar cheque, not only did we become the biggest hotel company on the African continent, but maybe just as importantly we gained more than 300 associates who had bene developing and operating and staffing hotels in Africa which is a very complex set of markets who had been at it for over 30 years so it brought us a base of operations in Cape Town and also a deep level of institutional knowledge and expertise.

So as far as further acquisitions are concerned. We are constantly looking and having this internal debate. Here is a country that we don’t have as large a market share as we might like. How do we feel about getting their organically, and are there some burning imperatives that would cause us to look at a M&A transaction to get us there more quickly.

Sustainability is important, but you don’t own the hotels so how will you meet your stated aims?

It’s among the biggest challenges. If we owned all 8,000 hotels I could give you a much more concise outline and probably timeline of how we get to our publicly stated sustainability aims. The good news is I sit in lots of owner forums and I can’t remember when we had a meeting with a group of our big owners that they’ve not raised sustainability as a top priority as well.

Figuring out how we get there making sure we are a centre of research and knowledge for our owners and franchisees because it is a complex and ever moving landscape. But we are in deep discussions and I anticipate like we do with any evolving brand requirements lots of collaboration with our owner community.

This whole ESG space, understandably given the state of the planet, climate tends to dominate, but there are so many facets to the ESG journey we are on, whether it’s food waste, whether it’s creating education and employment opportunities, whether it’s fighting human trafficking, there are lots of parallel activities we are involved with.