Marriott International (NASDAQ: MAR) is one of the world’s largest and most prominent hotel operators. Currently, Marriott operates around 4,200 hotels in 79 countries and territories.
The company’s properties operates under 19 different brands, including Ritz-Carlton and J.W. Marriott. Its properties include luxury, boutiques, suites, and apartment hotels as well as resorts.
Marriott is currently in the midst of a successful expansion effort that has led to significant revenue growth. In its most recent financial numbers from June 30, 2015, Marriott reported revenues of $14.22 billion that were growing at a rate of 5.88%. The revenue growth seems to justify Marriott’s expansion of its inventory from 675,623 hotel rooms in 2013 to 714,765 in 2014.
The important question that investors need to ask is, do the Political, Economic, Social (Cultural), Technological and Environmental, or PESTLE, factors surrounding Marriott justify its expansion? The cost of adding all those hotel rooms could be high and very risky; Marriott reported liabilities of $9.354 billion in 2015 even though it only made $1.307 billion in cash from operations.
Marriott International was formed in 1993 when Marriott Corporation split into two companies, Marriott International and Host Marriott Corporation. In 1995, Marriott was the first hotel company worldwide to offer guests the option to book reservations online, via the company’s implementation of MARSHA (Marriott’s Automatic Reservation System for Hotel Accommodations).
In April 1995, Marriott International acquired a 49% interest in Ritz-Carlton Hotel Company LLC. Marriott International believed that it could increase sales and profit margins for The Ritz-Carlton, a troubled chain with a significant number of properties either losing money or barely breaking even. The cost of Marriott’s initial investment was estimated to be about $200 million in cash and assumed debt. The next year, Marriott spent $331 million to take over The Ritz-Carlton, Atlanta and buy a majority interest in two properties owned by William Johnson, a real estate developer who had purchased The Ritz-Carlton, Boston in 1983 and expanded his The Ritz-Carlton holdings over the next twenty years.
The Ritz-Carlton began expansion into the lucrative timeshare market among other new initiatives made financially possible by the deep pockets of Marriott, which also lent its own in-house expertise in certain areas. There were other benefits for The Ritz-Carlton flowing from its relationship with Marriott, such as being able to take advantage of the parent company’s reservation system and buying power. The partnership was solidified in 1998 when Marriott acquired a majority ownership of The Ritz-Carlton. Today, there are 81 The Ritz-Carlton properties around the world.
Marriott is the first hotel chain to serve food that is completely free of trans fat at all of its North American properties. The hotel is noted for providing copies of the Book of Morman in addition to the Holy Bible in its rooms. As of September 23, 2016, Marriott operates 30 brands internationally.
PESTLE/EXTERNAL ANALYSIS OF MARRIOTT INTERNATIONAL
The major political factors that could affect Marriott are the danger of terrorism, international relations and the political climate in popular tourist destinations. The biggest threat here is a terrorist attack or a military conflict that could disrupt international air travel or frighten people away from travelling.
Examples of such events include the downing of Malaysian Airlines Flight MH17 by a missile in July 2014, which was fired from the Ukraine, and the September 11 attacks in 2001. Increased international tensions and the rise of aggressive new terrorist organizations such as ISIS make such events likely in the future. Naturally, any fall in air travel would decrease the demand for hotel rooms.
Another danger Marriott faces is that terrorists will attack tourist sites or hotels directly. There is some evidence that terrorists are targeting hotels and other tourist sites; in June 2015, 39 people, including tourists, were killed at a hotel beach in Tunisia. Such attacks could hurt Marriott by scaring away potential guests and creating the need for costly security measures.
The major economic factors that will affect Marriott’s business are the slowing of economic growth in China and the ongoing economic turmoil in Europe. Such events as the stock market collapse in China and the debt crisis in Europe have greatly reduced individuals’ buying power and their ability to travel. The biggest effect of this is the tapering off of business travel, which Marriott is heavily dependent upon.
A related problem for Marriott is the high exchange rate for the U.S. dollar overseas, which discourages Americans from travelling and foreign tourists from visiting U.S. destinations such as Las Vegas. High exchange rates can also discourage business travel.
A long-term economic threat is growing income inequality and stagnation of middle-class wages in the United States, which reduces people’s ability to travel and stay at hotels.
Social and Cultural Factors
Social factors make the future look very good for Marriott because the number of people that planned to travel internationally increased by 13% between 2013 and 2014, according to Mashable. More importantly, the amount travellers planned to spend away from home increased from an average of $5,955 in 2013 to $5,136 in 2014. That means there are more travellers spending more money.
It seems as if more people are willing to travel and pay more for the experience. Interestingly enough, Australians spent the most on travel: around $12,393 in 2014.
Cultural changes that could impact Marriott include increased numbers of Chinese and other Asian travellers. Populations in the United States and Europe that are growing older could increase the demand for certain kinds of travel experiences, such as packaged tours and luxury resorts.
Technology could have a huge impact on the hotel business in the form of online rental services such as Airbnb, which lets private individuals rent rooms or homes directly to travellers. Around six million guests stayed in Airbnb properties in 2013, according to Inc. There are around 25,500 Airbnb listings for New York alone.
One major potential threat Airbnb poses to traditional hotel companies is its hosts can avoid expenses such as hotel taxes and fire regulations, which means they have much lower operating costs. That enables Airbnb hosts to undercut hotel room rates in many markets.
The major legal factor that will impact Marriott’s future business is the status of services like Airbnb. Authorities in cities as diverse as New York, New Orleans and Barcelona have fined Airbnb and its hosts for violating zoning laws, hotel regulations and health and safety regulations.
There has been criticism that some hosts are abusing Airbnb in some markets to run what amounts to illegal hotels. Another concern is that Airbnb hosts do not pay lodging taxes, which are a major source of revenue for some municipalities.
In the United States, Marriott also faces the possibility of an increased minimum wage as high as $15 an hour in some proposals. That could lead to higher labour costs and service reductions.
Currently, the major environmental factor that could disrupt Marriott’s business is fuel prices. Falling oil prices could lead to reduced travel costs and more demand for hotel rooms. Obviously, a potential threat to Marriott’s business would be any sudden increase in fuel costs, particularly for the airlines.
A potential long-term environment impact on Marriott could include increased electricity costs created by efforts to curb greenhouse gases by limiting the burning of coal in power plants. Climate change could harm Marriott’s business by raising ocean levels and flooding resorts or creating storms that discourage beach going.
Increased temperatures from global warming could close ski resorts or make some beach resorts too hot for comfort. Those developments could force the closure or relocation of hotels.