Marriott International, Inc. (MAR) Q2 2010 Earnings Call July 15, 2010 10:00 a.m. ET Executives Arne Sorenson - President & COO Carl Berquist - EVP & CFO Analysts Steve Kent - Goldman Sachs Joe Greff - JPMorgan Will Marks - JMP Securities Smedes Rose - KBW Josh Attie - Citigroup Janet Brashear - Sanford C. Bernstein Alistair Scobie - Atlantic Equities Felicia Hendrix - Barclays Capital Shaun Kelley - Bank of America/Merrill Lynch Chris Woronka - Deutsche Bank Jeff Donnelly - Wells Fargo Ryan Meliker - Morgan Stanley Presentation Operator
In early June we had the New York University Hospitality Conference. I was on a panel that was asked about the prospects for the U.S. lodging industry. While my peers on the panel took the more conservative approach, I responded that I was wildly optimistic about the future of our industry, and I am. Our business this year is showing very strong demand trends, which are continuing as we speak.Now it may sound imprudent to express such optimism as many market participants worry about the potential for a soft patch in the economic recovery, but our optimism is driven not so much by this week's or this months or even this quarter's numbers, as it is by the prospects for the next few years. With steady rooms growth already in 2008, 2009 and after the first half of 2009, great prospects were continued international expansion and plenty of upside in comparable hotel REVPAR are prospects for financial growth are exciting. This optimism is confirmed by our experience coming out of our every recent recession. We are eager to harvest this growth in the coming years. Of course, the recent trends are also encouraging. Last quarter we talked about the improving momentum in business and group demand. After dropping for eight straight quarters, occupancy rates bottomed in the fourth quarter of 2009. In discussing those year end results we said that we hope to increase room rates year-over-year sometime in 2010. As it turned out, we were able to increase room rates much faster than we anticipated. In period five, roughly equivalent to May, domestic company operating room rates rose 1%, the first increase in nearly two years. In period six, roughly equivalent to June, domestic company operating room rates rose 3%. Room rates improved in part due to the mix shift coming from strong corporate demand in the second quarter for the Marriott Hotels & Resorts brand, corporate and premium room nights rose 16% year-over-year, and more significantly with higher occupancy our managers found real pricing opportunities.
Across the Marriott Hotels & Resorts brand in North America in period six, three quarters of our company operated hotels increased corporate and premium rates year-over-year with the third of our hotels raising them by more than 10%, some of them significantly more than 10%. On average in fact, Marriott corporate and premium rates rose at about 10% overall in period six.Of course, roughly 15% of Marriott brand room nights are at previously negotiated special corporate rates. Special corporate room nights rose 21% in the second quarter, but room rates decline 3%. We will begin special corporate pricing negotiations later this summer, and are already preparing customers for rate increases including in significant increases in many cases. While it's a bit early to quantify the likely increase in 2011 with strengthening demand, our customers know that today's prices are not sustainable. By and large, they recognize that to provide the best quality service, availability, amenities and facilities, hotels need to be able to charge a fair price. This is in the interest of everyone whether one is a hotel operator, hotel owner or hotel guest. Discounted trends business include leisure government and contract rooms, with stronger corporate business we've had less inventory available for government and contract travelers. Leisure demand in the second quarter however was solid. On weekdays Marriott brand REVPAR rose an impressive 9% in the quarter, but weekends held their one with REVPAR up 5%. Consumers continue to look for good value, but we have dramatically reduced promotional pricing year-over-year, which enabled us to report 3% higher weekend room rates in the second quarter. Turning to group business, total Marriott brand group room nights rose 8% and room rates declined 2% in the second quarter. Read the rest of this transcript for free on seekingalpha.com