Marriott acknowledges Israel-Hamas war selectively impacting business amid global growth

The hotel industry’s roaring recovery from the pandemic faced some headwinds in recent months amid geopolitical tension and natural disasters: the Israel-Hamas war, Hawaiian wildfires and the worst earthquake to strike Morocco in more than 60 years, to name a few.

Amid all that, Marriott International still reported a $726 million third-quarter profit. Company leaders touted strength in consumer spending, significant recovery from the Asia-Pacific region and growth in midscale brands as a driver for the strong quarter.

But they also acknowledged there is some impact felt from the ongoing Israel-Hamas war.

“We started to see some cancellations and softer demand for our five hotels in Israel as well as for the 27 hotels in Lebanon, Jordan and Egypt,” Leeny Oberg, Marriott’s chief financial officer and executive vice president of development, said on the company’s earnings call Thursday morning.

Similar to when Marriott and other hotel companies pulled out of Russia amid sanctions levied from that country’s invasion of Ukraine, the company’s leaders emphasized the human tragedy of the ongoing crisis in Israel and the Palestinian territories.

“As a global company, we are keenly aware that we are living in a time of heightened geopolitical tension. We are heartbroken by the devastating loss of so many innocent lives in the Israel-Hamas conflict,” Marriott CEO Anthony Capuano said. “Our thoughts are with everyone impacted by this tragic war, as well as the ongoing war in Ukraine and we remain hopeful for peace.”

The impacted areas of Israel, Lebanon, Jordan and Egypt comprised less than 1% of gross fees the company made globally last year, Oberg later noted. There has not been any “meaningful impact” on the company’s business and demand elsewhere in the Middle East.

“We’re keeping a close eye on the situation and working closely with our teams on the ground as events unfold,” Oberg said.

Where Marriott is growing

Marriott leadership still had plenty to talk about in terms of growth. The company’s overall hotel performance is up 9% from a year ago, with a 4% increase in the U.S. and Canada and a 22% increase internationally. The ongoing hotel recovery in the Asia-Pacific region drove much of that higher international figure.

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Of the 17,200 new hotel rooms Marriott added to its portfolio between the beginning of July and end of September, roughly 13,000 of those rooms were in international markets.

Global room rates are up 4% from where they were a year ago. The company still sees growth potential, largely in China; recovery in the country is showing strength event though international air capacity into the country is still only at 50% of pre-pandemic levels.

On the loyalty front, Marriott Bonvoy now has 192 million members, and downloads of the Marriott Bonvoy app during the third quarter were up 19% from the same time last year.

Marriott acquired Mexico-based City Express and launched Four Points Express by Sheraton as well as StudioRes, an extended-stay brand. Hilton opened its first premium economy Spark hotel in Connecticut last month, and the company’s own extended-stay brand, Project H3 (a working title), is in the works. IHG launched Garner, a midscale brand, while Hyatt rolled out its extended-stay concept, Hyatt Studios.

Capuano indicated Thursday the company’s midscale push will have a regional focus for now: City Express will focus on the Caribbean and Latin America, while StudioRes will center on the U.S. and Canada. Four Points Express will grow in Europe, the Middle East and Africa.

Of the 10 letters of intent signed for new City Express hotels, nine are in new countries. There are four signed deals for upcoming Four Points Express hotels in London and Turkey, and there are talks for deals in more than 300 markets across the U.S. for StudioRes.

But don’t take all the midscale attention as a sign that Marriott is taking its foot off the gas pedal with respect to luxury brands.

“I’d like to describe those discussions as never being binary. We don’t look at it and say, ‘Let’s pivot our focus away from our luxury leadership towards a focus on midscale.’ They are not mutually exclusive,” Capuano said. “That does not require us to hit the pause button on extending our lead in the very valuable luxury segment.”

Marriott’s luxury brands include St. Regis, Ritz-Carlton, Ritz-Carlton Reserve, The Luxury Collection, Edition, W Hotels and JW Marriott.

“That’s a long-winded way of saying our strategy is to continue to strengthen our leadership position in luxury and upper-upscale while expanding our growth potential in a new segment for us, which is midscale,” Capuano said. Later, he added, “We do think there is a value-driven consumer that perhaps we were not capturing before, which is one of the reasons we’re so enthusiastic about entering the midscale tier for the first time.”

One area that didn’t get much context for the future guest experience was the pending partnership between Marriott and MGM Resorts. Capuano and Oberg mainly referenced it in terms of the deal, now delayed until early 2024, having no negative impact on the company’s forecast for net room growth in light of the pushback.

MGM Resorts, which reports earnings later this month, lost $100 million due to a September cyberattack. The planned partnership includes loyalty reciprocity as well as MGM Resorts property integration into various Marriott brand umbrellas.

Further details on the partnership are still unknown but are expected to roll out closer to the official launch.

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