Is It Worth Investing in Marriott? Key 4Q14 and 2014 Results (Part 7 of 10)
Limited supply with rising demand
According to its 4Q14 earnings call, Marriott International’s (MAR) management believes that limited supply with rising demand is the major contributor to its recent growth. The company’s results in 2014 were positively impacted by a number of strategic decisions made following the 2009 downturn, including:
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Decentralization helped the company to put important business decisions in the hands of continent executives who are close to the customer and the local market.
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The company increased the number of brand platforms available for owners and franchisees.
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The 2011 spinoff of Marriott’s timeshare segment greatly increased the company’s return on invested capital, and it retained a significant royalty stream from Marriott Vacations Worldwide.
Demand trends
Marriott International’s management remains bullish about demand trends in North America, and the company is approaching record occupancy rates in its hotels. Investors should keep in mind that the strong US dollar will likely discourage international travelers. However, Marriott’s management believes that this will not be a significant headwind to its US operations, because international guests make up only about 5% of its room nights.
The above chart shows that the current US market supply growth in terms of room growth is around 1%. The supply growth is expected to increase to 2% by the end of 2017 to meet the rising demand.
Growth in tourism
As noted in the 4Q14 earnings call, Marriott International’s management is optimistic about the company’s long-term prospects, given the growth in global travel. According to the World Travel Organization, the estimated number of international arrivals has more than doubled in the past 20 years to 1.1 billion visits in 2014. Plus, the extension in the visa validity terms from one year to ten years in the US and China would significantly boost the arrivals of visitors, reducing the red tape for frequent travelers.
This development should also benefit hotel companies like Hilton (HLT), Starwood (HOT), and Wyndham (WYN). This will also have a positive impact on ETFs like the PowerShares Dynamic Leisure and Entertainment Portfolio ETF (PEJ) and the Consumer Discretionary Select Sector SPDR Fund (XLY) that invest in these hotel companies.
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