Swot Marriott 2010

Marriott International, Inc.

Company Profile

Publication Date: 20 May 2010

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Asia PacificAmericasEurope, Middle East & AfricaLevel 46245 5th Avenue119 Farringdon Road2 Park Street4th FloorLondonSydney, NSW 2000New York, NY 10016EC1R 3DAAustraliaUSAUnited Kingdom

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Marriott International, Inc.

TABLE OF CONTENTS

Company Overview..............................................................................................4

Key Facts...............................................................................................................4

SWOT Analysis.....................................................................................................5


Marriott International, Inc.TABLE OF CONTENTS

COMPANY OVERVIEW

Marriott International Inc. (Marriott or “the company”) is a global hospitality company that operatesand franchises hotels and lodging facilities. The company primarily operates in Americas, Europe,Africa, and Asia-Pacific. It is headquartered in Bethesda, Maryland and employs about 137,000people.

The company recorded revenues of $10,908 million during the financial year ended December 2009(FY2009), a decrease of 15.3% over 2008. The decline in revenue was primarily attributed to weakeconomic conditions in the United States, Europe and much of the rest of the world, which affectedthe lodging demand throughout the world in 2009. The operating loss of the company was $152million in FY2009, as compared to the operating profit $765 million in FY2008. The net loss was$353 million in FY2009, as compared to a net profit of $347 million in FY2008.

KEY FACTS

Marriott International, Inc.Head Office10400 Fernwood RoadBethesdaMaryland 20817USA

1 301 380 3000Phone

1 301 380 3967Fax

http://www.marriott.comWeb Address

10,908.0Revenue / turnover(USD Mn)

DecemberFinancial Year End

137,000Employees

MARNew York Ticker


Marriott International, Inc.Company Overview

SWOT ANALYSIS

Marriott is a global hospitality company that operates and franchises hotels and lodging facilities.The company with its global presence and strong brand recognition is a formidable player in theinternational lodging market. However, the threats of terrorist attacks could hamper the company’sinternational operations.

WeaknessesStrengths

Business model which has the potential todilute the brand perception and limit therevenue growth

Technical innovations to ease the businessprocess and increase hassle-freeexperience for the customers

High leverage combined with downgrade inrating will affect the future capital generationand expansion projects

Higher brand recognition and recall makesthe company priority choice for clientsGlobal presence and strong brand portfoliodiversifies the revenue sources Weak financial performance affecting the

company’s expansion plans

ThreatsOpportunities

Vulnerability to terrorist attacks raisessecurity and safety concerns

Strong growth in the hotel and motelindustry in emerging markets

Timeshare business vulnerable in a dismalcapital and credit market

Improving hospitality market in the USBrand innovations to suit the changingcustomer preferences Fragmented and intensely competitive

lodging industry

Strengths

Technical innovations to ease the business process and increase hassle-free experience for thecustomers

Marriott had adopted several innovative technical programs to suit its business requirements andsupport the customer related problems. These programs have been developed either in-house orwith the external support. One of the frontrunners of the technical success has been the Marriott'sAutomated Reservation System for Hotel Accommodations (MARSH), a well known reservationsystem being used by the Marriott.This system encompasses the entire database of all its customersvisiting anywhere in any part of the world. Thus, the information of a customer visiting Courtyard,London would already be available through MARSH as that customer had once visited Ritz-Carlton,Millenia Singapore.The MARSH, hence, gives the Marriott an edge over its competitors, in providingpersonalized attention to each of its customer. The MARSH success led to the implementation of


Marriott International, Inc.SWOT Analysis

the e-business strategy which transformed Marriott from a property-focused to a customer- focusedcompany. The main aspect of this strategy was the more importance given to revenue earned percustomer than the revenue earned per property and to provide better customer service through theuse of information technology proactively and through facilities on offer through websites.

Another technical innovation at Marriott was related to the development of an auditing tool for priceauditing.The tool was developed as a response to the renegotiation requests from its clientele duringthe recent recession. The renegotiation was proving extra burden financially for the hotels as theywere forced to undertake the labor-intensive task of continually loading, auditing and monitoring theshifting corporate rates. Marriott tackled this problem by automating the process and developed theProperty Guest Object Oriented System (PGOOS), an auditing tool which automatically auditedevery night its central reservations system (MARSH). The implementation of PGOOS enabled thecompany to streamline its published rates with the negotiated rates and ensured that the negotiatedrates are at or below published rates. Thus, PGOOS became one of the competitive advantages ofMarriott since the customers where proactively given lower rates that coincided with market situation.The clients were, thus, assured of better rates at Marriott.

The continuous focus on using technologies to better the customer experience at Marriott, hence,is one of the competitive edges of the company and enables it to distinguish itself from its competitors.

Higher brand recognition and recall makes the company priority choice for clients

Marriott is one of the leading hotel and leisure companies known for its strong brand portfolio in allthe major segments and market.The company operates in most major markets and segments aroundthe world through its luxury brands such as Marriott Hotels & Resorts, JW Marriott Hotels & Resorts,The Ritz-Carlton, Bulgari Hotels & Resorts, Grand Residences and mid-priced brands like Courtyard,and Fairfield Inn. At a corporate level, Marriott has a high brand recall. The company ranked 37 inthe Fortune’s 2009 rating of World’s Most Admired Companies after ruling the list as the numberone for ten consecutive years. The "Most Admired" list is made up of companies that are ranked byExecutives, Directors, and Analysts in their own industry on eight criteria, including innovation, peoplemanagement, uses of corporate assets, social responsibility, quality of management, financialsoundness, long-term investment, and products/services quality.

The J.D. Power and Associates’ recent North America Hotel Guest Satisfaction Index Study gavethe best scores to the two Marriott brands; Ritz-Carlton Hotel in the Luxury Segment and SpringHillSuites in the Mid-Price Limited Service Segment. In addition, three brands were placed second intheir segments; Renaissance Hotels and Resorts, Courtyard, and Residence Inn.The Marriott brandsoccupied the survey with either first or second place in five of the six segments into which J.D. Powerdivided the industry.

The brand recognition and acceptance related with customer satisfaction makes Marriott a popularchoice among the customer base. This gives Marriott an edge over its competitors when clients optfor lodging facilities. Besides, it also helps in retaining and maintaining a loyal customer base.

Global presence and strong brand portfolio diversifies the revenue sources



Marriott is one of the key players in lodging and hospitality industry with operations spanning 68countries around the globe. Although the US is single largest market of the Marriott, yet 43% of theearning before interest and tax is contributed by the company’s international operations. Thus, thecompany does not depend on a single market for its revenues. It earns revenues from both maturedand emerging markets.The established presence in matured markets like the US and Canada drivesthe value growth while the presence in emerging markets drives the volume growth. Besides, aglobal presence shields the country from risks specific to a particular economy.

Besides, having a diversified geographical base, Marriott sources its revenues from a diversecustomer base. The company has presence in all the segments: luxury, upper moderate, moderateand lower moderate price segments. Ritz-Carlton, JW Marriott and Bulgari brands of the companycater to the luxury segment while Marriott, Renaissance, SpringHill Suites and Courtyard targetupper moderate-price tier segment and Fairfield Inn competes in the lower moderate-price tier. Inaddition, to these, the company has brands like Renaissance, TownePlace, Marriott Vacation Cluband Grand residences which compete in different market segments. Marriott’s hotel brands are oneof the respected and known brands in the lodging industry. The awards and recognition, like theFortune’s “Most admired Brand” as mentioned above, signifies the company’s brand value. Thebrand value combined with presence in all segments helps the company in generating revenuesfrom diverse customer base.

Weaknesses

Business model which has the potential to dilute the brand perception and limit the revenue growth

Marriott follows the business model wherein it emphasizes on managing and franchising hotels,rather than owning them. The company operated 46% of its hotel rooms under managementagreements, 52% under franchise agreements, and only 2 % were owned or leased as of December,2009. But, as compared to this, only 33.6% of the revenue in FY2009 were earned through franchiseand management agreements while 66.4% from owned or timeshare sales and service (excludingrevenues from cost reimbursement). The emphasis on management contracts and franchisingalthough tends to provide more stable earnings in periods of economic softness, however does notprovide much scope for revenue growth. Besides, the revenues generation from incentive fees,revenues earned when hotels reach certain profitability level, is very much dependent on the economicscenarios. The company faced similar situation when incentive fees halved from 2008 level, thecompany generated $154 million in FY2009 as against $311 million in FY2008 indicating a declineof almost 50.5%. Moreover, the franchise and management agreement can dilute the brand equityassociated with Marriott properties. If the parties involved in franchise or management agreementwith Marriott does not deliver the quality with which the company is associated, it could seriouslyharm the company’s reputation. The franchised or business model, although gives a constant andsafe source of income, but brings demerits like diluted brand perception and limited revenue growth.

High leverage combined with downgrade in rating will affect the future capital generation andexpansion projects



The company has substantial debt to equity ratio. The ratio increased from 0.7 in 2006 to 2.24 in2008 and stood at 2.01 in 2009. In percentage terms, the company’s long term debt to equity ratiostood at 291.96% as against the industry standard of 56.07%. The lodging industry being capitalintensive, generally have higher leverage. But, the cost of capital issue attached with the high leveragecan hamper the profit generation capacity of the company. Currently, the US is following low interestrate regime to encourage investment and consumption. The interest rate in the US as of April 2010stood at 0.25%. However, renewed inflationary pressure, the Consumer Price Index (CPI) for theperiod January, February and March 2010 stood at 2.6, 2.1 and 2.3 respectively as against annualaverage rate of -0.4 in 2009, and increasing debt issuance by the US government is expected topull up the rates. A high debt leverage of Marriott, in a rising interest rate scenario, will increase theinterest expense burden and hence will affect the profit margins.

Besides, Marriot’s credit rating was downgraded by Standard & Poor’s Ratings Service (S&P) inApril 2009 from BBB to BBB-.The credit rating was revised to reflect the downward expectation for2009 revenue per available room in the US lodging industry, which was expected to decline by 14%to 16%. The rating agency continued with the downgraded rating as signs of recovery in the lodgingindustry are still in the initial stages. Downgrade in rating makes it difficult and expensive for thecompany to access the credit market. Any further downgrades of credit ratings by S&P or othersimilar rating agencies would increase the company's cost of capital and adversely impact its profits.

Weak financial performance affecting the company’s expansion plans

Marriott registered weak financial performance in the FY2009 due to the slowdown in the economyand the lodging industry. The company’s revenues declined by almost 15.3% in 2009 compared tothe previous fiscal. Moreover, the company registered operating and net losses for the fiscal 2009.The company had performed poorly in the fiscal 2008 as well. The company reported decliningrevenues and profits in the last fiscal. The revenues for the FY2008 declined by 0.9% as comparedto the FY2007, the operating profit declined by 33.9% and the net profit by 48%. Besides, the profitmargins have also dropped drastically. The operating margins reduced from 9.1% in FY2007 to6.1% in FY2008 and negative 1.4%in FY2009, which indicates that the company has not been ableto manage its cost structure efficiently.The poor revenues and operating profit affected the net profitof the company; Marriott registered net loss of $353 million for FY2009, and hence reduced the netprofit margin to a negative value of 3.2%. The company was facing pressure on its margins since2008 as the net profit margin declined to 2.8% in 2008 from 5.4% a year ago.

The adverse business environment have resulted in declining revenues for Marriott and impactedthe company’s profit making capacity. As a result of the weak financial performance, the company’scapital expenditures outlay reduced from $671 million in FY2007 to $147 million by FY2009. Thisreduction could hamper the company’s growth and expansion plans to tap the new and growingmarkets Moreover, the company’s cash position has also weakened considerably; it declined from$332 million in FY2007 to $115 million by FY2009. The weak cash position, if continues, couldhamper the company’s day-to-day business activities as well as future expansion plans.

Opportunities



Strong growth in the hotel and motel industry in emerging markets

The global lodging industry has seen remarkable growth from emerging markets like China and Indiaover past few years. The GDP growth, economic prosperity and the rise in disposable income inthese countries have contributed to the growth of lodging market. The GDP growth has increasedthe number of business travelers travelling within these countries while growth in disposable incomehave resulted in increased leisure travelers According to the Datamonitor's report on "Hotels & Motelsin India", December 2009, the Indian hotels and motels industry generated $5600 million in 2008,representing a growth of 17.1% over the previous year. The Indian lodging market is expected togrow to the value of $10100 million by 2013, an increase of 80.5% since 2008. China, the world’sfastest growing economy, have also registered strong growth.The Chinese hotels and motels industrygenerated total revenues of $30,900 million in 2008, representing a compound annual growth rate(CAGR) of 16.8% over the previous year. The Chinese lodging industry, in the long run, is expectedto thrive with an anticipated CAGR of 11% for the five-year period 2008–13 and projected value of$52,000 million by the end of 2013.

Marriott’s 47 property bases along with franchised and managed agreements at prime locations inChina make it a formidable player in the luxury and the moderately-priced segment. Besides, thecompany is adding new properties to increase its number strength. The Renaissance ShanghaiZhongshan Park Hotel in Shanghai, China, was opened in January 2009. The following month,411-room JW Marriott Hotel was opened in Shenzhen. The hotel is the fifth JW Marriott brandedhotel in China. The other four JW branded properties in China include 602-room JW Marriott HotelHong Kong, 342-room JW Marriott Hotel Shanghai, 470-room JW Marriott Chongqing, and 549-roomJW Marriott Hotel Beijing. Furthermore, Marriott International's Courtyard brand opened its 800thhotel in Shanghai, China, in the same month. The company, in addition to licensed and franchisedagreements, has increased its property base in China from 32 in 2007 to 47 by 2009. The companyhad made similar growth in Indian market by increasing its owned property base from 6 to 9 duringthe same period.With further planned expansion to open new hotels both under owned and franchisedsystem, the company is expecting to increase its volume strength in these markets. The expandingproperty base and strong brand recognition associated with Marriott, hence, gives the uniquepositioning to the company, to compete effectively with local and international players in the emergingmarkets.

Improving hospitality market in the US

North America, the single largest market of Marriott, is showing signs of normalcy after recessionaryturbulence. The lodging industry, which derives its growth from the economic climate, is alsorecovering fast from the recessionary blues. The industry is showing improvement in all keyperformance metrics. The occupancy rates for the week ending May 2010 rose to 57%, indicatingan increase of 6.4% over the previous year. Another key metric, revenue per available room alsorose by 5.6% and totaled $55.3 for the same period. However, the biggest gainer was the luxurysegment which reported largest increase as compared to other segments.The segment’s occupancyrate for the week ending May 2010 stood at 67.8%, an increase of 11.8% over the previous year.The average daily rate, for the same period, charged by the luxury hotels totaled $240.8, an increase



of 2.5% over the previous year while the revenue per available room increased by 14.6% to reach$163.15.

The improvement in luxury segment is a boon for the company’s premium brands like Ritz-Carlton,Bulgari and JW Marriott which had to bear the impact of the turbulent US economy. The companywould be a forerunner in the lodging industry to reap the benefits of the improving economic climateconsidering its volume and brand value in the North American lodging market.

Brand innovations to suit the changing customer preferences

Marriott, through owned, leased, franchised and managed properties, is expanding its investmentto either launch new brands or renovate the old brands with new style and features. Among the newbrand launches, Autograph Collection would include a range of upscale luxurious and independenthotels in prime destinations around the world.The company plans to add 25 hotels in the AutographCollection by 2010. Additionally, it is planning to launch Edition Hotels, a new range of lifestyleboutique brand developed in partnership with Ian Schrager, by opening two new hotels in later halfof 2010.

Besides addition of the new brands, the company is investing in renovating its old brands. JW MarriottWashington celebrated its 25 years in June 2009, with the completion of $40 million renovation toinculcate high-tech, high-style innovations and a fresh new design.While in July 2009, RenaissanceAmsterdam finished its two year, multi-million dollar renovation to meet the demands of today’sbusiness and leisure travelers. In another major renovation effort, the company announced thecompletion of the $70 million renovation of the three Marriott Miami Airport Campus properties; theMiami Airport Marriott, the Courtyard Miami Airport South, and the Residence Inn Miami AirportSouth.

In addition to renovating design and features of its hotels, Marriott is also trying to introduce greenhotels in its portfolio.The company, in 2009, announced its plans to expand the green hotel portfolioten-fold over the next five years by introducing a green hotel prototype that will be pre-certifiedLeadership in Energy and Environmental Design (LEED), an internationally recognized green buildingcertification system designed by the US Green Building Council (USGBC).The green hotel prototypeis expected to save approximately $100,000 and six months in design time, and reduce a hotel’senergy and water consumption by up to 25 percent.

The company through brand introduction and renovation is changing itself to suit the needs andinterests of the present business and leisure travelers. The brand innovation efforts, hence, is aneffort to keep offerings and ambience at Marriott properties contemporary. These initiatives will helpthe company to provide the services to its customers in a better way. Improved service offeringincreases the customer's recall of Marriot thus leading to repetitive visits and a steady stream ofrevenues.

Threats



Vulnerability to terrorist attacks raises security and safety concerns

The tourism industry is affected by threats from terrorist attacks after September 11, 2001. Marriott,a symbol of American luxury and power, has been a prime target of terrorist attacks. The companyhas suffered many bomb blasts in the recent past.The 2002 car bombing at Karachi outside MarriottHotel and 2003 attack on Marriott hotel, Jakarta, Indonesia killed many people while several wereinjured. . The Marriott was again targeted in 2004 and then in 2008 in Islamabad, Pakistan causingmany deaths. In another big attack on Marriott properties, Ritz Carlton and JW Marriott hotels inJakarta, Indonesia were targeted in July 2009, resulting in the deaths of eight people while injuringat least 51 people.The attacks on Marriott properties have exposed the vulnerability of the hospitalityindustry to terrorist attacks. The aftermath of these terrorist attacks have weakened the consumerconfidence in the security arrangements around Marriott and has instilled doubts and fear in theminds of certain international customers. These incidents could result in lower check-ins at Marriotthotels which will affect the company’s business and reputation in the long run.

Timeshare business vulnerable in a dismal capital and credit market

The timeshare business segment of the company is still facing the heat of troubled financial andcredit markets.The company, under this segment, markets and sells residential properties; financesconsumer purchases; and operates resorts. The company provides financing to the purchasers ofits timeshare and fractional properties by securitizing the loans periodically in the securities markets.However, the turbulence in the financial markets in the second half of 2008 and whole of 2009 inthe US impaired the timing and volume of the timeshare loans, as well as the financial terms of suchsales. Deteriorating market conditions resulted in the delay of a planned fourth quarter 2008 sale ofloans to the 2009 first quarter and at interest rates higher than pre-recession era.

The continued weak performance of the financial markets in the US could delay future securitizationof loans. The rates charged on these loans will also go up as investors would demand a premiumconsidering the BBB- grading by Standard & Poor. Thus, a turbulent financial market would impactthe timeshare business of the company and increase the cost of financing the timeshare business.

Fragmented and intensely competitive lodging industry

The company faces a strong competition both as a lodging operator and as a franchisor. The USlodging market is highly crowded with several key players like Accor, Hilton Hotels, Starwood andIntercontinental Hotel Group and others, have a strong established base in US. These operatorsare primarily private management firms, but also include several large national chains that own andoperate their own hotels and also franchise their brands. According to the industry reports, the lodgingindustry is highly fragmented and no player commands more than 20% of the market share. Marriottholds 9% share in the US hotel market (based on number of rooms) and 1% share of the lodgingmarket outside the US. The company as mentioned above faces strong competition from Accor,Best Western International, Choice Hotels International, Hilton Hotels, InterContinental Hotels Groupand Starwood Hotels & Resorts in most of the markets. The intense competition results in a highdemand for property space causing the increase in real asset prices. Marriott, known for its luxuriousspacing and large hotels, have to undertake heavy capital outlay to acquire such properties. Moreover,



intense competition fuels price war which makes Marriott’s luxurious brands uncompetitive resultingin low market penetration opportunities for the company.



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Swot Marriott 2010