Marriott man: Arne Sorenson interview

With more than 3,700 hotels under management, Marriott International is often seen as a bellwether for the hospitality industry as well as the global economic outlook. Its CEO and president, Arne Sorenson, tells Arabian Business why the US political situation could have the biggest impact on the global economy
Marriott man: Arne Sorenson interview
By Claire Valdini
Sun 17 Mar 2013 08:55 AM

With more than 1,000 guests, a star appearance by the British pop star Leona Lewis and some of the most senior members of staff from both Marriott International and Emirates Airline, the opening of the JW Marriott Marquis Dubai was certainly one of the parties to be seen at last month.

The Emirates Airline-owned property, which boasts 804 rooms and is officially the world’s tallest hotel at 355 metres high, is also set to become one of Dubai’s largest hotels when it opens its doors to a second 804-room tower in 2014. The sheer size of the property, coupled with the fact that hotel occupancy rates across the city reached nearly 90 percent in January means it will come as little surprise to many that for Arne Sorenson, president and CEO of Marriott International, Dubai is one of the hotel operator’s most exciting markets internationally.

“Dubai is a really exciting market and it’s a treat to be here because there is an enthusiasm which is infectious,” he tells Arabian Business.

“While I think the people in Dubai are reticent about proclaiming that things are good when others are hurting, they still are benefitting from the fact that it is a safe haven when so much of the rest of the region is not… You are seeing Dubai come back as strong as it’s ever been and I think the growth prospects here are pretty generous,” he adds.

As one of the world’s largest hotel operators, with 3,700 properties under management and revenues of over $12bn, Marriott’s performance is often seen as a bellwether of not only the international hospitality industry but also the global economic outlook as a whole.

Hotel operators were hit hard by the global financial downturn amid a severe decline in international tourists and business travellers but as the economy picks up in Asia and the US, the outlook has started to show some signs of recovery.

Marriott, which counts Ritz-Carlton, Residence Inn and Courtyard by Marriott amongst the eighteen brands it operates, reported a 6 percent rise in revenue per available room (RevPAR), a key metric that measures hotel health, and a 4 percent increase in room rates in the fourth quarter of 2012. Competitors InterContinental, the world’s biggest hotel operator, and Starwood also reported better than expected profits underpinned by a pickup in US operations and expansion in developing markets such as the Middle East.

But it is not just Dubai that Sorenson is optimistic about. In the Middle East and Africa, where Marriott currently operates 42 properties, the operator has $3.5bn worth of real estate under construction, which will see the number of its hotels increase to 91.

“When we look across the region we see Dubai, the Kingdom [of Saudi Arabia], the rest of the emirates and probably Nigeria as being the most significant growth markets and all of them are places that we are very optimistic about,” says Sorenson.

“Then we can see some other markets, which are probably next tier, [such as] Morocco and the smaller countries in Sub Saharan Africa — these are all growing well. By and large they are economies that are growing at high single-digit pace year over year and many of them need hotel rooms,” he adds.

Saudi Arabia’s strong economic outlook together with its rapidly growing population and strong religious tourism industry makes the conservative Gulf state a particularly attractive growth market for international hotel operators.

The kingdom’s tourism market was one of the world’s fastest growing in 2012 in spite of a slump in the number of visitors to the Middle East. The country saw a 14 percent rise in the number of tourists travelling last year, making it the fifth best performer globally, according to data from the World Tourism Organisation.

Marriott, which currently operates eight hotels in the kingdom, is understandably keen to take advantage of the favourable market conditions. “I think we will, in the next ten years, open a few dozen hotels in Saudi,” says Sorenson.

“We see that the economy is growing well, population growth is obviously significant, the government is investing in infrastructure including hotels and there is a powerful religious pilgrimage in Makkah… so Saudi Arabia will be a pretty exciting market over the next two years,” he says, adding that the firm is currently in talks with three or four existing and potential partners about specific hotels.

Back in its home market, Marriott’s outlook is less upbeat. While the economic recovery is helping to boost revenues, Sorenson says he is deeply concerned about the impact the $85bn worth of government spending cuts — known as the sequester — will have on North American demand for hotel rooms. The operator predicted its 2013 revPAR would increase seven percent in the third quarter but reduced it to four to seven percent in the fourth quarter on the back of a slowdown in the US and Europe.

“We think that the sequester will be bad; it will be bad for business travel, it will be bad for the US economy and the longer it lasts [and] the more antagonistic the two parties are, the worse it will be,” he says.

“It is certainly within their power to address these budget issues fairly quickly if they were responsible about it. If it were done fairly quickly I don’t think we would have a significant impact on the economy.  It’s frustrating because I think generally in the US [the] economy is recovering, is poised to do quite well and it’s as if the political system is trying to keep it down. Make no mistake it is a failure of our political system,” he adds.

Across the other side of the pond, the economic situation is even more concerning. “Europe is flattish and I wouldn’t be surprised to see zero numbers [for growth] or maybe even modestly negative. Every week it’s something different so last week we were worried about Berlusconi, now everybody is worried about whether Italy is going to pose a new crisis but generally the economies are not good in Europe,” he explains.

“The cities in Europe which are most benefited from by international travel – Paris and London – are doing the best [while] those dependant on the local economies are doing the worst. China is recovering and we are seeing some steady growth after the transitional government,” he adds.

In spite of the gloomy economic outlook, Sorenson remains optimistic about Marriott’s performance for the year ahead and beyond. “There is a broad question across the globe about whether this recovery is similar to other recoveries or not but by and large our data shows it is similar,” he says.

“We saw in 2008 and 2009 as bad a performance as the industry has ever known — our RevPAR was down about 20 percent,” he adds.

“I think the concerns now are where we have fallen so far, how long it will take us to go back. What we are seeing is very much the same as what we have seen in other recoveries; we have seen a building of occupancy first and six months after occupancy grew we started to see rate growth. We’ve seen high single-digit RevPAR growth every year in 2011, 2012 and we think it will be the same in 2013, so broadly it’s a good story.”

The last few years may have been a rocky road for Sorenson, but if the global economy keeps ticking over, Marriott International looks set for a strong 2013.

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