Marriott CEO: As Bleisure Lines Blur, Strategy Changes

Marriott International recently reported a fourth quarter in which business transient demand reached nearly 90 percent of 2019 levels, and the hotel company has said it was able to command year-over-year 2023 corporate rate increases in the high single-digit percentages. But increased blending of business and leisure travel is changing some Marriott strategy. The company’s CEO and recently named president, Anthony Capuano, joined BTN editorial director Elizabeth West during a virtual Business Travel Show Europe kickoff event. Edited excerpts follow. Check back later this week for the second part of this two-part Q&A.

BTN: I want to start with the addition of the president role to your title. Does that change your role at Marriott International?

Anthony Capuano: It really doesn’t change it too significantly. Obviously, I was humbled by the decision of the board, [but] what excites me is it gets me that much closer to our leaders around the world.

BTN: Marriott just had a positive earnings call, and you called out the idea of successful corporate negotiations for 2023. With high single-digit rate increases over what were largely sustained rates from 2020, how are you working with your corporate partners even though those rates are going up?

Capuano: In the face of the pandemic, one of the things we saw whether it was our relationship with our customers, our relationship with our owners and franchisees, even our relationship with our own associates, [is that] we all came together to the same side of the table to battle a common foe, which was the impact of the pandemic on the global tourism and travel sector.

As it relates to our customers… we kept our special corporate rates flat for two years, reflective of the challenging economic environment that all of our customers were facing. As we saw travel recover, as we saw demand patterns recover, we then engaged with those customers and said, “We’re glad we were able to help during that two-year period, but now the demand has returned, we’d like to get back to some sense of normalcy.” It was those discussions that resulted in rates ending up in those high single-digit levels over a base that had remained constant for two full years.

BTN: Market rates in the depth of the pandemic were quite below those 2020 negotiated rates. Did you have a lot of corporates renegotiate during the pandemic?

Capuano: We had some, but rate negotiations at their core tend to be a little bit about supply and demand dynamics. So many of the large corporates had ratcheted back their volume of travel in the face of the pandemic that, in some cases, it really didn’t make a lot of sense to have those discussions. There were certain industry segments that were traveling very early in the recovery, and I think to the extent there were renegotiations it was probably centered in those limited sectors.

BTN: Have the thresholds changed at all in terms of the business that Marriott, or the hotel industry as a whole, is willing to engage in conversation corporates? What is that starting to look like?

Capuano: I would maybe pivot a little to a discussion of blended trip purpose [because] in a pre-pandemic world it was relatively easy to tell you, with a high level of precision, exactly why folks were in our hotels—which of those visitors were business travelers, which were leisure travelers, which were group meeting and conference attendees—and those lines, to the benefit I think of our customers and to the benefit of the industry, have been blurred. We see more and more folks blending leisure and business travel, adding leisure days pre- and post-conference attendance, so I think it’s a little hard to do an apples-to-apples comparison pre- and post-pandemic. Not that that’s not good news for the industry, it just makes some of the slicing and dicing of data a little more imprecise.

[During] our earnings call, we talked a bit about day-of-the-week recovery patterns, and it was so interesting to us. When we did that analysis to look at the strength of recovery we saw on Sundays and Thursdays, which obviously in a pre-pandemic environment we viewed as shoulder days, and the speed with which demand has recovered on those days provides some empirical support to the idea that you’re seeing folks extend their business or group meeting travel by adding an element of leisure.

BTN: Does that change the way you look at corporate business? Does that tendency to extend into the leisure piece say that corporate business is even more important now, because it’s more buoyant in the leisure space as well?

Capuano: [Corporate volume] has always been a critical part of our business model; it will continue to be a critical part of our business model going forward. What it causes us to do is think about physical facilities and programming as a guest pivots from the business purpose of their trip to the leisure purpose of their trip. It influences what we do with programming in the fitness centers and the spas. It influences what we do with hours of operation in the food and beverage outlets, menu offerings, some of the activations in food and beverage … so that the hotel can be a bit of a chameleon as that business purpose changes during the course of the stay.

BTN: I have seen reports of hotels being pickier about which pieces of business to respond to in the request-for-proposals process, even potentially turning down clients that weren’t willing to shift portions of their contract to dynamic rates. Would you say that’s accurate with Marriott?

Capuano: I would say pre-, during and post-pandemic, the way our hotels manage their inventory is ultimately about compression. In periods of lower demand, the operators, not just Marriott but across the industry, tend to be more creative and more flexible. In periods of high compression, you see that flexibility kind of move in inverse direction.

BTN: Here’s a question from the audience: Did the leisure versus business volume ratio change with the rise of blended travel?

Capuano: Not necessarily, but what is fascinating to look at if you go back to 2017, 2018 [and] 2019, leisure was growing significantly more rapidly as a demand segment than business transient. If anything, the pandemic acted as a bit of an accelerant to that mix. Has the mix shifted significantly? A little hard to tell because, with the exception of special corporate visitors, we don’t know with great precision in a four-night stay how many of those nights are business transient travel and how many of those nights are leisure travel. The acceleration of leisure demand we saw over the last few years leading up to the pandemic has continued as recovery has commenced.

BTN: Brands delivering on experience is a huge concern among corporate travel buyers right now. What is Marriott doing to deliver on the corporate travel experience? What has changed from prior to the pandemic?

Capuano: Let me start with our cleaning protocols. In the early days of the pandemic, the company reimagined how we clean hotels. We knew recovery would be based on everything we could do to improve traveler confidence about the safety of travel. We rolled out comprehensive new cleaning protocols, and many of those have endured as recovery has begun and will endure long beyond the end of the pandemic. I think our travelers can expect hotels that are cleaner than they’ve ever been in all their years of traveling with us.

Number two, housekeeping. It is really interesting, as I have the privilege to talk to customers in every demand segment in every corner of the globe, and you hear very different points of view. You hear some folks say, “I’m still a little skittish. I don’t want anyone in my room. If I need anything, I’ll use the chat function on the Bonvoy app or I’ll call downstairs, otherwise please respect my privacy.” We have other guests at the other end of the spectrum that say, “I want to put my memories of the pandemic behind me. I want everything to go right back to where it was.” We try to balance those very distinct points of view. What we do hear consistently from our customers is that they want some certainty. They don’t want to guess what to expect when they arrive.

We have rolled out a new set of protocols they vary a bit by tier. At our destination resorts and luxury hotels, our guests should expect exactly what they experienced prior to the pandemic, full housekeeping each and every day. In our full-service hotels, they should expect a daily refresh making of the bed, etc. In our select-service hotels, they should expect [a] refresh every other day. The important caveat, ultimately, is that if the guest wants a modification to that standard protocol, all they need to do is ask. If a guest wants full daily housekeeping every day, they simply let the desk know. If they want no housekeeping [and] want their privacy respected, we’ll accommodate that request as well.

BTN: In terms of things like full-service restaurants, room service and fitness centers, is everything back to peak operation now?

Capuano: I would say our aspiration is to be there, but as you might expect it varies a bit by market. If you go to a leisure-focused market for the last four or five quarters, we’ve been back to where we were because the demand patterns have been so strong. In some of the urban cores that have less of leisure appeal and as a result [have] seen a bit slower recovery, we may still be operating with some modified food and beverage outlet hours. In general fitness centers are open, spas are open. Food and beverage is really driven by the evolving demand patterns.

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