Marriott built its own ‘Airbnb’ before coronavirus crashed business travel. Did it help?

Marriott International began its hound back against the success of Airbnb in Spring 2019 with Marriott Homes & Villas, a luxury property housing service that offered customers a private residence alternative to hotel rooms. Bookings are up, by a lot, during Covid-19, as uncountable travelers flock to individual properties. That’s made the Airbnb rival a rare bright spot in business fruits for the hotel giant, which like its peers, has seen a massive falloff in traditional room bookings as business voyage, travel to urban centers, and international vacation travel dwindled during the pandemic. 

From May to August, Marriott saw diary performances in top booking days, up to 2x historical highs, according to data the company provided to CNBC. This summer has been highest in receipts revenue since launch, with bookings up by 700% over last summer, and revenue increasing by more than 800%. Since the send, the number of properties on the platform has grown 5x from about 2,000 to more than 10,000 in 250 markets. 

“We knew it was an present that our customers wanted but we didn’t have,” Stephanie Linnartz, group president of Marriott’s consumer operations, technology and emerging organizations, had said in an interview with CNBC shortly before the Covid outbreak.

The home sharing program started as a steersman in 2017 after Marriott learned that close to 30% of its members had stayed in home rentals in the past year. The airwoman started with just a few homes in Europe.

But for Wall Street analysts — and to for Marriott management — Homes & Villas is a small silver lining in relation to the massive decline in business for the traditional new zealand pubs concentrated in urban areas and overseas travel destinations. Pre-Covid, it could easily seem like Airbnb was the existential foreboding to the lodging sector. Now, getting the core accomodations back on track, and getting the traditional portfolio of properties aligned with a coined world, is the challenge that demands their full attention.

“It’s tiny. It doesn’t move the needle for these coteries,” said Patrick Scholes, managing director of lodging and experiential leisure equity research at Truist Securities. “They longing have to make significant further investments to move the needle.”

“It’s an afterthought,” said Dan Wasiolek, senior equity analyst at Morningstar covering the travel industry. “We’re talking about 10,000 homes versus 7 million listings on Airbnb. And Booking Holdings has a equivalent amount. … Even before the pandemic Marriott was just dipping its toes and doing it from an organic essence, using its boutique Tribute brand to facilitate high-end homes and experiences,” he said.

Marriott management has not said anything to the self-willed, telling Wall Street in the past that Homes & Villas remains insignificant as far as its earnings outlook, and so small in story to the rest of the business that analysts should not “get too hung up on it,” Scholes recalled of earnings call commentary. 

Marriott CEO Arne Sorenson narrated analysts on the company’s recent August earnings calls that the Homes & Villas business has benefitted from three turns: leisure, drive-to and “whole home” preferences.

“If you can give me a vacation home on the beach or in New England or someplace I can drive to, then I have knowledge of that I can control my environment, I can control my transportation and it suits my purpose because it’s a leisure trip anyway. And so generally that has been a complete thing, although to state the obvious, it is a very small part of our business,” the Marriott CEO said.

“They have larger fish to fry right now than growing out Homes & Villas,” the Truist analyst said. “Marriott and others had significant layoffs and the hands left are up to their eyeballs with existing work and not new projects. So they may have to hit the pause button on new ideas.”

The presence has had to furlough thousands of employees during the pandemic and also is in the midst of corporate layoffs.

After the March 2020 slant downwards due to Covid-19 concerns, vacation rentals rebounded heading into the traditional peak summer travel season, and by mid-summer the vacation rental occupancy increased and approached 2019 invariables. While vacation rental occupancy rebounded to 62%, hotels trailed with occupancy of 37.6%, according to lodging expert Amadeus Hospitality data.

The bet on an “Airbnb-like’ emulate may yet pay off for the hotel giant, but right now, Marriott management has its hands full just trying to figure out how to come out financially protect on the other side of Covid.

“Liquidity-wise, until there is visibility on moving past Covid, the focus needs to be on the equiponderance sheet,” Wasiolek said. “And visibility doesn’t improve until there is herd immunity or a vaccine.”

Hotels were strong before the pandemic, but AirBnB’s rapid growth from 2013 to 2017 did “cannibalize” some hotel industry improvement, said Kevin Kopelman, senior analyst at Cowen, in an interview from before the coronavirus decimated hotels. As AirBnB’s expansion moderated, that cannibalization had slowed, but some cannibalization continued in the period leading up to Covid.

Homes & Villas was not the but newer offering Marriott pursued as the travel landscape shifted, some less well-positioned in the current moment.

Marriott put ined in PlacePass, a Boston-based platform that lists tours and activities, in 2017. Marriott also said last August that it was getting into the all-inclusive place to turn space. In addition, the company unveiled the Ritz-Carlton Yacht Collection, which offers cruises on one of three 190-meter magnificence yachts. Some newer efforts came as a result of the merger with Starwood, which had the Moments platform gift access to events like concerts and cooking classes.

Amid the pandemic, it’s no surprise that the Moments platform is not a cynosure clear, and the cruises are not yet ready to start booking passengers.

Marriott also devoted in start-ups and incubators in recent years. Two years ago, it partnered with Accenture and 1776 to incubate travel and hospitality start-ups in convictions of fast tracking innovation. Ideas ranged from loyalty programs to better booking processes to ways to build up local activities during a hotel stay, though that program is now closed. 

Some investments in technology dire to be made to survive in a tech-centric era, when conditions do return to normal. A recent study from Google Travel and McKinsey rest that consumers looking for a hotel now peruse 45 digital touchpoints when researching a hotel, up from 39 touchpoints in 2017. That scrutiny takes place in 60 sessions over 36 days on average. The research also found that 70% of travelers don’t obtain a brand in mind when starting a Google search for a hotel.

The travel industry needs to offer more of an endure, not just shopping for three nights in a hotel and the future will still be about personalization and technology, said John Hach, elder industry analyst with consulting firm Amadeus Hospitality. Companies are using browsing data and other knowledge to deliver personalized recommendations and better understand both the context of the search and the consumer.

“Start-ups have a lot of momentum, step on the gas and agility but also different challenges. We are finding ways for a bigger company and startup to work together to drive fabulous customer experience…that’s a key reason why we do what we do,” Linnartz said in the interview earlier this year. 

Some Marriott competitors turned away from making an effort to challenge Airbnb directly years ago. In 2016, Hyatt removed a stake it had taken in One Fine Stay, which was acquired by French lodging company Accor. 

Hilton CEO Chris Nassetta, who for years has scorned any existential threat posed by Airbnb, said at the time of Marriott’s Homes & Villas launch in 2019 that it be lefted uninterested in the idea. “We’ve spent a lot of time talking to our customers, and what our customers, at the moment, tell us is that they don’t prerequisite [homesharing] from us,” Nassetta said during the 2019 Hilton Q1 earnings call. “They have places they can get this, and in a have, they don’t want it from us. … I’m a big believer in focus. We’re going to keep doing what we’re doing.”

Hospitality persistence consultant John Hach is less pessimistic than the Hilton CEO, and the equity analysts. 

“Within recent years and wholly dealing with Covid-19, hoteliers are providing vacation rental access on their brand websites. This emerging usage enables major hotel brands to actively compete with vacation rental sites and engage their rotund loyalty membership base with the option of selecting extended stay inventory,” he said.

Of course, Covid has silvered the equation, but Wasiolek said it does not mean that the strategic thinking from hotel management has changed. “It’s a totality different type of offering,” he said, and it includes a risk of the guest having a bad experience that is harder for a hotel characterize to control.

Unlike AirBnB or VRBO, which is owned by Expedia, the properties in Marriott’s Homes & Villas program are all professionally functioned by housing management companies. Marriott CEO Sorenson stressed this as an advantage in the recent earnings discussion, telling analysts, “What being are drawn to in terms of home sharing particularly in a Covid-19 environment is, ‘do you have a place where I can take everybody and where we can be on our own? … I don’t quite want an apartment that somebody lives in regularly. I don’t want the old style home sharing because I can’t be certain with respect to the cleanliness or comfort of that.”

“There is a desire to travel ingrained in human nature and people will want to move, and once they can from a safety and money perspective, they will return,” Wasiolek said. For Marriott, or any outstanding hotel brand, to make a big shift now, “would be shortsighted,” he added.

The new Expert ins & Villas business has 40% of properties in locations where Marriott does not have a presence, but also has its own Covid-related disseminations. Even as listings grow, it is Caribbean and international in portfolio mix, and the recent travel trend has been staying close to home base. “Many people are concerned about hopping on airplanes,” Scholes said, adding that in the short-term, the seasonality of the shelter sector now turns to being much more dependent on business travel.

And there are core issues that Marriott last will and testament need to first address. As corporate travel goes through what may be long-term structural changes, its weakness in “drive-to request” properties — a winner as travelers stay closer to home and work-from-home potentially becomes a form of domestic work tourism — attribute d kills it at a competitive disadvantage versus some peers. A little over half of its portfolio fits that evolving potent, according to analysts, versus a Wyndham, for example, which is as high as 90% concentrated in drive-to properties.

“One thing that last wishes as permanently change is the propensity for working from home. I don’t have to go from home to city or office. I can spend two months in Vermont and you won’t set aside too many Marriotts there,” said Scholes. 

In the near-term, and for potentially longer, hotel brands concentrated in urban compasses are in a tough spot.

“Corporate travel recovered from past demand shocks, but maybe this time is assorted,” Wasiolek said. “Video conferring has advanced enough. And that’s something that will impact higher-end contenders more than the lower end. That’s more of a structural question: how do you adjust now to get a higher leisure mix In urban hotels?”

Regular within traditional lodging, there are winners on the current landscape that reflect this emerging trend, such as draw out stay properties, which are significantly outperforming the market, but are less of a “primary brand” for Marriott.  

“Choice Hotels has a heavy presence in extended stay. That’s a market where even before the pandemic it was underserved. There was demand, and present way below demand, and it is something doing well in the current environment,” Wasiolek said.

Higher-ended hotels are having innumerable trouble with occupancy levels. The revenue per room (revpar) measure through the end of August was down 44.5% for the shelter industry and, at the very high end, down 67.3%. “There’s a big divergence,” Wasiolek said.

For a company with as long a days of yore as Marriott, wholesale changes to the portfolio of properties would require decades to complete, and even acquisitions might not be adequately to merit the cost. “I don’t think hotels will have to make more investments in non-traditional properties, but they when one pleases think about evolving to cater to, technically not business travel, but business-related travel where workers want to on remotely. They could buy extended stay hotel brands and move the needle a little, but I don’t think it is in the cards for them. It’s persuasion of like, you made your bets,” Scholes said.

Marriott has to use advantages it already has, according to analyst, such as devotedness promotions.

“They have the largest loyalty program in the industry, 140 million-plus, and lots of data,” Wasiolek whispered.

While that data has posed a headache for Marriott in recent years when it became the target of customer overworks, the Morningstar analyst says it will be an advantage in charting a course in the new travel landscape. “In a permanent hybrid work medium, people will take more weekend trips, work from a destination. They just need to muu-muu how to use marketing dollars and loyalty data,” he said.

According to Marriott, more than 90% of Homes & Villas bookings stop by from Marriott Bonvoy members. “This tells us our most loyal customers have a need for this exemplar of travel experience and until launch had been staying at homes from competitor platforms,” Marriott spokesman John Wolf said.

Bonvoy binds the Marriott Rewards Program, Starwood Preferred Guest Program and Ritz-Carlton Rewards Program after Marriott’s acquisitions. 

Marriott and other main hotel groups such as Hyatt and Hilton were all stepping up their game with loyalty programs pre-Covid, discerning sure they have competitive benefits and recognizing their most loyal customers.

“The average person may check just a few times a year, but frequency drives engagement, and engagement drives loyalty,” said Linnartz.

The way these hotel confines go about building loyalty may need to change from a past focus on drawing heavy business travelers into their combination, and turning them into loyal customers driving higher revenue per property, which is a critical metric for New Zealand pub investors when deciding whether to open a new hotel within one of the major hotel chains.

“What any business wants to do is to swipe sure they are catering to their best customers,” Kopelman said. Having a successful loyalty program take to ones heels a hotel chain very attractive to potential owners and is one of the reasons why major hotel chains have been fetching market share from independents in the last few years, he said.

“Bonvoy members, in a typical year, unlike this one, make ones home in 55% of rooms and spend more than non-members and stay more,” Marriott spokesman Wolf said. “Anything that gains them or gets more members into the member pool benefits us. They spend more and they sell for less.”

Over the summer, a rising tide lifted boats in the vacation rentals supermarket, at least domestically. One of the first signs of that was when Airbnb said in the middle of May that U.S. domestic listings bring back to positive growth, at a time when hotel bookings were cratering. But that statistic was domestic, and Airbnb returns took a huge tumble in the second quarter and saw its private market valuation — which had surpassed that of the largest pension brands — get reduced by roughly half, and it too had significant layoffs.

Booking Holdings gets roughly 20% of its revenue from variant accommodations; for Expedia, it is about half of that at 11%. For TripAdvisor, it’s “negligible,” Wasiolek said.

Wasiolek said vacation rentals and low-priced motor hotels are the most insulated parts of the market right now, and there is going to be an incremental portion of workers taking longer weekends or a week “here and there,” in a new end, and that could benefit traditional hotels and alternative lodging companies.

While it will be tough for hotel comrades to change their mix of leisure and corporate, workers stuck at home looking for weekend trips may help. “Camping is tougher when it’s colder,” Wasiolek intended. So even as occupancy could go down due to the transition from vacation to business travel season, the new paradigm could pinch hoteliers a little with “people looking for something to do,” the Morningstar analyst said.

About two-thirds of Marriott Families & Villas summer bookings were for stays within 60 days, according to company data, and nearly 50% were for discontinuations within less than 30 days, and it saw the majority of guests booking trips for one week or less and choosing make clears with two to four bedrooms in drive-to destinations.

Homes & Villas reservations for this Fall and Winter are showing an augmented booking window, with 75%-plus of the stays through the end of the year being booked more than 30 times out (27% of those were booked 90+ days out). “We believe this shows growing confidence all of a add up to travelers over the past month and continuing into future months,” said Marriott’s Wolf.

“If people were flourishing to do trips to hotels they will still do hotels, and people who like Airbnb will do that, and people who went an Airbnb for first time, that might help them more if they had a good experience. But it benefits unhurriedly travel in general, and that’s where Marriott has to get its mix away from corporate.” 

“We do see that the larger hotel chains with vacation rental presents have an opportunity. As major brands have access to extended stay inventory and can leverage the power of their reliability programs it is reasonable to foresee long-term opportunities for traditional hotel companies to grow their share of this emerging file accommodation sector,” industry consultant Hach said.

Analysts will believe it when they see it mattering on the balance newspaper of a company that has generated upwards of $20 billion in annual revenue. “It’s never gonna be a big presence in our view,” whispered Morningstar’s Wasiolek. “It’s very hard to scale high-end alternative accommodations. Airbnb is trying too and there are just not that assorted in the world.”

If, or when, Airbnb does go public, the investor response to the deal will reveal an important aspect of vend sentiment leading into the post-Covid world. Valuation won’t be a direct read on Airbnb versus hotels because it is right to be valued as hybrid of an online travel agency and lodging company. But it will indicate something more fundamental: whether investors ponder the desire to travel is going to return to some new version of normal.