Marriott Earnings: Travel Demand Remains Resilient, Led by International Recovery

Narrow-moat Marriott’s MAR first quarter once again showcased resilient travel demand, with its revenue per available room, or revPAR, up 34% from a year ago, ahead of its 30%-32% guidance. This represented 106% of 2019′s level, above our 102% forecast and the 102% reported in the previous quarter. Demand improved across all segments in the quarter, led by a 63% revPAR lift in international markets. Specifically, China revPAR growth was up a stout 78%, driven by travel restriction removals during the past few months. China revPAR was at 95% of 2019′s level in the quarter, despite airlift capacity in the country measuring 20% in the quarter, as citizens traveled domestically via trains and cars.

As more flights return onto the market, China’s outbound travel demand should improve. Given Marriott’s sanguine view of international demand for the rest of 2023, it increased its revPAR growth guidance to 10%-13% from 6%-11% for the year. The low end of updated revPAR guidance implies a meaningful impact—from slowing economic growth leading to flat growth—in the second half of the year, while the high end assumes relatively stable demand. We plan to increase our 2023 revPAR growth to 11% from 8%, offset by reducing 2024 revPAR growth to 5% from 8%, as we are incrementally cautious on economic growth given recent strains in the U.S. financial system. As a result, we don’t plan much change to our $184 per share fair value estimate, leaving shares slightly undervalued.

Despite simmering credit challenges, Marriott still expects 2023-unit growth of 4%-4.5%, which we think is reasonable as worldwide conversions (25% of openings in the first quarter) and China’s reopening should offset any potential fallout from financial tightening in the U.S. (no signs of strain at this point). Also, development activity remains healthy, with the room pipeline of 502,000 rooms up 3% year over year, providing confidence in our roughly 5%-unit growth forecast on average in 2024-26.