As only the third person in 90 years to head the largest hotel company in the world, Marriott CEO Arne Sorenson shared his outlook on the business travel industry, the shakeup over group commissions and the company’s home-sharing strategy on Center Stage at GBTA Convention 2018.
Sorenson said he is “thrilled to be in an industry that’s growing,” during a one-on-one interview kicking off Center Stage with GBTA Executive Director and COO Michael W. McCormick. Marriott’s success, like much of the rest of the travel industry, is thanks to solid economic progress and the global growth of the middle class, he said.
Consumers are spending more of their dollars on experiences, also contributing to the recent growth many in the travel industry are enjoying.
Perhaps the best news is that Sorenson doesn’t think the prosperity will end anytime soon. “I don’t think we’re in a plateau or peak. We are in a complicated world today, and that complicated world exists in the United States and it exists abroad.” Those complexities are hard to predict, but the bigger trends will last for decades, Sorenson predicted.
McCormick and Sorenson discussed some contentious issues, including Marriott’s market concentration, pricing and group commissions. With a portfolio of 30 brands and an enormous presence in some larger cities, McCormick relayed GBTA members’ concerns over rates and the ability to negotiate in those markets.
“We don’t have much pricing power,” Sorenson explained. “As big as we are–roughly 15 percent the of U.S. hotel business–we only price about half of those rooms.” The other half, he explained, is priced by franchisees. Further, Sorenson said, there is “total transparency, enormous competition…[and] the potential for a rate premium is extraordinarily modest.”
In addressing the company’s decision to reduce group intermediary commissions, Sorenson highlighted the significant rise in group business over the past decade. He would like ultimately to transition to a commission system where group intermediaries are rewarded based on the value they deliver to their customers.
“Some were delivering amazing value, some weren’t at all,” he said, “and they were all charging 10 percent. Ten percent in the context of many of our hotels in bigger cities in the U.S. is a very healthy percentage of the total profitability of that hotel.” He proposed finding a position where “the economics are fair and we are as aligned as we can be.”
Sorenson discussed the home sharing’s effect on the hotel business and the company’s future plans to participate in that space; however, the company’s pilot program—200 whole-home units in England connected to the loyalty program–competes for leisure travelers, not business travelers. Home sharing, he said, competes “broadly in the hospitality space,” but skews overwhelmingly to leisure and budget travel. As for the future, Sorensen said, “I think it’s fair to say this business exists, and we’re unlikely to be able to wake up tomorrow and suddenly see that it’s [the home services industry] gone.”