Top hotel chains should report atrocious fourth quarter earnings results this week, with business and recreational travel grinding to a halt as a result of the second pandemic wave. Even so, green shoots have emerged in recent months, with greater-than-expected airline traffic during the Thanksgiving and Christmas holidays and two-dose inoculations that could unleash a legion of free-spending baby boomers this summer.
- Top hotel chains report fourth quarter earnings this week.
- Vacation travel will likely surge this year, but business travel could remain at depressed levels into 2024.
- Marriott is unlikely to report major improvement over the third quarter’s 57.3% revenue decline.
The American Hotel & Lodging Association (AHLA) projected in January that half of U.S. hotel rooms will remain vacant on average in 2021, about 85% of 2019’s total, with a return to pre-pandemic levels not expected until 2023. However, 56% of Americans said they would travel for leisure or vacation, while the rapid vaccine intake has likely raised that number, especially after a long year of sitting at home and eating food delivered by Grubhub Inc. (GRUB).
Business travel may not recover as quickly because many corporations are now extending remote work opportunities into 2022 and 2023. Companies have discovered that remote meeting apps allow them to sharply reduce travel and office budgets, making it likely that this venue will never return to its pre-pandemic glory days. Hotels that cater to business still need to adjust to this reality, perhaps shutting down poorly performing properties.
Marriott International, Inc. (MAR) is the 400-pound gorilla in the lodging sector, with regional performance accurately reflecting local conditions. The company just announced that CEO Arne Sorenson has died after a battle with cancer. Analysts are expecting the company to report a profit of $0.11 per share in Thursday’s pre-market on an estimated $2.40 billion in revenue. If met, earnings per share (EPS) will mark a 93% profit decrease compared to the same quarter in 2020.
Marriott reported a staggering 57.3% revenue decline in the quarter ending on Sept. 30. It is even worse than it sounds because that was the quarter in which folks grew complacent and took vacations, hoping that the pandemic had run its course. The dismal results could be duplicated in the current quarter, in which businesses and individuals have been forced to curb travel due to the surging pandemic and onerous travel restrictions.
Revenue per available room (RevPAR) is a metric used in the hospitality industry to measure hotel performance. The measurement is calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate. RevPAR is also calculated by dividing a hotel’s total room revenue by the total number of available rooms in the period being measured.
Marriott Monthly Chart (2007 – 2021)
The stock completed a round trip into the 2007 high at $52 in 2014 and broke out, entering a healthy uptrend that paused in the mid-$80s in 2014. Positive price action cleared that barrier in the first quarter of 2017, lifting close to $150 in January 2018. A December 2019 breakout attempt failed after posting an all-time high at $153.39, giving way to a decline that accelerated into a vertical rout in March 2020.
Committed buyers emerged at a seven-year low in the $50s, ahead of a two-wave bounce that reversed after entering the February 2020 sell gap at the .786 Fibonacci selloff retracement level in December. The stock has been pulling back since that time but is holding above support at the 50- and 200-day exponential moving averages (EMAs), suggesting quiet accumulation while price action grinds through the long dark winter. A positive catalyst appears unlikely this week, raising the odds for continued consolidation that could support higher prices as COVID numbers crash this spring.
A catalyst in equity markets is an event or other news that propels the price of a security dramatically up or down. A catalyst can be almost anything: an earnings report, an analyst revision, a new product announcement, a piece of legislation, a lawsuit, the outbreak of war, an offer to buy a company, a move by an activist investor, a comment from a CEO or government official, or the conspicuous absence of a company officer at a special event.
The Bottom Line
Hotel chains will face pandemic headwinds for several years due to paradigm shifts in the travel industry.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.