Rooms for Improvement

August, 2004

Marriott International Inc.’s decision to consolidate the sales of its 13 Hawaii properties has vaulted the hotel company’s Hawaii region to the No. 11 spot on the Top 250 list. While Marriott International Inc. (NYSE:MAR) is technically not a “newbie” to the list, with some of its properties listed separately and fewer listed as a group in the past, this is the first year the Hawaii region has had this scale.

Marriott’s 13 Hawaii properties had combined gross sales of $540 million in 2003. Stan Brown, Mariott International Inc.’s vice president for the Pacific Islands and Japan, says he thinks the company could have up to 20 properties in the next five years, and he is projecting $650 million in gross sales for 2004.

The company had just one property, the Maui Marriott, in Hawaii for 14 years. Brown worked at the Maui Marriott in the late ’80s and early ’90s, then moved on to several other international posts. He came back to head the regional office when it grew to four properties in 1999 and oversaw the addition of nine properties (including timeshare operations) in a little more than four years. He says sales have been growing at a minimum of 20 percent per year during that time.

Brown says, “Our major growth has been in the last five years. There’s no doubt about that. That wasn’t from a lack of effort [previously]. If you look at the premiums being paid for real estate from the late ’80s to the early ’90s, in the bubble years, the valuations made no sense. Over the past five years, when we’ve gotten involved, the prices have been more economically feasible both from our end and for the owners.”

Today, Marriott is comprised of 19 brands, including The Ritz-Carlton, Renaissance, Ramada International and Courtyard. Its timeshare brands include Marriott Vacation Club International and The Ritz-Carlton Club. The Hawaii region is on track to open its first Courtyard at the former Kauai Coconut Beach Resort by the end of 2004, the premier of this moderate-tier brand for the Hawaii market. In addition, two properties owned by local hotel chain Outrigger Enterprises are currently branded and being managed by Marriott.

Brown says that 30 percent of the hotels in the development pipeline in the U.S. today will carry one of the Marriott brands. In fact, Forbes magazine, in a May 2004 cover story entitled, “Tough Guys Finish First” said, “Populated by hard-nosed executives, Marriott has become the industry leader by obsessively whipping its troops into line – not just employees, but hotel owners – while pampering loyal customers and winning bookings away from rivals. The hotel behemoth has exploited its size advantage as ruthlessly as a Microsoft or a Wal-Mart. That has allowed Marriott to recover nicely during the lodging downturn of the past three years, while its rivals floundered.”

Brown says, “We’re not the cheapest by any means in the industry, but we do give the highest revenues, the highest REVPAR [Revenue Per Available Room] revenues and the highest profitability. That’s why people use [Marriott].”

The Hawaii market has unique features, compared to the Mainland. Brown says that, in Hawaii, strategic alliances with wholesale partners are critical. “There’s probably more focus and more co-op money spent in strategic partnerships with wholesalers that are packaging air, room and ground to Hawaii than there might be in some destinations on the Mainland U.S.,” he says.

In 2003, the Hawaii region’s sales amounted to 5.6 percent of Marriott International Inc.’s more than $9 billion in revenue from continuing operations. Brown says, “We’re still relatively small, but as we continue to grow at 20 percent a year, it becomes more and more important, obviously. Because of the sales numbers, the exposure we have and the upside potential we have becomes that much greater, so [Hawaii] is definitely a more important piece, but still a small piece.”

In spite of Marriott’s stellar Hawaii performance to date, Brown maintains that there is always room for improvement as well as opportunity. He says, “I’ve been using the motto: Open the door in ’04 and thrive in ’05, because it looks like 2004 is going to be strong and 2005 has a chance to really be a huge year.”

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Kelli Abe-Trifonovich