InterContinental Hotels Group PLC (ADR) (IHG), Marriott International Inc (MAR): Checking In With One of the World’s Top Hotel Chains

Breadth of brands

Marriott owns 18 different hotel brands from the lofty and luxurious Ritz-Carlton to the humble and utilitarian Residence Inn. This diversification has two positives. First, it can take advantage of shifts in patterns in demand. During the recession, for example, leisure travelers downsize to more affordable lodging choices. Instead of losing cost-conscious customers to competitors, Marriott could book these travelers to its lower end brands.

Also, for a franchisor of hotels, having this diversity of brands makes it easier to attract potential hotel developers and franchisees. The franchisee can select the property that fits its financing and fits the market where the hotel will be located. Marriott franchisees have the flexibility to be in large cities, smaller towns, or suburban areas.

Not all successful chains pursue this brand diversification strategy, opting instead to focus on one market segment and strive to be a market leader. Wynn Resorts, Limited (NASDAQ:WYNN) operates destination casino resorts in Las Vegas and, of all places, China. The package of services it provides customers include luxurious accommodations, a variety of entertainment options including its own golf course, and the opportunity to play games of chance not involving the stock market.

For its Vegas operations, Wynn Resorts, Limited (NASDAQ:WYNN)’s second-quarter results sparkled like the sequins on a showgirl’s costume. Net revenue was up 16.2% compared to the same 2012 quarter, with net casino revenue soaring nearly 45%. RevPAR was up 4.7%. Wynn’s performance is another indicator that the American leisure traveler is willing to get out there and spend more.

Connecting with customers

Hotel chains’ marketing models are changing from being dependent on national advertising to instead connecting with potential guests through social media. Marriott excels in this area, earning in 2012 a place in Fortune magazine’s “Social Media Star” list. This focus on social media doesn’t just save money on advertising, it allows the company to build its base of younger customers, the Gen X and Gen Y set — which the company states is an important part of its strategy.

Not the time to stand still

One reason hotel chains have been able to achieve RevPAR gains in the last two years is that demand for hotel rooms is exceeding supply because development slowed during the financial crisis of 2008 and the recession that followed. Marriott saw better days ahead, and now has 140,000 rooms in the process of being added to their system. These are hotels under construction, awaiting conversion from another brand or approved for development. Their expansion plans as published in their annual report, are particularly aggressive in Asia, where they currently have 137 hotels but 140 new ones in development.

What we learned

A report from Ernst & Young says that the hospitality industry should benefit from “imminent and sustainable recovery going forward.” With this economic backdrop, Marriott should continue to show gains in profits. There was a recent news report that Marriott now estimates full year EPS slightly lower than its previous guidance due to sluggish growth in bookings from business groups and in its Europe and Asia properties.