Marriott beats earnings expectations despite worries about affordability

Marriott had a great third quarter: The hotel giant beat earnings expectations and said it expects sales to grow more this year than it’d previously thought.

Business grew the most in the U.S. and Canada, despite high fuel prices and Americans’ worries about affordability, which doesn’t exactly sound like a travel-friendly market.

Traditionally, for hotel companies, more rooms meant more earnings, said Chris Anderson, a professor at Cornell University's SC Johnson College of Business. But an uncertain economy means fewer new hotels.

“A lot of [Marriott’s] growth story happening right now is not from unit growth, but from revenue and profitability of the units they have,” he said.

As demand stays high, if supply doesn’t grow, existing hotels have a lot more pricing power. “We see that reflected in Marriott's numbers,” Anderson said.

Not all of Marriott’s hotel brands are growing at the same rate.

“We saw budget actually decline, and the upscale and luxury … all increased,” said Alicia Schmid, director of research at Phocuswright, which tracks the lodging industry.

It’s another K-shaped economy story: Wealthy people can afford to keep traveling as other customers tighten their belts.

“What Marriott is likely experiencing is more spend from fewer travelers,” Schmid said.

But even though the wealthy travelers are responsible for more growth, lower-tier markets have also been performing well, said Larry Yu, a professor of hospitality management at George Washington University.

He said that’s still a K-shaped thing. The upper-middle class who might’ve once gone to fancier hotels are booking at the Courtyard or the Fairfield instead.