The return of travel and hospitality - Walker Webcast with Marriott's Stephanie Linnartz

On the latest Walker Webcast, Walker & Dunlop's CEO, Willy Walker, was joined by Stephanie Linnartz, Marriott's group president of consumer operations, technology, and emerging businesses, to discuss the current state of the hospitality industry, Marriott's response to the pandemic, and her predictions for the recovery. 

A bit about each speaker:

Willy Walker
Willy Walker

Willy Walker is chairman and chief executive officer of Walker & Dunlop. Under Mr. Walker’s leadership, Walker & Dunlop has grown from a small, family-owned business to become one of the largest commercial real estate finance companies in the United States. Walker & Dunlop is listed on the New York Stock Exchange and in its first ten years as a public company has seen its shares appreciate over 800%. 

Stephanie Linnartz

Stephanie Linnartz leads Marriott International’s consumer strategy, focused on both core hotel operations and new business ventures that deepen customer loyalty throughout the travel journey. She is responsible for a wide range of critical business functions, including all aspects of brand management, sales, marketing, revenue management, distribution, customer experience and innovation, information technology and digital. These responsibilities include oversight of Marriott Bonvoy™, one of the largest global loyalty programs, and some of the world’s most well-known hotel brands, including The Ritz-Carlton®, St. Regis®, The Luxury Collection®, Marriott Hotels®, Sheraton®, W® Hotels, Courtyard®, Residence Inn®, Westin®, Renaissance® Hotels, and Le Méridien®.

In addition, Stephanie is responsible for developing, incubating, and running new lines of business focused on driving consumer engagement. Under Stephanie’s leadership, the company launched a new home rental offering, Homes & Villas by Marriott International, and has expanded its consumer offerings to include travel categories beyond hotels, such as tours and activities, dining, and transportation.In recent years, she has received numerous industry accolades. Hotel Management named her one of the 30 Influential Women in Hospitality in 2017. She was honored by Brand Innovators as one of the 2018 Top 100 Women in Brand Marketing. In 2019, she joined Fast Company’s Impact Council in its inaugural year and was profiled as one of CNN’s 2019 Risk Takers.

Stephanie grew up in a hotel industry family and has spent her entire career working in hospitality. She worked at Hilton Worldwide in both operations and sales and marketing before joining Marriott International in 1997 as a financial analyst. Since then, she has worked in various roles within finance, revenue management, sales, marketing, brand management, technology and digital. Stephanie is a sought-after conference panelist at global industry events, including the World Economic Forum, where she sits on a board of CEOs and C-Suite executives representing a variety of industries across technology, financial services, and health care, focused on how technology and digital capabilities are shaping the future of business, government, and education. Stephanie is a graduate of the College of the Holy Cross, holds an MBA from William & Mary, and has completed additional graduate studies at the Norwegian School of Economics and Business Development. She is a member of the Marriott Board of Directors’ Inclusion and Social Impact Committee and the company’s Green Council. Stephanie also serves on the Board of Directors for The Home Depot Inc., the world’s largest home improvement retailer; the Board of Trustees for the College of the Holy Cross; and, as an Advisory Board member of both Fair Chance (a non-profit focused on transforming the lives of children living in poverty in the District of Columbia) and the Teach the World Foundation. Stephanie travels the world extensively, is passionate about fitness and wellness, and resides in the Washington, DC area with her husband and two children

If you have any comments or questions about the evolving economic landscape and how it is impacting the CRE space, our experts are available and fully operational to help. Additionally, if you have topics you would like covered during one of our future webcasts, we would be happy to take your suggestions.

Webcast Transcript

Willy Walker: Thank you, Susan and good afternoon everyone. I would reiterate Susan's comment about the podcast. I relistened to my discussion with Peter Lindemann from last week on my AirPods working out, day before yesterday, and it was a wonderful way to listen to the huge amount of data that Peter and I poured through last Wednesday. 

We're going to focus on the hospitality industry today with my guest Stephanie Linnartz, but before we dive into Marriott and what's going on in hospitality and when Stephanie thinks all of us will hit the road again. I want to mention a few issues that Peter and I discussed last week with a couple updates. 

At the end of last week's call Peter said, “it's a golden age for multifamily” and many of you heard Peter run through a hypothetical multifamily investment buying a property at four to five cap rate and financing it with 2.8 percent debt. Two things are happening that are challenging or changing that investment thesis. The first is that cap rates and multifamily continue to compress. So, the four to five cap rate is headed very quickly towards a 4.0 cap rate in many markets across the country. And the other piece is that the cost of debt has risen quite significantly over the past week due to the selloff in the bond market after Tuesday's election results in Georgia. While the 10 year has rallied today to 1.10 percent we saw a 1.15 percent 10 year yesterday, which is driven financing costs from the 2.80 percent that Peter mentions in The Lindemann letter, which was published at the end of 2020 up to 3.40 percent to 3.60 percent today. So, while that's still exceedingly cheap debt, the no brainer investment thesis of buying at a four to five cap rate and financing it 2.8 percent debt, is now more like buying at a four cap rate and financing at 3.5 percent. 

Furthering Peters thesis on “it's a golden era for multifamily”, CoStar reported this morning that net multifamily absorption in Q4 was 70,000 units. Which was the best fourth quarter absorption rate for multifamily since 2000 and well above the historic average of 45,000 units. Not surprisingly, Dallas, Fort Worth continues to lead the country for the third consecutive quarter with 5,000 units of net absorption, followed by Atlanta and Houston close behind. Somewhat surprisingly in the CoStar data today, even the large coastal gateway cities such as Boston, New York, Washington, and Los Angeles actually posted positive net absorption in Q4 mostly due to reducing rents to stabilize occupancy numbers. 

During our discussion Peter and I also talked about the health of the banking system and how credit card defaults reach the historically low level in Q3 of 1.3 percent. In doing my homework for my discussion with Stephanie today, I was somewhat surprised to read that STR projects that every hospitality development in the United States, that has been under construction during the pandemic, will deliver. But that actually makes perfect sense if you think about it, because the banking system is flush with capital and therefore, they don't have any credit issues in their portfolio today. So, they'll work with developers to finish developments, even in the most challenged commercial real estate asset class of hospitality. And while Peter gave his perspective on President-Elect Biden's economic team and policies, we did not discuss last week's elections in Georgia and the changing control in the United States Senate. A couple thoughts there.

Everyone's expecting an adjustment to the stimulus bill, increasing the checks from $600 to $2,000. This adjustment will clearly be beneficial in the short term to spending, rent collections, and the overall health of the economy. Which is reflected in the stock market performance over the past week, and the selloff in the bond market. There is significant concern that corporate and individual tax rates may go up with the Biden administration and it is clearly way too early to handicap when and to what degree rates change. I will point out two things that I believe are important to keep in mind. When President Trump was elected in 2016 his administration's number one priority was tax reform. And with their absolute focus on that issue, and control of both the House and the Senate, they passed their tax legislation in December of 2017 and rates changed in 2018. 

We're in the midst of a pandemic, which is clearly President-Elect Biden's number one priority. When his administration has the opportunity to turn their focus to broader policy matters is very much to be determined which likely means any change to the tax code is a 2022 issue at the earliest. And second, there has been a lot of concern about 1031 exchanges and carried interest. Again, it's anyone's guess whether those two issues are front and center when the debate begins on tax policy, but I would point out that Chuck Schumer now leads the U.S. Senate. And while Senator Schumer is a self-proclaimed progressive Democrat, he does come from the state of New York, where the commercial real estate and private equity industries have significant influence. 

My final point before I begin my discussion with Stephanie. Next Wednesday is my mother's birthday. So Happy birthday, Mom. It is also Inauguration Day, where for centuries we have watched the reinstatement or orderly transfer of power in our country. We were going to hold our webcast next week since the swearing in ceremony will be finished prior to the webcast. But after the events of last week, we're going to skip next Wednesday and hopefully watch the peaceful Inauguration of our next president. We will be back the following Wednesday to discuss retail with John Furner, President of the largest retailer in the world, Walmart. 

So now to Stephanie. Thank you, Stephanie for joining me today on the Walker Webcast. You are clearly one of the most influential female executives in America. And as Group President, consumer operations technology and emerging businesses at Marriott, you are responsible for brand management, sales, marketing, revenue management, distribution, customer experience, and innovation, information technology, and digital. I'm not exactly sure if there's anything else to do at Marriott other than all of those things but suffice it to say you've got a huge job that is responsible for not only the here in the now but where Marriott and the hospitality industry are going tomorrow. 

So, let's start by backing up for a moment. You grew up in a bar with four brothers. How did that childhood shape the corporate executive, you are today?

Stephanie Linnartz: Well, thank you, Willy. And first of all, thank you for having me today on your webcast. It's wonderful to be here. I've very much enjoyed watching many of your webcasts on Wednesdays. 

But, um, that's funny. You say, I grew up in a bar. To some extent you're right about that. So, I grew up in Washington, DC and my family owned and operated a small boutique hotel, The Phoenix Park Hotel on Capitol Hill, and a variety of different restaurants over the years. The most famous of which is the Dubliner Irish Restaurant and Bar, which has been a Washington institution for decades. And so, I did grow up working in the business and the hotel and the restaurants, along with not just my for younger brothers, I also have a younger sister. So, we all, we all started in the business at an early age. And in terms of shaping me as an executive, when I think about the leadership skills I most admire and strive for, and see in the leaders that I really look up to, I think about empathy; being a good listener; making tough decisions, even when you don't have all the information; hard work… and I learned a lot of those watching my dad in his business over the years. I think the one I probably learned the most from him about was empathy and caring about the people that work in your business, and that was just so fundamental to who he was and how he ran his business. 

I should mention that I also learned a lot from my mother. You know, raising six kids is a full- time job too -- 24/7 -- just like the restaurant business, and learned patience and perseverance and a lot of things from her as well. But when I think about growing up in a bar, as you said, one of the things that stands out the most to me is watching how much fun my dad had at work every day. I mean, he just loved it. You've got a bar on Capitol Hill, and you've got all sorts of characters and interesting people coming in and I just observed him loving what he did every day, and I said, that's what I want to do. Whatever I do, I want to enjoy it the way I see my dad enjoy his job. So yeah, it was a lot of fun.

Willy Walker: You talk about watching your father and the fun he had at work. The other piece to it is that it's a very dynamic setting, being in both the hospitality industry as well as in the food and beverage industry. And clearly, that underpins everything that you do every day. Talk for a moment about EQ -- understanding people and human nature -- because given the responsibilities you have at Marriott, it would seem to be that you learned a lot of skills, growing up having watched your father manage not only the good times, but also the bad times.

Stephanie Linnartz: Yeah, I mean, you know, back to what I think are the most important leadership skills, I mean, you know many of them -- most of them -- are tied to EQ. And it is about being able to have empathy for, and listen to your team. And you make a great point, not just in good times and easy times, but in really difficult times, and certainly this year in the hotel business and the restaurant business has been really, really tough. I know today we're going to talk mostly about Marriott and the broader industry, but I've seen my family go through a lot. And my younger brother, Gavin -- your twin -- he has a number of restaurants in Washington, DC and they've gone through a lot as well. And I've seen him navigate that brilliantly, by taking care of his people. It really gets down to taking care of the people that work in your business. Because in hospitality, they're the ones who take care of the guests, so, and the people that come into your establishment. I couldn't agree with you more, that EQ is critical in all businesses, but particularly in the hospitality space.

Willy Walker: So, most of our listeners won't understand what you just said about your brother Gavin being my twin. To those listening, three of Stephanie's brothers have worked with me at Walker & Dunlop, and her fourth brother, Gavin, has a striking resemblance [to me] -- or I have a striking resemblance to Gavin -- and we've often joked that Gavin and I were twins separated at birth. And so that was where the twin comment comes from. 

But on that, Stephanie, just as you're talking about the challenges in this economy, you also sit on the board of Home Depot. Talk for a moment -- I wasn't going to get to this until much later -- but it works right now. Talk for a moment about the kind of the, the dichotomy, or the changes where you're sitting there, one moment looking at the numbers at Marriott, and the next moment looking at the numbers at Home Depot and how challenging that has been for you to sort of look at one business that has been really struggling, and another business that this pandemic has just made take off.

Stephanie Linnartz: Sure. Of course. Yeah, I mean, it's like living in two different universes almost. So, I joined the board of Home Depot a number of years ago. Absolutely terrific company. And when I share some of the numbers from Marriott, you'll see how they're in such sharp contrast to the numbers at Home Depot. But you know, one day, I'd be on a Marriott board meeting -- we were talking to our board constantly throughout this crisis, as you can imagine -- but on the flip side, the Home Depot board was meeting quite frequently too, because they were having the opposite experience that we were having at Marriott, in travel and tourism. Their sales were just going through the roof and their demand was incredible. As a matter of fact, in the 2nd and 3rd quarter of 2020, they had 25 percent comp store sales, which is really remarkable for a retail of their size. Some of their best performance in 20 years; double digit increases; and number of customers and transactions; and average ticket size. And they had to pivot on a dime to do things like curbside pickup in a way that they've never done before, and really scale-up their digital channels incredibly. So, it was, you know, it was just really, really challenging for Home Depot to react to the incredible increase in demand. I mean I'd rather be on that side of the equation than where we were. But they also spent well over $1 billion on enhanced benefits and pay. You know, quick Home Depot story: As Marriott was going through the worst of it, I picked up the phone and called the CEO of Home Depot, and really remarkably, he and the head of IT for Home Depot set up a separate microsite were Marriott employees who were furloughed and out of work could apply for jobs at Home Depot, because they had such a demand for needing additional employees. So, it really was incredible for them to do that. But you're absolutely right, Willy, it was like living in two different worlds for a while.

Willy Walker: So, let me pull you back to the world that has numbers that aren't quite like Home Depot's today: the hospitality world. So, as I mentioned previously, Dr. Peter Linneman was on the webcast last week, and his calculation is that occupancy – U.S. hotel occupancy in 2020 -- ended the year around 47 percent. His projection is that it will be flat in 2021, but at the same time while occupancy stays around that 50 percent, his projection is that RevPAR was down 50 percent in 2020 and is off “only” 20 percent - 30 percent in 2021. So, given those numbers, how do they stack up to Marriott and Marriott's experience? And then more importantly, the projection for 2021? Are we at sort of half occupancy throughout the year? Do you think the occupancy level numbers trend up, and on RevPAR 20 percent to 30 percent off of where they were 2019, or do you think they improve even beyond that?

Stephanie Linnartz: So, let's start with 2020 and just ground everyone a little bit on our performance, which is reflective of, you know, on how the industry suffered in 2020. So just as a quick context: Marriott international bought Starwood Hotels and Resorts in 2016, becoming the world's largest hotel company: 30 brands and we're in 145 different countries. So, there are some trends that differ by different regions of the world. But you know, Marriott's 93-year old country -- company, pardon me -- has been around many years and has seen bad times before, but nothing like this. 

So as a little context, after 9/11, Marriott's worst quarter, was negative 15 percent, or RevPAR was down 15 percent. During the 2008-2009 financial crisis, our worst quarter was negative 25 percent. That was the worst. During this crisis, our worst quarter was down 85 percent. There were months when we were down 90 percent, with single digit occupancy in our hotels. As a matter of fact, in the worst of it, 25 percent of our hotels were completely shuttered. So, 2020 was so challenging and like nothing we'd ever seen. That said, from the lows of April -- that was really the worst of it --things did get better each month in 2020, and then in each quarter. As a matter of fact, in Q3 of 2020 our worldwide RevPAR was only down 66 percent. And while still quite challenging, that was a 19-percentage point improvement from the quarter before. And a lot of that was driven by leisure demand that we saw during the summer to drive-to markets. And I should mention, by the way, that currently 95 percent of our hotels are open. That's closer to 98 percent in North America, so our hotels are back open now. But then things kept getting better and better every month and every quarter. And I'd say they've really kind of plateaued now towards the latter part of the year as the virus, you've seen the virus come back in many countries, not just the United States. 

I should also mention that in terms of the recovery in 2020, The trajectory of the improvements really did differ around the world. China would be a good example of that. China is Marriott's second largest market. And you know, they've been leading the recovery. As a matter of fact, in the 3rd quarter of 2020, China's leisure bookings were higher than they were the year before. Now, part of that is because no one's leaving China, right, and they are not going to Thailand for vacations and things like that. So China really did lead the recovery in 2020. So that's a little bit about 2020. 

We haven't released our 4th quarter results yet or our projections for ’21, but you know we're looking at the same industry forecast everybody's looking at, whether it's STR, CBRE, PWC, etc., and seeing that 2021 will be better, but it will still be down, you know, in the 30’s, depending on who you look at, versus 2019. So, it's going to get better, but it's going to be, it’s going to be a while, and a little while until we get back to those to those peak numbers.

Willy Walker: So, Stephanie onto that, “back to those peak numbers:” So the occupancy level in 2019 in the US was 66.3 percent. Projections are that we don't get back there until around 2023. So, we got ‘21 and ‘22 to get through before we get back to that. Unlike the aviation industry, where putting an airplane up into the sky, if you don't have a load factor that's getting close to 70 percent, you're losing money on it, where can the hospitality industry sort of, you know, turn a profit? Not to the levels previously, but is it a 50 percent occupancy number? Is it a 60 percent occupancy number? What's the sort of back-of-the-envelope in your industry that says, you get to that and we can -- we're not, we’re not ton-ing it like we were in 2019, and you may want to debate with me about whether you were ton-ing it in 2019 -- but the point being is 66.3 percent was a very healthy hospitality market in 2019, and we don't expect to get back there for some time. Where do we settle in between here and there?

Stephanie Linnartz: Yeah, I mean to your first question, if I'm understanding it correctly, kind of like, what's the breakeven for occupancy, when do you start to make money in the hotel business? And that's, there's not a straightforward answer to that. I mean rough, back-of-the- envelope to a select-service hotel, I'd say you start breaking even covering your operating costs at 35 percent - 40 percent occupancy; higher on, you know 50 percent; 40’s / 50’s if you're a full-service hotel. Of course, it depends on what kind of ADR you're getting, right? What kind of rate you're getting? And if that's in normal pricing situations, you know, things that rates can be depressed in these extraordinary times, so that's kind of, you know, back-of-the-envelope, a rough breakeven. 

I think, I'm hopeful that we'll get back to higher levels before 2023. But the honest answer is nobody knows. I can tell you, we are, I believe, there's tremendous pent-up demand for travel, both leisure and business, and we're hearing that from our customers. From our Marriott Bonvoy Loyalty members…from our top corporate accounts…So, there's no doubt it will take a while to recover. And you know, the way I see it, it will be domestic leisure first; short-haul trips, you know, medium / regional; borders will open up with international business; and big group meeting business coming back last. But I hope it’s before 2023, but it certainly won’t be, it certainly won’t be this year. 

Willy Walker: So, I want to, I want to dive into rates and group travel and come conventions and all that in a moment. But before we move to sort of the future and what you're seeing coming down the road. I want to close off on the pandemic for a moment and talk about the video that your CEO Arnie Sorenson put out to all married employees back in the in the depths of the pandemic. When I was in business school there was a case study on Jim Burke at Johnson and Johnson when they did the Tylenol recall and it was the seminal case study on crisis management. Since 1982, when that case study was written if you want to figure out how to be transparent with your clients and pull the medicine off the shelf, create a tamper proof seal and get back into business and have your sales rebound dramatically that's the seminal case study. 

I think that Arnie's video, in the depths of the pandemic, will be viewed similar to Jim Burke's case study at J&J, of how to effectively communicate crisis management and difficult times in corporate America. You had a huge role in both the scripting of that and the production of it. First, do you believe. Do you agree with me that it's going to be a seminal video, if you will? And second of all, can you give us a little bit of insight as it relates to what you all were trying to accomplish and why it was so impactful.

Stephanie Linnartz: I'm sure, absolutely. I agree with you. It was a remarkable video. And that's all Arnie that's, you know, all Arnie he's just used a tremendous CEO and a tremendous leader and that video, I think over a million people have seen it on YouTube, gives the outside world a little peek of what we get to see with Arnie every day. But what I think was so remarkable about that video and why it touched you in the way it did Willy is, I think, be Just if you step back and think about it. And by the way, I should, for those who didn't see it, I should mention something important about this video is Arnie was diagnosed with pancreatic cancer in late 19 and when he was in the middle of his treatment we did the video and he was bald. He's doing great by the way. He's in great health now, but he was bald and some people said, well, do you want to do a video when you're bald and, you know, you're not looking at your best and he said yes. And I think that's the right decision because he doesn't do memos to his employees, for the most part, he does videos and he gets out on the road and he talks to people. So, a memo just wouldn't be Arnie. Um, so he did the video, but it was kind of striking to see him look that way. And again, I know, I know you saw it and I'm sure many of your listeners did. But what was extraordinary about that video and I agree, is that he was open and honest and transparent, right. First of all, he told everybody exactly what was going on with our business. Very straightforward about that. And he was very straightforward about the really tough decisions that we have to make. As you know, we have 750,000 employees at Marriott international, 96 percent of them work at a hotel. Hundreds of thousands of employees were either furloughed or put them reduce work weeks. 70 percent of corporate headquarters was furloughed. So, he was very honest about the measures that we needed to take. He talked about the how the fact that Mr. Marriott and Arnie both took zero salary in 2020. His direct reports, we took a 50 percent salary cut, as we all should have. And but the best part about the video is he ended with hope. 

I mentioned China leading the recovery, even in March China was starting to show green shoots and he highlighted that we are going to get through this and China's an example of when you get the virus under control demand comes back. People love travel. And so, I really think he did a remarkable job in that video of showing transparency, honesty, emotion, and most importantly hope, that was the best part of it. So, I thought it was a remarkable way to communicate and it's just one example. Honestly, just one example of how he navigated this crisis and I feel the leadership team at Marriott, I was honored to work with all of them. Of course, Arnie at the top of the list, but Mr. Marriott and my peers as well. It was an important piece for him to get out so early in the crisis too. So, thank you for recognizing that and noticing it.

Willy Walker: Yeah, but on that, just as it relates to the 50 percent pay cut that you and other senior executives took. You know, during the great financial crisis, you're in the banking sector, banks messed up. Banks had a big role in us getting into a financial crisis, they were losing lots of money and so pay cuts, firing, all that kind of stuff. You totally got that. And anyone who would kind of push back on that, you're sort of like what memo didn't you read. But you guys didn't bring the pandemic and probably 2020 has been more work for you and your colleagues than ever before. How do you, how do you sell a 50 percent pay cut that you guys didn't ask for, do anything to bring about and are working harder than you've ever worked.

Stephanie Linnartz: Yeah, I mean honestly Willy I think it's 100 percent appropriate. I mean, look what our company was going through, you know, hundreds of thousands of job losses. Many people that were furloughed had a more significant pay cut than we did, right. I mean, so it was just completely appropriate. And it gets back to a core part of Marriott's culture, which is taking care of our associates. You take care of the associate, the associate takes care of the customer, the customer comes back again and again. And when your employees are your most important asset that's what you do. 

You know, one, one quick story on that, in addition to retailers like Home Depot and we have people like CVS and Kroger also help us place employees. But one of my favorite stories from the pandemic and it's an example of from crisis comes creativity. Is, you know, we have 23 call centers around the world our largest one in Omaha, Nebraska. No one was calling us to make hotel reservations. At the same time, the State of New York couldn't keep up with their unemployment claims. It was out of control and they couldn't keep up with it. So, we, with the help of Deloitte in between worked with the State of New York, trained our agents in Omaha on the software to process unemployment checks for the state of New York. We save 700 jobs they were not furloughed at all during the pandemic. They worked the whole time. We helped thousands of people in New York, get their unemployment checks, desperately needed unemployment checks, and it was a win-win. And it was an example of actually speaking of, you know crisis, creating creativity or necessity, being the mother of invention. You know, we started thinking, maybe this can be a new business for us, you know. That we can take to and do after the pandemic. But it was just an example of, I think, the way Marriott handled this. I mean, there's so many stories of, you know, we did a big program rooms for responders. We gave free hotel rooms to healthcare workers. Gave food and linen to hospitals. I mean, it was as hard as 2020 was Willy, our culture was shining through the whole time. And back to your original question on pay cuts, that's our culture. That’s what we should have done, and it was completely appropriate

Willy Walker: So just talking about, first of all, I can only imagine someone who was calling filing for unemployment benefits couldn't believe the quality of service they got by the luck of going into a Marriott-run call center in Nebraska, rather than going to some of the some of the other state-run call centers. So that's pretty neat to hear. 

You're talking about employment numbers. So, the hospitality sector, travel and leisure lost by far the most jobs during the pandemic down 8.3 million. But then, as you mentioned previously from April through November you added back almost 5 million jobs, but that's still a loss of 3.4 million jobs in the hospitality, travel and leisure sectors and that is by far the most jobs lost. As you look at the resurgence in demand how challenging is, is it going to be to both find and train labor? And does this give you the opportunity to think about doing things differently as you rehire those people?

Stephanie Linnartz: Yeah, let's start a little bit with, you know, talking about the numbers. You're right. They're pretty dramatic and from a global perspective. If you look at what the World Travel and Tourism Council put out. Globally, they'll be over 121 million jobs loss and over 3.4 trillion and global GDP. And some of the numbers you were quoting I know were for part of the year, but the full year numbers in North America will be closer to 14 million jobs lost because of the pandemic. On so the job loss has been pretty incredible. And I think it's important to note something that doesn't get talked about as much as I think it should be talked about is that; there's very high participation of women, minorities, and youth in the travel and tourism sector. As a matter of fact, two times in terms of as many youth work in our sector. And so the other interesting thing about travel and tourism is that 83 percent of the businesses in travel, or small businesses, 60 percent owned by women. So, um, I think that when we think about the job loss and the economic impact of this pandemic, particularly in my industry, this virus is potentially erasing years of economic progress that women have made, and I think it's threatening to leave some long-lasting damage. 

As a matter of fact, McKinsey, just put out their Women in Workplace study for 2020 and said that this could set women back half a decade. And they're calling it perhaps the first female recession. So, I think there's some underlying trends. As a matter of fact, you and I were talking about this the other day when the job reports came out on Friday, the December job reports. There was 140,000 jobs loss. Net all women. Negative 156,000 for women, plus 16,000 for men. Now men, of course, lost jobs too. There's churn in those numbers. So, on the job loss front, I do think it's important to note, an underscore who's being most impacted. And I think that governments can and absolutely must recognize that travel and tourism is a source of growth. It is a mechanism to further enhance quality and to reduce poverty. So, I think on the job loss front was pretty remarkable. But now to move forward, we need to get our hotels open and staff up again. That's what we're focused on now is getting people back to work.

Willy Walker: Is it essentially the same playbook Stephanie, or are there any things that you're doing differently? So, you know, previously there was a doorman at the at the Marriott you know downtown wherever and you're saying, you know what, we don't need to put that person back in that job. We're going to use automation or actually given the change in the pandemic of what customers want, we're going to add here and subtract there. Has there been any change in the dynamic of hospitality, given the pandemic?

Stephanie Linnartz: I mean, nothing too terribly significant. I will say there's been the adoption of technology has been supercharged particularly things like mobile check in and check out and using your phone as the key. We really you know really supercharge those efforts. I don't think it's at the point yet where it's going to mean we're going to have, you know, fewer front desk associates checking people in or fewer doorman. But we do need to be conscious of, it’s always a balancing act of adding costs back to our hotels, as you know, and I'm sure most of your listeners know, Marriott owns very few of our hotels. We need to be conscious of the cost pressure our owners and franchisees are under. And be very thoughtful as we bring costs back into the business. At the same time Willy, as people start coming back to our hotels and if you're paying, you know $600 a night to stay at a Ritz Carlton you expect us to have our brand standards there. Right. You expect the restaurants to be open, and you expect the spa to be open, and your room to be cleaned every night, etc. So, it's going to be a balancing act between customers’ expectations and rightfully so, their demands. And how we bring costs back into the business. But I don't think there's any major fundamental shift yet in automation of services yet. I mean that may come over time, but I don't think the pandemic, at least from my lens, has supercharged anything significantly.

Willy Walker: So Scott McCartney, who is an author of The Wall Street Journal's The Middle Seat, which focuses on travel and leisure, wrote last week that hotels and prime destinations will seem maddeningly expensive as we get out of the pandemic and people start to travel around the country. First of all, were you able over the Christmas holidays to charge maddeningly expensive rates anywhere across the country? And then second of all, what's your suggestion to those listening as it relates to, we want to go on a summer vacation in June and I haven't booked it yet because I'm afraid that will still be in lockdown?

Stephanie Linnartz: Yeah, no, I mean, throughout this whole thing we've tried to maintain a discipline approach to pricing during the year. We know that the steep drop in demand wasn't a pricing problem, wasn't a pricing related problem. So, slashing pricing was not the way to create demand. So, where possible, on the pricing front, we've tried to maintain Covid, pre-Covid level pricing where we can. I'll give you an example of that, and then I'll answer your question on the resort front. You know, every year we price our corporate accounts, you know, the Deloitte, Accenture, McKinsey, BCG, etc. They get pricing and our hotels for the year. And what they all agreed to do, or most of them, was just a roll over the pricing from 2020 to 21. Right, like not go through that whole process again. So just to illustrate the point that we're trying to maintain integrity in our pricing, and how we think about this. 

But in high demand markets, mountains, you know, ski resorts, beaches, etc. You know, we've been able to charge like we did pre the pandemic. You know, the higher rates. I mean, we have limited and perishable inventory. So that's how revenue management works and when there's high demand, you're able to charge higher rates. And so that's pretty much the same as it was before at the Ritz Carlton Bachelor Gulch is an example near your home. Other markets where things really fell off you know, we had to lower rates. Because of supply, demand, competitive actions. But I'd say again, trying to be disciplined in your pricing during something like this is very important.

Willy Walker: So what's your take on returning to the office and returning to travel? Because there plenty of differing opinions on a) return to the office that some people say were in remote work forever and people are never going to get back to the same office environment we knew. And there are also a lot of people who say that the last minute trip to go have a business meeting and flying from New York to LA and spending the night at one of your hotels is a thing of the past and that people will get on zoom and have that that that meeting virtually rather than booking the last-minute travel ticket and the last-minute hotel, which obviously are a huge component of the profits for both the airlines, as well as the hotel industry. You think that comes back? Do you think that's a thing of the past?

Stephanie Linnartz: You know, as I mentioned earlier, I'm very bullish on the demand for travel and business travel specifically is what you're talking about. I think it would be naive to say there won't be any change to the way people work and travel after COVID-19. And you think about it, I mean, it was the great Worldwide experiment on working from home, and everyone knows how to use Zoom and Teams now. So, to say that there'll be no impact I think would be naive. That being said, I do think business travel will come back too. Maybe not quite as strong and maybe not as fast, but I know I've heard you, Willy, say this and other people that, you know, when will you start traveling again? As soon as my competitor does. When that salesperson is showing the love and the desire to get the business, you're going to be right there behind him. Or you'll probably be there first, knowing you. They'll be the right there behind you. So, that kind of business I think will definitely come back. 

Other more internal meetings and things like that may be a little bit slower, so I think it depends on what type of business travel. We talk to our top 10 accounts all the time, as you can imagine. So again, Deloitte, Accenture, IBM, McKinsey, Microsoft, I can go on. I think, to just zoom out for a second, none of them have yet formally revised their travel policies to allow business travel. Most of them, all of them are really in a place where it's client requested only, business critical. But they are all working on it. First, they’re working on getting people back to their offices, to your point. Getting people back to the office, and then business travel will follow from there. 

Again, I go back to China a lot as an example, because when the virus gets under control or when the vaccine gets rolled out, even more importantly, business comes back. Business travel, meetings, conventions, they all came back in China. A little bit less than the year before, but pretty strong. So, I do believe that business travel will come back. It's worth noting, and most people don't know this, that leisure travel, as a segment, is actually twice as big as business travel and growing at a faster rate. So, that is important to keep in mind when you think about a company like ours, that’s also about 500 resorts. So, the pie of travel is quite large. Business is significant, to your point, it's quite profitable. That's who's buying the first-class seats and the business-class seats on the airlines. But I think business travel will come back. I think it will just be towards the middle to latter part of this year is when we’ll start to see some more travel.

Willy Walker: Talk about the difference between leisure travel, business travel, and then group travel, because clearly, convention hotels, there are no conventions going on right now. I saw a stat this morning from STR where, in January of last year, on group bookings there were 6.9 million group bookings in the United States in January of 2020. That dropped down to a low of 486,000 in April, and had “recovered” on group bookings back to 1.4 million by October. But still, we're talking about 6.9 million down to 1.4 million. What's your sense on conventions and group bookings for 2021, and when your big convention hotels start to see people taking space?

Stephanie Linnartz: Yeah, I think that convention and group business will come back on the later side, although I will say, when we look at what group business we have on the books for the latter part of this year, most of our meetings are holding strong. So, I think we'll see it come back, but slowly. One thing we're seeing a lot of, Willy, is hybrid meetings is where you're seeing people hold meetings. I think we'll see this come back first, is they'll have, you know, maybe half the people there live ,or a quarter of the people live, and then use technology to Zoom in or Microsoft Teams, whatever technology they use to participate in the meeting. So, I think we’ll see, it will be towards the latter part of the recovery where we'll see groups and conventions come back and full force. In the interim, I think we'll start seeing more and more hybrid meetings. But, Willy, it really does all come down to the vaccine, in my opinion. When we pole our meeting planners and when we talk to them, they all say, “we need the vaccine,” right, “the vaccine is when we're going to feel really confident having meetings.” As a matter of fact, we polled our top meeting planners; 96 percent of them said, as it related to the vaccine and booking groups again, that it was either a moderate factor or a significant factor. As a matter of fact, 60 percent of meeting planners said having a vaccine rolled out was a significant factor in booking a group meeting. I think one of the key things is when, I don't know, 30-40 percent of the most vulnerable people, get the vaccine, that's going to be a turning point too. It doesn't have to be 100 percent, I don't think, to see people start traveling and booking meetings. I think when we get to that tipping point of the most vulnerable, we’ll start to see the tide turn.

Willy Walker: So, I've got two significant Walker & Dunlop events in 2021: Our annual summer conference in Sun Valley, which is in July, and then our all company meeting, which is at your newly redone Sheraton right here in downtown Denver in October. Give me your odds that I'm able to pull off the Walker & Dunlop summer conference in July, and then the odds for me pulling off the Walker & Dunlop all company meeting in October.

Stephanie Linnartz: I think you'll be able to do it. I do. I think we're going to get our act together with the vaccine and get it rolled out, and I think by this summer, you'll be able to have your meetings. I really do. And I'm honestly really bullish about it. And again, now, maybe you'll have a few people that don't want to make the trip, and maybe you use technology to Zoom them in, that could happen. But I think the bulk of the people will be able to attend your meeting, and I think those who can't, for some reason, you can use technology to include them. These hybrid meetings are working out quite well. I mean, they're not exactly the same as having everybody there live, of course. So, I think you'll be able to do it.

Willy Walker: Great. So, if you think about someone showing up at one of your properties today. I was reading an article about airline capacity in the United States and the fact that all the major airlines are now flying bigger planes on domestic routes, because they're not doing International. So, the number of 777s flying in the United States last January, there were 450 flights, and this January, there are 1,100 flights on 777s in the United States. So, if you happen to be on one of those and you're sitting in first class on 777, it's a lot nicer than first class in a 737. If I show up at one of your properties today, is a junior suite a junior suite? Or am I going to find my way to a nicer room just because you guys are doing, sort of, capacity management and making sure that you're getting people into the capacity you have.

Stephanie Linnartz: Yeah, I mean, I'd say on average, there's a higher percentage of our guests who are getting and experiencing upgrades because we have more suites and upgrades to give, given the situation. And of course, we always focus on our Marriott Bonvoy Elites as the first to get those upgrades. So, I think we are seeing a higher percentage, but it's a little bit tricky. In a lot of our hotels, we kind of have an artificial restriction on upgrades to the junior suite because a hotel may have an entire wing closed, or three floors closed, either because they have to save money or the restrictions on the size of the property in terms of how many rooms they can have open. So, I think that in some markets, some markets back are very busy. New Year's week in Fort Lauderdale was at 80 percent, Miami was at 85 percent. So, you know, it's kind of the same situation with upgrades and suites in that situation as it was pre-COVID. But on average, yes, a higher percentage of our guests are probably getting upgraded, particularly our Marriott Bonvoy members, because there's just more capacity.

Willy Walker: And talk about Bonvoy for a moment, because, clearly, one of the main reasons why operators choose Marriott to manage their hotels for them is your rewards program, and driving customers to those hotels. I've been Bonvoy Elite for quite some time and I'm pretty sure I'm not qualifying for Bonvoy Elite from my travel in 2020, given I've spent a fraction of the number of nights in a hotel this year than I typically would. What are you doing with people, as it relates to elite status? And I want to take that from, what are you doing with people to, how important is it that you get the miles back and going in using that as an inducement for people to travel and stay at your hotels?

Stephanie Linnartz: Absolutely. Marriott Bonvoy really is the cornerstone of our consumer strategy. We have 145 million Marriot Bonvoy members now since we merged Marriott Rewards and SPG a few years ago. And they are, again, our most important customers. As it relates to our elites, of course it’s very hard to earn elite status in 2020 when you're not traveling, so we did a bunch of things: We cut the number of nights that are required to become elite, we allowed people to get an extension and carry their status over for an extra year, we extended points expiration for our elites, our top elites, as you know, get things like free suite night awards, we extended those. So, we did a lot of things to say, you know, we understand the situation and we're going to extend your status into 2021 or into 2022. We also did a lot of things for our Marriott Bonvoy members in terms of earning points to your question on that front. You know, you may not be traveling, but our most loyal Marriot Bonvoy members, many of them have our co brand credit card. So, we did things like 10 times points on gas and groceries. You may not be staying in hotels, but you're buying gas and groceries. So how can we give you extra points for that? You know, we did a lot of things for our elites to make sure they understood how valuable they were to us. So yeah, Marriot Bonvoy really is the backbone of our strategy. But, you know, kind of zooming out, I often think of Marriot Bonvoy as the vessel for our 30 brands. The key to Marriott Bonvoy is great hotel brands. If you don't have great hotel brands, who wants to be in Marriott Bonvoy? And who wants to get our credit card for that matter?

Willy Walker: So, you talked about brands and you guys, as you mentioned previously, acquired Starwood. You now have 30 brands. I went and looked and, you know, GM only has 10 car brands. Do you really need 30 brands, or does this reduction in usage allow you to kind of take a look at what is really needed by the consumer and winnow those brands down? Or do you actually think it goes the other way, and that they're actually 45 brands because there's some millennial population that will, you know, like some brand that's exactly what he or she would like?

Stephanie Linnartz: Yeah, I mean, we got to 30 brands, really, buying Starwood got us to 30. They have 11 brands, so we added them to our 19 brands. So, I don't think we have too many brands. As a matter of fact, I wouldn't be surprised if, you know, we buy or started another brand, because the key, and this was the really the impetus for the Starwood purchase in many ways, in today's day and age, size, scale, choice. It all matters. And so, the more brands and choices we have for consumers, the more attractive Marriot Bonvoy is. I think that in all those brands, by the way, those 11 Starwood brands that we bought, all the investment had been already put into setting them up, they had loyal customers. It’s not like we started 11 new brands. We purchased existing brands that had consumer loyalty. 

So, the other reason, I think, having more brands, depth, choice, size and scale matters is investing in technology. I mean, there's digital players in travel now, Airbnb, you know, we need to have size and scale to invest in technology also. You know, that's why it matters if you're bigger now in terms of your investment capacity. So, I don't think 30 brands is too many, and as a matter of fact, we're adding more offerings to our customers, even outside of hotels, with a new business we launched last year, Homes and Villas by Marriott International. Next year, Ritz Carlton Yachts will sail their first ship, it's already sold out with three more ships under construction. So again, I think about growing brands and offerings for our customers, not the other way around.

Willy Walker: If you need anyone to trial run one of those Ritz Carlton Yacht experiences, please feel free to call me up and ask me if you want some consumer feedback on that. 

So, you talked about Airbnb, Stephanie. I looked back at an interview that David Rubenstein did with Chris Nassetta and Arne back in 2014, and David's first question, at the Economic Club of Washington to Chris and Arne, was, there's this company called Airbnb and this guy Brian Chesky, and everyone's talking about this and kind of sharing homes and this and that. What do you think? And Chris, not Arne, but Chris sat there and said, “I don't think it's going to be that disruptive to either of my business or Arne's business. I'm not that worried.” And as you know, at the end of 2020 Airbnb went public at a market cap of $83 billion, which is more than Hilton and Marriott combined. So, I guess the question is, you still not worried about Airbnb?

Stephanie Linnartz: Well let me start by first saying I think that Airbnb really has built an admirable platform. And I think it's great to see them become a public company, Marriott's been a public company since 1953. But, Airbnb is still just one player in a larger travel and hospitality industry. Right now, they're very focused on one sliver: home rentals, and rooms within homes. Before the pandemic, they were getting more into hotels and experiences. And they have stated, at least for now, they're doubling down on their core business and home rentals. And by the way, home rentals have been around for a long time. I know Airbnb gets a lot of the press, but there's others in the space, VRBO, So again, I admire the platform that they’ve built, I’ll let investors comment on their market cap versus me doing that. 

The reason we got into the business, I've always believed that this is a segment of the business we should plan in the right way. So, we launched Homes and Villas by Marriott International last year, it is relatively small compared to our hotel business, and the reason we did it is we saw a gap with Airbnb and the other players. Just overwhelming amount of choice, no branding no curation. We said we want to play in the premium and luxury part of this segment. We're only going to do business with professionally managed homes, so you have to be managed by what's called an HMC (home management company), kind of like what we do for hotels. And we have very, very strict standards. You have to have a full home, certain amenities, design aesthetic, washer dryer, etc. The best part about our offering is, though, you can earn and burn Marriot Bonvoy points. And I should note that 95 percent of the people staying in our homes are Marriot Bonvoy members, and it's really part of, again, the flywheel and the ecosystem of being part of our travel platform. I think we have hands down the best hotel brands in the industry. And we have them at all price points, right, people stay at Ritz Carlton's for certain stay occasions, and the same guests will stay at a Courtyard for their kid’s soccer tournament. Well those same guests, human beings, sometimes want to rent a home. And now we believe, with the offering of home rentals, why would you ever join another hotel loyalty program that you can, you know, give us all your business and leisure travel for hotels, and then earn points to rent a home in Tuscany? So, I think that our Homes and Villas business is, while relatively small, I should note we started with 2,000 homes and we're up to something like 25,000 so again it will always be small compared to Airbnb, but it will be a critical part of the Marriott Bonvoy value proposition. So again, Airbnb, I think admirable platform.

Willy Walker: And why'd you start that business in Europe? Just real quick, why Europe versus the U.S.? Was there something unique about the way that people have either interest in it or the leasing laws that made it Europe, because I know you started in four European countries and you're not in the states with it yet.

Stephanie Linnartz: No, we aren't. Our pilot was in Europe, you're absolutely right about that. But then we launched the business in the U.S., Europe and the Caribbean. So now we're in those three places.

Willy Walker: So, my final question to you, and if your answer goes a little long forgive me, because I've got one of these technology restarts that, in three minutes and 46 seconds, my computer is going to self-destruct and shut off on me. So that's as long as I've got on this webcast. But if we think forward, Stephanie, to five years from now, and the pandemic is hopefully nothing more than an unfortunate memory to most of us, and to those people who have lost loved ones obviously far more significant in their memory. But thinking as it relates to the travel and leisure industry and our hospitality experience, I'm going to go check into a Marriott Hotel in January of 2026. What's going to be different about my experience?

Stephanie Linnartz: I think that there will be continued use of technology. That will probably be the biggest thing. I think you'll see more people doing things like mobile check-in and mobile checkout. The hotel industry was kind of behind the airline industry in that regard, so I think there'll be a more aggressive adoption of technology in our hotels will be the most fundamental change that you'll see. I think we will all get better at using data to personalize the guest experience. I think every year we’ll get, you know, data is the new oil, and we have so much data on our customers, used appropriately with all the privacy rules being followed, I think you'll see enhanced personalization and customization in our hotels going forward. But I can promise you one thing that won't change, and that is the warm welcome that you get when you come to our hotels, the way we treat our guests, the first class hospitality that we provide. That will be the same, if not get better, by 2026.

Willy Walker: And will the experience when I go to a resort location, will there be more things to do? Because as I think about the competitive landscape of you versus an Airbnb, if I am just going for the four walls and nice space, do I want to sit in a suite in one of your beautiful hotels, or do I want to be in a home? That's a good trade off. But if you're adding into that the great pool, the great experience, the ability to go on horseback ride on the beach, or whatever the case might be, that might be an additional pull. So, do you think there's added services that come to destination for vacations?

Stephanie Linnartz: Absolutely, and I don't want to lose you before I say this, but absolutely, we've started a whole tours and activities business, that way you can also earn and burn Bonvoy points. I should note that Marriott's a lot more than four walls. We are actually the largest spa operator in the world, one of the largest restaurant operators, we've launched an all-inclusive business that will grow in the years ahead. So, we will continue to have more offerings in our resort and destinations. Tours, activities, spa, golf, all sorts of different offerings. You'll just see that continue to grow in the future.

Willy Walker: Well Stephanie, it has been a real pleasure and I'm deeply thankful to you for spending an hour with me to talk about the hospitality industry. Congratulations on all you have done at Marriott. Congratulations on getting through an extremely challenging year. Please give Arne my best and my best to your wonderful family. And to Brendan and Colin, let's keep on cranking buddies. Thank you, Stephanie. Have a great day. 

To everybody else on the webcast, have a terrific next two weeks, we'll see you back when we have John Furner from Walmart on to talk about the retail industry in two weeks. 

Thanks, and have a great day.

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