Marriott International, Inc.

Company Profile

Publication Date: 20 May 2010

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Marriott International, Inc.

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TABLE OF CONTENTS

TABLE OF CONTENTS

Company Overview..............................................................................................4
Key Facts...............................................................................................................4
SWOT Analysis.....................................................................................................5

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Marriott International, Inc.
Company Overview

COMPANY OVERVIEW

Marriott International Inc. (Marriott or “the company”) is a global hospitality company that operates
and franchises hotels and lodging facilities. The company primarily operates in Americas, Europe,
Africa, and Asia-Pacific. It is headquartered in Bethesda, Maryland and employs about 137,000
people.

The company recorded revenues of $10,908 million during the financial year ended December 2009
(FY2009), a decrease of 15.3% over 2008. The decline in revenue was primarily attributed to weak
economic conditions in the United States, Europe and much of the rest of the world, which affected
the lodging demand throughout the world in 2009. The operating loss of the company was $152
million in FY2009, as compared to the operating profit $765 million in FY2008. The net loss was
$353 million in FY2009, as compared to a net profit of $347 million in FY2008.

KEY FACTS

Head Office Marriott International, Inc.

10400 Fernwood Road
Bethesda
Maryland 20817
USA
Phone 1 301 380 3000
Fax 1 301 380 3967
Web Address http://www.marriott.com
Revenue / turnover 10,908.0
(USD Mn)
Financial Year End December
Employees 137,000
New York Ticker MAR

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SWOT Analysis

SWOT ANALYSIS

Marriott is a global hospitality company that operates and franchises hotels and lodging facilities.
The company with its global presence and strong brand recognition is a formidable player in the
international lodging market. However, the threats of terrorist attacks could hamper the company’s
international operations.

Strengths Weaknesses

Technical innovations to ease the business
process and increase hassle-free
experience for the customers
Higher brand recognition and recall makes
the company priority choice for clients
Global presence and strong brand portfolio
diversifies the revenue sources
Business model which has the potential to
dilute the brand perception and limit the
revenue growth
High leverage combined with downgrade in
rating will affect the future capital generation
and expansion projects
Weak financial performance affecting the
company’s expansion plans

Opportunities Threats

Strong growth in the hotel and motel
industry in emerging markets
Improving hospitality market in the US
Brand innovations to suit the changing
customer preferences
Vulnerability to terrorist attacks raises
security and safety concerns
Timeshare business vulnerable in a dismal
capital and credit market
Fragmented and intensely competitive
lodging industry

Strengths

Technical innovations to ease the business process and increase hassle-free experience for the
customers

Marriott had adopted several innovative technical programs to suit its business requirements and
support the customer related problems. These programs have been developed either in-house or
with the external support. One of the frontrunners of the technical success has been the Marriott's
Automated Reservation System for Hotel Accommodations (MARSH), a well known reservation
system being used by the Marriott. This system encompasses the entire database of all its customers
visiting anywhere in any part of the world. Thus, the information of a customer visiting Courtyard,
London would already be available through MARSH as that customer had once visited Ritz-Carlton,
Millenia Singapore. The MARSH, hence, gives the Marriott an edge over its competitors, in providing
personalized attention to each of its customer. The MARSH success led to the implementation of

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SWOT Analysis

the e-business strategy which transformed Marriott from a property-focused to a customer- focused
company. The main aspect of this strategy was the more importance given to revenue earned per
customer than the revenue earned per property and to provide better customer service through the
use of information technology proactively and through facilities on offer through websites.

Another technical innovation at Marriott was related to the development of an auditing tool for price
auditing. The tool was developed as a response to the renegotiation requests from its clientele during
the recent recession. The renegotiation was proving extra burden financially for the hotels as they
were forced to undertake the labor-intensive task of continually loading, auditing and monitoring the
shifting corporate rates. Marriott tackled this problem by automating the process and developed the
Property Guest Object Oriented System (PGOOS), an auditing tool which automatically audited
every night its central reservations system (MARSH). The implementation of PGOOS enabled the
company to streamline its published rates with the negotiated rates and ensured that the negotiated
rates are at or below published rates. Thus, PGOOS became one of the competitive advantages of
Marriott since the customers where proactively given lower rates that coincided with market situation.
The clients were, thus, assured of better rates at Marriott.

The continuous focus on using technologies to better the customer experience at Marriott, hence,
is one of the competitive edges of the company and enables it to distinguish itself from its competitors.

Higher brand recognition and recall makes the company priority choice for clients

Marriott is one of the leading hotel and leisure companies known for its strong brand portfolio in all
the major segments and market.The company operates in most major markets and segments around
the world through its luxury brands such as Marriott Hotels & Resorts, JW Marriott Hotels & Resorts,
The Ritz-Carlton, Bulgari Hotels & Resorts, Grand Residences and mid-priced brands like Courtyard,
and Fairfield Inn. At a corporate level, Marriott has a high brand recall. The company ranked 37 in
the Fortune’s 2009 rating of World’s Most Admired Companies after ruling the list as the number
one for ten consecutive years. The "Most Admired" list is made up of companies that are ranked by
Executives, Directors, and Analysts in their own industry on eight criteria, including innovation, people
management, uses of corporate assets, social responsibility, quality of management, financial
soundness, long-term investment, and products/services quality.

The J.D. Power and Associates’ recent North America Hotel Guest Satisfaction Index Study gave
the best scores to the two Marriott brands; Ritz-Carlton Hotel in the Luxury Segment and SpringHill
Suites in the Mid-Price Limited Service Segment. In addition, three brands were placed second in
their segments; Renaissance Hotels and Resorts, Courtyard, and Residence Inn.The Marriott brands
occupied the survey with either first or second place in five of the six segments into which J.D. Power
divided the industry.

The brand recognition and acceptance related with customer satisfaction makes Marriott a popular
choice among the customer base. This gives Marriott an edge over its competitors when clients opt
for lodging facilities. Besides, it also helps in retaining and maintaining a loyal customer base.

Global presence and strong brand portfolio diversifies the revenue sources

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SWOT Analysis

Marriott is one of the key players in lodging and hospitality industry with operations spanning 68
countries around the globe. Although the US is single largest market of the Marriott, yet 43% of the
earning before interest and tax is contributed by the company’s international operations. Thus, the
company does not depend on a single market for its revenues. It earns revenues from both matured
and emerging markets.The established presence in matured markets like the US and Canada drives
the value growth while the presence in emerging markets drives the volume growth. Besides, a
global presence shields the country from risks specific to a particular economy.

Besides, having a diversified geographical base, Marriott sources its revenues from a diverse
customer base. The company has presence in all the segments: luxury, upper moderate, moderate
and lower moderate price segments. Ritz-Carlton, JW Marriott and Bulgari brands of the company
cater to the luxury segment while Marriott, Renaissance, SpringHill Suites and Courtyard target
upper moderate-price tier segment and Fairfield Inn competes in the lower moderate-price tier. In
addition, to these, the company has brands like Renaissance, TownePlace, Marriott Vacation Club
and Grand residences which compete in different market segments. Marriott’s hotel brands are one
of the respected and known brands in the lodging industry. The awards and recognition, like the
Fortune’s “Most admired Brand” as mentioned above, signifies the company’s brand value. The
brand value combined with presence in all segments helps the company in generating revenues
from diverse customer base.

Weaknesses

Business model which has the potential to dilute the brand perception and limit the revenue growth

Marriott follows the business model wherein it emphasizes on managing and franchising hotels,
rather than owning them. The company operated 46% of its hotel rooms under management
agreements, 52% under franchise agreements, and only 2 % were owned or leased as of December,
2009. But, as compared to this, only 33.6% of the revenue in FY2009 were earned through franchise
and management agreements while 66.4% from owned or timeshare sales and service (excluding
revenues from cost reimbursement). The emphasis on management contracts and franchising
although tends to provide more stable earnings in periods of economic softness, however does not
provide much scope for revenue growth. Besides, the revenues generation from incentive fees,
revenues earned when hotels reach certain profitability level, is very much dependent on the economic
scenarios. The company faced similar situation when incentive fees halved from 2008 level, the
company generated $154 million in FY2009 as against $311 million in FY2008 indicating a decline
of almost 50.5%. Moreover, the franchise and management agreement can dilute the brand equity
associated with Marriott properties. If the parties involved in franchise or management agreement
with Marriott does not deliver the quality with which the company is associated, it could seriously
harm the company’s reputation. The franchised or business model, although gives a constant and
safe source of income, but brings demerits like diluted brand perception and limited revenue growth.

High leverage combined with downgrade in rating will affect the future capital generation and
expansion projects

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SWOT Analysis

The company has substantial debt to equity ratio. The ratio increased from 0.7 in 2006 to 2.24 in
2008 and stood at 2.01 in 2009. In percentage terms, the company’s long term debt to equity ratio
stood at 291.96% as against the industry standard of 56.07%. The lodging industry being capital
intensive, generally have higher leverage. But, the cost of capital issue attached with the high leverage
can hamper the profit generation capacity of the company. Currently, the US is following low interest
rate regime to encourage investment and consumption. The interest rate in the US as of April 2010
stood at 0.25%. However, renewed inflationary pressure, the Consumer Price Index (CPI) for the
period January, February and March 2010 stood at 2.6, 2.1 and 2.3 respectively as against annual
average rate of -0.4 in 2009, and increasing debt issuance by the US government is expected to
pull up the rates. A high debt leverage of Marriott, in a rising interest rate scenario, will increase the
interest expense burden and hence will affect the profit margins.

Besides, Marriot’s credit rating was downgraded by Standard & Poor’s Ratings Service (S&P) in
April 2009 from BBB to BBB-.The credit rating was revised to reflect the downward expectation for
2009 revenue per available room in the US lodging industry, which was expected to decline by 14%
to 16%. The rating agency continued with the downgraded rating as signs of recovery in the lodging
industry are still in the initial stages. Downgrade in rating makes it difficult and expensive for the
company to access the credit market. Any further downgrades of credit ratings by S&P or other
similar rating agencies would increase the company's cost of capital and adversely impact its profits.

Weak financial performance affecting the company’s expansion plans

Marriott registered weak financial performance in the FY2009 due to the slowdown in the economy
and the lodging industry. The company’s revenues declined by almost 15.3% in 2009 compared to
the previous fiscal. Moreover, the company registered operating and net losses for the fiscal 2009.
The company had performed poorly in the fiscal 2008 as well. The company reported declining
revenues and profits in the last fiscal. The revenues for the FY2008 declined by 0.9% as compared
to the FY2007, the operating profit declined by 33.9% and the net profit by 48%. Besides, the profit
margins have also dropped drastically. The operating margins reduced from 9.1% in FY2007 to
6.1% in FY2008 and negative 1.4%in FY2009, which indicates that the company has not been able
to manage its cost structure efficiently. The poor revenues and operating profit affected the net profit
of the company; Marriott registered net loss of $353 million for FY2009, and hence reduced the net
profit margin to a negative value of 3.2%. The company was facing pressure on its margins since
2008 as the net profit margin declined to 2.8% in 2008 from 5.4% a year ago.

The adverse business environment have resulted in declining revenues for Marriott and impacted
the company’s profit making capacity. As a result of the weak financial performance, the company’s
capital expenditures outlay reduced from $671 million in FY2007 to $147 million by FY2009. This
reduction could hamper the company’s growth and expansion plans to tap the new and growing
markets Moreover, the company’s cash position has also weakened considerably; it declined from
$332 million in FY2007 to $115 million by FY2009. The weak cash position, if continues, could
hamper the company’s day-to-day business activities as well as future expansion plans.

Opportunities

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SWOT Analysis

Strong growth in the hotel and motel industry in emerging markets

The global lodging industry has seen remarkable growth from emerging markets like China and India
over past few years. The GDP growth, economic prosperity and the rise in disposable income in
these countries have contributed to the growth of lodging market. The GDP growth has increased
the number of business travelers travelling within these countries while growth in disposable income
have resulted in increased leisure travelers According to the Datamonitor's report on "Hotels & Motels
in India", December 2009, the Indian hotels and motels industry generated $5600 million in 2008,
representing a growth of 17.1% over the previous year. The Indian lodging market is expected to
grow to the value of $10100 million by 2013, an increase of 80.5% since 2008. China, the world’s
fastest growing economy, have also registered strong growth. The Chinese hotels and motels industry
generated total revenues of $30,900 million in 2008, representing a compound annual growth rate
(CAGR) of 16.8% over the previous year. The Chinese lodging industry, in the long run, is expected
to thrive with an anticipated CAGR of 11% for the five-year period 2008–13 and projected value of
$52,000 million by the end of 2013.

Marriott’s 47 property bases along with franchised and managed agreements at prime locations in
China make it a formidable player in the luxury and the moderately-priced segment. Besides, the
company is adding new properties to increase its number strength. The Renaissance Shanghai
Zhongshan Park Hotel in Shanghai, China, was opened in January 2009. The following month,
411-room JW Marriott Hotel was opened in Shenzhen. The hotel is the fifth JW Marriott branded
hotel in China. The other four JW branded properties in China include 602-room JW Marriott Hotel
Hong Kong, 342-room JW Marriott Hotel Shanghai, 470-room JW Marriott Chongqing, and 549-room
JW Marriott Hotel Beijing. Furthermore, Marriott International's Courtyard brand opened its 800th
hotel in Shanghai, China, in the same month. The company, in addition to licensed and franchised
agreements, has increased its property base in China from 32 in 2007 to 47 by 2009. The company
had made similar growth in Indian market by increasing its owned property base from 6 to 9 during
the same period. With further planned expansion to open new hotels both under owned and franchised
system, the company is expecting to increase its volume strength in these markets. The expanding
property base and strong brand recognition associated with Marriott, hence, gives the unique
positioning to the company, to compete effectively with local and international players in the emerging
markets.

Improving hospitality market in the US

North America, the single largest market of Marriott, is showing signs of normalcy after recessionary
turbulence. The lodging industry, which derives its growth from the economic climate, is also
recovering fast from the recessionary blues. The industry is showing improvement in all key
performance metrics. The occupancy rates for the week ending May 2010 rose to 57%, indicating
an increase of 6.4% over the previous year. Another key metric, revenue per available room also
rose by 5.6% and totaled $55.3 for the same period. However, the biggest gainer was the luxury
segment which reported largest increase as compared to other segments. The segment’s occupancy
rate for the week ending May 2010 stood at 67.8%, an increase of 11.8% over the previous year.
The average daily rate, for the same period, charged by the luxury hotels totaled $240.8, an increase

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SWOT Analysis

of 2.5% over the previous year while the revenue per available room increased by 14.6% to reach
$163.15.

The improvement in luxury segment is a boon for the company’s premium brands like Ritz-Carlton,
Bulgari and JW Marriott which had to bear the impact of the turbulent US economy. The company
would be a forerunner in the lodging industry to reap the benefits of the improving economic climate
considering its volume and brand value in the North American lodging market.

Brand innovations to suit the changing customer preferences

Marriott, through owned, leased, franchised and managed properties, is expanding its investment
to either launch new brands or renovate the old brands with new style and features. Among the new
brand launches, Autograph Collection would include a range of upscale luxurious and independent
hotels in prime destinations around the world. The company plans to add 25 hotels in the Autograph
Collection by 2010. Additionally, it is planning to launch Edition Hotels, a new range of lifestyle
boutique brand developed in partnership with Ian Schrager, by opening two new hotels in later half
of 2010.

Besides addition of the new brands, the company is investing in renovating its old brands. JW Marriott
Washington celebrated its 25 years in June 2009, with the completion of $40 million renovation to
inculcate high-tech, high-style innovations and a fresh new design. While in July 2009, Renaissance
Amsterdam finished its two year, multi-million dollar renovation to meet the demands of today’s
business and leisure travelers. In another major renovation effort, the company announced the
completion of the $70 million renovation of the three Marriott Miami Airport Campus properties; the
Miami Airport Marriott, the Courtyard Miami Airport South, and the Residence Inn Miami Airport
South.

In addition to renovating design and features of its hotels, Marriott is also trying to introduce green
hotels in its portfolio. The company, in 2009, announced its plans to expand the green hotel portfolio
ten-fold over the next five years by introducing a green hotel prototype that will be pre-certified
Leadership in Energy and Environmental Design (LEED), an internationally recognized green building
certification system designed by the US Green Building Council (USGBC). The green hotel prototype
is expected to save approximately $100,000 and six months in design time, and reduce a hotel’s
energy and water consumption by up to 25 percent.

The company through brand introduction and renovation is changing itself to suit the needs and
interests of the present business and leisure travelers. The brand innovation efforts, hence, is an
effort to keep offerings and ambience at Marriott properties contemporary. These initiatives will help
the company to provide the services to its customers in a better way. Improved service offering
increases the customer's recall of Marriot thus leading to repetitive visits and a steady stream of
revenues.

Threats

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SWOT Analysis

Vulnerability to terrorist attacks raises security and safety concerns

The tourism industry is affected by threats from terrorist attacks after September 11, 2001. Marriott,
a symbol of American luxury and power, has been a prime target of terrorist attacks. The company
has suffered many bomb blasts in the recent past. The 2002 car bombing at Karachi outside Marriott
Hotel and 2003 attack on Marriott hotel, Jakarta, Indonesia killed many people while several were
injured. . The Marriott was again targeted in 2004 and then in 2008 in Islamabad, Pakistan causing
many deaths. In another big attack on Marriott properties, Ritz Carlton and JW Marriott hotels in
Jakarta, Indonesia were targeted in July 2009, resulting in the deaths of eight people while injuring
at least 51 people.The attacks on Marriott properties have exposed the vulnerability of the hospitality
industry to terrorist attacks. The aftermath of these terrorist attacks have weakened the consumer
confidence in the security arrangements around Marriott and has instilled doubts and fear in the
minds of certain international customers. These incidents could result in lower check-ins at Marriott
hotels which will affect the company’s business and reputation in the long run.

Timeshare business vulnerable in a dismal capital and credit market

The timeshare business segment of the company is still facing the heat of troubled financial and
credit markets. The company, under this segment, markets and sells residential properties; finances
consumer purchases; and operates resorts. The company provides financing to the purchasers of
its timeshare and fractional properties by securitizing the loans periodically in the securities markets.
However, the turbulence in the financial markets in the second half of 2008 and whole of 2009 in
the US impaired the timing and volume of the timeshare loans, as well as the financial terms of such
sales. Deteriorating market conditions resulted in the delay of a planned fourth quarter 2008 sale of
loans to the 2009 first quarter and at interest rates higher than pre-recession era.

The continued weak performance of the financial markets in the US could delay future securitization
of loans. The rates charged on these loans will also go up as investors would demand a premium
considering the BBB- grading by Standard & Poor. Thus, a turbulent financial market would impact
the timeshare business of the company and increase the cost of financing the timeshare business.

Fragmented and intensely competitive lodging industry

The company faces a strong competition both as a lodging operator and as a franchisor. The US
lodging market is highly crowded with several key players like Accor, Hilton Hotels, Starwood and
Intercontinental Hotel Group and others, have a strong established base in US. These operators
are primarily private management firms, but also include several large national chains that own and
operate their own hotels and also franchise their brands. According to the industry reports, the lodging
industry is highly fragmented and no player commands more than 20% of the market share. Marriott
holds 9% share in the US hotel market (based on number of rooms) and 1% share of the lodging
market outside the US. The company as mentioned above faces strong competition from Accor,
Best Western International, Choice Hotels International, Hilton Hotels, InterContinental Hotels Group
and Starwood Hotels & Resorts in most of the markets. The intense competition results in a high
demand for property space causing the increase in real asset prices. Marriott, known for its luxurious
spacing and large hotels, have to undertake heavy capital outlay to acquire such properties. Moreover,

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SWOT Analysis

intense competition fuels price war which makes Marriott’s luxurious brands uncompetitive resulting
in low market penetration opportunities for the company.

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