Hotel operator Marriott International (NYSE: MAR) recently reported an annual loss of $267 million for 2020, the first time the massive hotel operator has reported a loss since the financial crisis.
To be sure, this isn't exactly a surprise. While January and February were fairly normal, the COVID-19 pandemic caused hotels to be nearly empty starting in March 2020. Many were even forced to close or chose to do so due to lack of business. And while some closures and restrictions started to ease in the summer, hotel business for the rest of 2020 remained at a fraction of normal levels, even in the most popular tourism destinations.
With that in mind, here's a closer look at Marriott's 2020 results and what investors should keep in mind as the pandemic gradually comes to an end (hopefully) in 2021.
Marriott's 2020 results
Marriott reported $10.6 billion in revenue for 2020, which is 50% less than it generated in 2019.
Now, Marriott did a good job of reducing expenses, but this wasn't enough to overcome such a dramatic plunge in revenue. While Marriott's operating income was slightly positive for the year, interest expenses and a few other items are why the company posted a loss for the year. The $267 million loss translates to -$0.82 per share, compared with a $3.83 profit in 2019.
Is Marriott in trouble?
To be clear, Marriott isn't in any imminent danger because of the loss. While $267 million sounds like a lot of money (and it is), it's worth noting that Marriott ended 2020 with about $800 million of cash and $3.6 billion of available borrowing capacity. So, even if 2020 were to repeat itself a few times (let's hope it doesn't), Marriott has the financial flexibility to make it through to the other side.
Are there better times ahead in 2021?
The short answer is yes. 2021 will likely be a far better year for Marriott and the hotel business in general than 2020 was. But it isn't going to spring back right away, even after a COVID-19 vaccination is available to anyone who wants it.
The longer answer is that there are three main types of business that hotels rely on:
- Leisure travel: This is the only type of travel happening in any large volume right now and is likely to be the first to return to pre-COVID levels once the pandemic is over.
- Business travel: Many offices are still closed, and even many of those that have reopened aren't sending employees on business trips. I'm sure in-person business meetings will be a thing once again, but I'm not expecting it to come back significantly until later in 2021.
- Group travel: Conventions, conferences, and other group events are a major driver of travel spending, and many of the properties Marriott operates are specifically designed to maximize group business. This will likely be the last type of travel to rebound. Some group events might happen later in 2021, but it will likely be 2022 before it approaches pre-pandemic levels.
The Millionacres bottom line
It's important to realize that the COVID-19 pandemic remains an ongoing, uncertain situation, especially for the hospitality industry. It's fairly certain travel demand will rebound, but we simply don't know when it will get back to anything resembling pre-COVID levels. And Marriott made clear in its earnings report that the company "expects that COVID-19 will continue to be material to the company's results."
So, while there is certainly some degree of pent-up demand and I think the hospitality industry will eventually be just as strong as ever, I'm not expecting the hotel industry to rebound to pre-pandemic levels in 2021.