Marriott International (MAR) CEO and President Anthony Capuano joins Yahoo Finance Executive Editor Brian Sozzi to weigh in on the state of the hospitality sector, both in U.S. and international markets.

Having recently reported third-quarter earnings, Marriott outperformed expectations with a 6-8% growth in revenue per available room globally. Capuano is optimistic on the post-pandemic chapter for travel bookings, noting that “folks have concluded how much they love to travel," with the COVID-19 lockdowns acting as a generational "accelerant" for younger travelers as global borders slowly opened back up.

Capuano states that Marriott remains heavily invested in the Chinese market, describing Marriott as having a "different, unique, and advantageous approach" to the region as the country undergoes an economic recovery. Capuano insists that, overall, the hotel's ultimate goal is “putting people first” which will be reflected in its operations going forward in 2024.

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Video Transcript

- I've known you for a while, and I think one thing that stuck out to me is that you are very much a road traveler. You're back on the road. You're traveling these hotels. Let's start on the US. What is the vibe in the US? We just heard Hans talk about the consumer continues to do well. Do you see cracks in that armor from your perspective?

ANTHONY CAPUANO: Not yet. And when you look at macroeconomic trends, you look at some of the headwinds, you might expect to see it. We're just not seeing it in the data yet. As you pointed out, we just reported third-quarter earnings. We had a security analyst conference a few weeks ago, and we had guided for the third quarter 6% to 8% RevPAR growth globally.

We actually outperformed. We hit about 9%, and that was a mix. We had about 4% RevPAR growth in the US and Canada, 22% internationally. So that 4% is a solid number, which I think reflects the speed with which our borders opened, the speed with which domestic travelers got back on the road. And so the US travel market is really sort of settling into a more stable environment. But what's encouraging to me we're seeing strength across all three segments.

Early in the recovery from the pandemic, it was a leisure-led recovery. And so there have been lots of questions about whether that would continue. In the third quarter, we saw 9% revenue growth in leisure. So really strong continued demand on the leisure side-- group which has been maybe the most remarkable story as we've watched the recovery when we look at forward bookings in the group segment into 24 in the US and Canada revenues up 14% year over year and even business transient where most of the questions exist.

Again, in the US, to your question, we saw revenue up 4%, So we're seeing consistent strength across the segments.

- Why?

ANTHONY CAPUANO: Well, a few reasons. I think maybe my wife and daughter are excluded. Most consumers learned during the pandemic they don't need another watch, another purse, another pair--

- We can all use another watch.

ANTHONY CAPUANO: Well, perhaps.

- OK. Go ahead. Go ahead.

ANTHONY CAPUANO: But I think pre-pandemic, we had seen in the consumer data. We spend a lot of time with our credit card partners tracking consumer spending. And with some of the younger generations, we'd already seen a pivot away from spending on consumer goods towards experiences. It appears when we look at that same data today that the pandemic acted as an accelerant to that trend across generations.

And so, to your question, why? I think folks have concluded how much they love travel, and when that was temporarily taken away from them in the early days of the pandemic, it was a reminder of that deep passion to explore the world, and now that borders are opening, they want to make sure they take full advantage of those opportunities.

- You mentioned forward bookings. How did the holidays look?

ANTHONY CAPUANO: Great. Terrific.

- In terms of leisure and business?

ANTHONY CAPUANO: Yeah.

- Wow. Can this continue next year?

ANTHONY CAPUANO: We sure think so. Again, at our security analyst conference, we laid out a three-year model, and we laid out an expectation of over a three-year forecast period 3% to 6% global RevPAR growth, which again, I think reflects-- right now, we're obviously benefiting from terrific year over year comparisons, particularly in the international markets that 3% to 6% is more reflective of a stable growth environment.

- I remember before you became the CEO of Marriott, you came to the Yahoo Finance office in New York City. You were leading development.

ANTHONY CAPUANO: Yes.

- And at the time, we popped into a one-hour huddle room, then the rooms were actually open, and we were able to talk about the impact of interest rates and how you grow your business in a period of just fluctuating interest rates. Interest rates are likely to stay higher for a long time. This has to be stunting what you do at Marriott.

ANTHONY CAPUANO: Yeah. Although, interestingly, I mean, you know our business model. We have nearly 8,700 hotels globally. We only own 20. So our net unit growth is driven on the shoulders and the balance sheets of our owner and franchisee community. The vast, vast majority of that community are long-term investors in the sector. So they don't tend to try and time their investments over a quarter or two. They tend to hold these assets for years, if not decades.

So I would submit to you, of course, an elevated interest rate environment puts pressure on the unit-level economics of a development project. But today, the biggest impediment in the US market and in Western Europe is the availability of debt for new construction. And the irony, particularly here in the US, when you talk to regional lenders or even big balance sheet lenders, they will tell you when they scan on their commercial real estate portfolio, often the hospitality loans are the best-performing sector. The issue is concern they have about what liquidity requirements may be imposed by the regulators.

And so they'll say we love our partners. We love the hospitality sector. Call us next year. And it's part of the reason you hear us and the other big brand companies so focused on conversion activity because the ability to source debt for existing assets with a track record of cash flow is infinitely easier than sourcing debt for new construction.

- Last week, Anthony, I got to spend some time with JPMorgan CEO Jamie Dimon, and I didn't realize at the time, but I went back and looked at the transcript. He mentioned that banks are starting to pull a little bit back on lending. Do you see that the people that are developing these hotels-- do you see that they're pulling back because of this new normal rate environment?

ANTHONY CAPUANO: Yeah. No question. Although, again, at least in the hospitality sector, I think it's a little less about the elevated interest rate environment and a little more about expectations that with pressure on the commercial office sector, pressure on the commercial real estate-- excuse me-- retail sector that there will be increasing liquidity requirements placed on lenders.

- Do you see a lot of gloom coming in commercial real estate?

ANTHONY CAPUANO: I'm worried about the office sector, and I'm worried about the retail sector.

- Do you think that depresses prices? Is it a widespread thing, or is it concentrated?

ANTHONY CAPUANO: I think it's concentrated in certain markets.

- Interesting. So you, as I mentioned earlier, are that road warrior out there traveling the world. You have 27 hotels in Lebanon, Jordan, and Egypt. Before we dive deep into what the longer-term future might be for these operations, what is the near-term been like as a lot of the geopolitical tensions have erupted the past month?

ANTHONY CAPUANO: So as you would expect, we're seeing a fair volume of cancellations in those markets as well as across our five hotels in Israel. That set of markets represents less than 1% of our global fees. So I mean, I think we look at the tragedy there through two lenses. We look at it through the human toll, which is extraordinary, and we continue-- like I'm sure your audience to pray for a peaceful resolution. From a clinical business perspective today, it's relatively modest impact on our business, but we do worry about the potential ripple effects across broader markets in the region.

- What do you tell leaders in the region, or what have you been telling them?

ANTHONY CAPUANO: Well, we tell them principally to be singularly focused on the welfare, safety, and security of our guests and our associates.

- Do you have to put in a new protocols in these hotels?

ANTHONY CAPUANO: Any time we see unrest, we tend to go to a threat level red, and so those are well-established safety protocols, and those are all in place in those properties.

- Does this situation make you rethink the commitment to the wider Middle East region?

ANTHONY CAPUANO: No, absolutely not.

- So you see-- you think you'll still open hotels?

ANTHONY CAPUANO: Yeah, no question. I mean, we've got a robust pipeline across the region. And when you think about our core priorities, one of those core priorities is to keep our traveling public within the Marriott ecosystem. And one of the easiest ways to do that is to make sure I can offer you the right product everywhere you want to travel for every trip purpose. Because to the extent I fail in that regard, I'm almost forcing you into the arms of our competitors. I want to keep you in that ecosystem.

- Outside of the Middle East, of course, Marriott is no stranger to China. How's that business doing?

ANTHONY CAPUANO: Terrific. It's our second-largest market. We just opened our 500th hotel in China, a beautiful Ritz-Carlton Reserve in the Rissai Valley. We've got another more than 400 hotels in the pipeline behind that. The operating environment in China is more than fully recovered to pre-pandemic levels. And the thing that I think gives us so much optimism about the near-term future of the China market that recovery is, in many ways, on the shoulders of domestic demand.

Today, only about half of the international airlift into China has been recovered, and expectations are by the end of the year, maybe we'll get to 60%. And so as we look into 24 and beyond, we think there's still meaningful upside as more and more international airlift capacity returns. So we're quite bullish about China, an. Then, on the development front, as you might expect, when the country was largely locked down, many of our projects were paused. We saw below historical levels of fallout from the pipeline, and the vast majority of those projects have restarted.

- Is it as tough to do business in China as many lead it to believe?

ANTHONY CAPUANO: Well, I think we have a little bit of a different unique and advantageous approach there. Again, we are an asset-light model, so that 500 hotel portfolio that I described, that 400 hotel pipeline that I described, it is almost entirely China-owned, a meaningful portion is state-owned enterprise owned, the vast majority of our workforce across China is Chinese national workforce. And so I think we have the ability to navigate and maybe stay a bit above the fray of some of the complexities between the US and China geopolitical dynamic.

- You mentioned a little while back your recent earnings, and I think I got this right. Correct me if I'm wrong. Please do. You bought back $950 million of stock, that is about 7% of your market cap. What's the message there to investors? That is a very large number and a large percentage of your market cap.

ANTHONY CAPUANO: Well, and, in fact, in the security analyst conference, we talked about during this three-year period returning between buybacks and dividends somewhere between $11 and $14 billion over that three-year period. To me, the message is the beauty of our asset-light model. When markets are performing well, when the public is out there traveling, that asset-light model generates an extraordinary amount of cash. And our broad philosophy about managing the balance sheet-- and I know this from my days in development. I tried as hard as I could to invest as much of that free cash flow back into the business as possible, and we'll continue to take advantage of opportunities that we think are accretive to shareholders, but the model generates so much cash that when travel is strong, we have the opportunity to return a lot of capital.

- Will you continue at that pace because some would say-- and I've heard this in the past that it's almost like taking the company private.

ANTHONY CAPUANO: Well, we're a long way from that. I think we've got 300 some-odd million shares outstanding. So we're a long way from going private, but we will sometime in the next year or two probably have bought back the entirety of the shares that we issued to acquire Starwood several years ago.

- Well, I'm glad you mentioned Starwood because you're no stranger to doing big deals. And as we have Choice Hotels battling Wyndham out there, and that is going to be a merger battle, not unlike, I would say happen at Marriott Starwood. What do you think about that battle?

ANTHONY CAPUANO: Well, I'd say they're very different circumstances, and as it relates to the Choice-Wyndham deal, I know what you know, what you and your colleagues are reporting. I think the stark difference is Starwood, I think, was quite receptive to our approach. The only difference was there was another bidder in Anbang. Here, you've got a more hostile approach. In the Starwood Marriott transaction, a big part of the acquisition was Marriott stock, which the Starwood board saw high value. As you've heard in the press recently, I think Wyndham's leadership and board view Choice's stock and its relative value quite differently.

So it's going to be interesting to watch how it plays out.

- Do you want to get involved? Do you have any interest in Wyndham?

ANTHONY CAPUANO: We're really happy with our portfolio.

- Would that tie-up have any impact to Marriott?

ANTHONY CAPUANO: Well, they would be the second biggest lodging company in the world by room count behind us. I think they'd end up with a million-two or million-three rooms as compared to our million-five. They'd be heavily concentrated in the lower-quality tiers. As you know from our last conversation, we're now entering the midscale tier, not just here in the US with the launch of Studio Ritz, but with four points express in the EMEA region, with City Express in the Chola region, and so we would compete more directly with some of their brands. That would be the most obvious impact of that merger.

- Lastly, we just asked Hans a little bit about how he leads the company. He has a grading system, which I think I kind of need to start baking into my own life. But as they would say, we'll take that offline. Do you have any system like that?

ANTHONY CAPUANO: Well, I mean, our system is 96 years in the making, and it's really a set of core values that were established by our founders, and it starts with putting people first. Because of our asset-light model, our human capital is arguably our most valuable resource, and so it's making sure they understand our broad objectives, giving them the tools to chase those objectives and the support, and then letting them go do what they do every day.

- How do you stay sharp as a leader? What is your day-to-day?

ANTHONY CAPUANO: Sugar-free Red Bull.

- Sugar-free Red Bull, really? Well, great. We got something in common. I knew-- I knew I always liked you, Anthony. Well, how do you how do you manage your time? There's a lot of demands and--

ANTHONY CAPUANO: Yeah, it's-- I lean heavily on an extraordinary leadership team. On the long list of attributes I love about our company, we've got a long tenured-- what I've called Battle tested leadership team that have been there through decades. They've been through recessions, global conflicts, the impact of 911, the Great Recession. And so that's a team that really helps me navigate all the opportunities and all the challenges that the company faces.

- Lastly, before we let you go. Sugar-free Red Bull, really? That's--

ANTHONY CAPUANO: Absolutely.

- One a day, right?

ANTHONY CAPUANO: As far as you know.

- OK. Fine-- fair enough. Your biggest opportunity for Marriott in 2024.

ANTHONY CAPUANO: Well, I'd say it's thing things. You know, without question, we want to make sure we have the biggest, most attractive set of brands and experiences of any company in travel. Number two, we want to build the most loyal, most engaged set of customers, and we do that through our Bonvoy loyalty platform, and then the third I met-- I mentioned earlier. I want to be everywhere our guests want to travel so they never have a reason to look outside our ecosystem.

- You know I'm sending you my best of list for energy drinks now after this.

ANTHONY CAPUANO: OK.

- Yeah, I appreciate it.

ANTHONY CAPUANO: It would be hard to turn me.

- All right. I got you. I got you covered. All right. Great conversation there. Marriott CEO Anthony Capuano, thanks for coming down specifically for this event.

ANTHONY CAPUANO:

- Anytime. Thank you so much.

ANTHONY CAPUANO: Great to see you.

- Great to see you, my friend. Thank you.

ANTHONY CAPUANO: All right.