China’s Tourist ‘Tsunami’ Holds Key to Marriott’s Growth in Asia

(Bloomberg) -- Marriott International Inc., the world's biggest hotel operator, is betting its future in Asia on the growth of leisure tourism, particularly from China.

“We look at the long term and we feel very bullish,” Craig Smith, Marriott's Asia-Pacific president and managing director, said in an interview in Sydney on Wednesday. The company plans to more than double its number of hotels across the region by 2020 to prepare for a “huge tsunami of Chinese travelers,” he said.

Marriott in September completed the $14 billion acquisition of Starwood Hotels & Resorts Worldwide Inc., fending off China's Anbang Insurance Group Co. to overtake Hilton Worldwide Holdings Inc. as the biggest chain by market value and number of rooms. Before the deal, only one-quarter of Marriott's rooms were outside the U.S., now more than a third are.

Almost 100 million more Chinese residents will travel overseas each year by 2025, according to a Goldman Sachs Group Inc. report published last November. Chinese travelers could be spending more than their counterparts from Germany, the U.K. and France combined by 2025, according to a research published in June by consultancy Oxford Economics and payment company Visa Inc.

“It is the fastest-growing source market in the world,” Smith said. “When people talk about the slowdown in China, there is a slowdown in some industries but it is actually moving for us,” he said, adding visitor numbers to Marriott's resorts in China are growing at twice the pace of the overall economy.

Baby Boomers

The expansion will take the number of Marriott's hotels in Asia-Pacific, which excludes China, to 50, including new Ritz-Carlton hotels in Melbourne and Perth, Smith said.

The rise of China's middle class has also coincided with changing western norms as baby boomers retire and travel more, and younger generations take more holidays.

“Leisure travel is growing not just in Asia, but around the world, at a much faster rate than business travel,” Smith said.

Gaining the loyalty of younger and more tech-savvy travelers is a challenge for established players competing with online travel agents and the likes of AirBnB Inc. One of Marriott's major motivations for buying Starwood was the allure of its loyalty program, which also contains a substantial number of high-spending businesses travelers.

Ahead of the takeover, online message boards were filled with concerns that free nights, upgrades and other perks would be harder to obtain after the deal.

“We looked very closely at the mistakes the major airlines made,” Smith says, recounting how after the merger of American Airlines and US Airways he was bumped-off an oversold plane because the carrier hadn't transferred across his top-tier status. “My loyalty was tested at that moment.”

While the programs will gradually be merged, Smith wants to reassure travelers: “We don't want to end up with the lowest common-denominator.”

To contact the reporter on this story: Emily Cadman in Sydney at ecadman2@bloomberg.net. To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Peter Vercoe, Sree Vidya Bhaktavatsalam