team n final case deck

Exceeding Earnings Expectations in 2 Years

Prateek Peres-da-SilvaElizabeth Buoyer

Taylor CurrierMatt Cooper

Jack Dai

CSF Final Case CompetitionThursday, April 12, 2012

Executive Summary

How can Marriott exceed consensus earnings expectations in 2 years?

Key Question

Marriott should cater to niche markets with increasing propensities to spend in order to realize an 18.3% increase in profit

Hypothesis

Approach

Drive Chinese Travel Demand

Create Business Class Package

Expand Casinos in the US

Drive Demand of Inbound Chinese Travelers

Chinese Travelers ♦ Business Class ♦ Casinos

4

2012 2013 2014 2015 2016 -

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

Inbound Chinese Visitors

Tota

l Vis

itors

(K)

The rapid increase in Chinese visitors to the US presents a massive new segmentation opportunity for Marriott

Driving Causes

• Ease on US Visa regulations of Chinese residents

• 14.1% increase in Chinese disposable incomes

274%

Sources: Mintel Oxygen, US Dept. of Commerce, AdvisorAnalyst.com


5

Mandarin-speaking staff

Chinese symbols

Chinese cuisine

Vacation package

Characteristics of Chinese Travelers

Travel in large groups

Stay in the US longer

Look for budget hotels

While competitors focus on in-house accommodations, Marriott can gain market share by catering to Chinese travelers’ preferences

Sources: Mintel Oxygen, CNNTravel


6

San Francisco

Yosemite

Hollywood

Niagara Falls

NYC

Washington DC

75539

% of inbound Chinese travelers prefer economy or mid-priced hotels

% of inbound Chinese travelers prefer tour packages

% of total travel expenses by Chinese travelers are hotel costs

California East Coast

Sticker Price $2110 $2360

Group Rate $1600 $1770

Sources: Mintel Oxygen, Group Analysis, company sites

*10 night tour

By packaging hotel stays in gateway cities, Marriott can drive demand of Chinese travelers seeking to maximize travel experience


7

Worst Case Base Case Best Case 0

20

40

60

80

100

120

140

160

20132012Pr

ofit (

$M)

27.8

55.6

139.1

Packaging hotel options comes at no cost to Marriott and yields net profit regardless of the market share captured

Cater to the Increasing Business Traveler Segment


9

0%

2%

4%

6%

8%

10%

12%

10%

8%

3%

Comparison of Business and Leisure Travelers

% M

ore

Busi

ness

Tr

avel

ers

than

Lei

sure

2011 2012 2013240

255

270

285

252

264

277

3-Year Projection of Business Travel Spending

Busi

ness

Tra

vel S

pend

ing

($B)

Sources: Mintel Oxygen, Global Business Travel Association

Business travelers make up a growing market segment that Marriott is well-positioned to capture


10

While Marriott’s current business packages cater to large groups, the majority of businesspeople travel alone

83%

Business Travelers that Travel Alone

Sources: Thomson.com, Marriott.com

Current Marriott Business Package


11

Personal Transportation• Flight itinerary part of booking process• Hotel will provide door-to-door service

Priority check-in and check-out• Paperwork and keycards in the car to avoid waiting in line• The check-out process will be streamlined the same way

Customized Accommodation• Premium cable and wireless• Office supplies available, including TV with HDMI cable

The business class accommodation package satisfies all of the business travelers' needs

Source: Mintel Oxygen


12

Assuming that at least 0.1% of U.S. business travelers utilize this service, Marriott will still earn a profit

Worst Case Base Case Best Case0

5

10

15

20

25

30

35

20132012

Profi

ts ($

M)

6.3

18.0

29.8

Divest Future Project Funding to Purchase High Margin Casino Boats


14

2011 2012 2013 2014 20150

5

10

15

20

5-Year Projected U.S. Casino Revenue

Reve

nue

($B)

Hotels Casinos0

4

8

12

16

20

1.6%

16%

Profit Margin of Hotels vs. Casinos

Profi

t as

% o

f Rev

enue

s

Source: IBISWorld

The U.S. casino industry’s steady growth and high margins present an opportunity for Marriott


15

Dec 2012Casino Boats are

operational, generating profits

Jan 2012 Delay 18 projected new construction

projects

Feb 2012 Divert funding to

purchase and furnish 5 casino boats

April 2012Obtain licenses at key

locations

Hotels Riverboat Casinos

Capital Expenditure Total Profit

150 0 $3,079,125,000 $20,005,948

132 5 $3,084,630,000 $30,605,234

By diverting funding from hotels to riverboat casinos, total profit will increase by 50%

+$10.6M


16

Worst Case Base Case Best Case05

101520253035404550

Change in Profit Due to Riverboat Casinos

Additional ProfitNo Boats

Profi

t ($M

)

20.2

30.6

43.6

Investing in riverboat casinos instead of low-margin hotels can prove highly profitable for Marriott


17

Marriott already has measures in place to mitigate the risks of expanding into riverboat casinos

Licensing and Regulations

Gas Price Volatility

Insurance Premium Higher for Boats

Marriott already operates casinos

Position along experience curve will expedite process

Already included in industry profit forecasts

EPA fees won’t exceed forecasted gains

Won’t be paying premiums on 18 delayed hotel projects

Sources: EPA, Mintel Oxygen

18

Analyst Projec-tion

Chinese Tourist Business Class Casino Boat Total400

420

440

460

480

500

520

540

560

Net

Pro

fit ($

m)

55.6

10.618

84.2

By pursuing our recommendations, Marriott can realize net profit gain of $84.2 Million

Executive Summary

How can Marriott exceed consensus earnings expectations in 2 years?

Key Question

Marriott should cater to niche markets with increasing propensities to spend in order to realize an 18.3% increase in profit

Hypothesis

Approach

Drive Chinese Travel Demand

Create Business Class Package

Expand Casinos in the US

Appendix

21

Navigation

Financials

Chinese Tourists

Business Class Package

Riverboat Casinos

22

Worst Case Financials

Assuming 6% growth rate

23

Base Case Financials


24

Best Case Financials


25

Financials for California tour

Source: Company websites and Group Analysis

26

Financials for East Coast Tour


27

Total Financial Impact


28

The majority of business travelers will have the option to upgrade to the Business Class Package because they book their trips themselves

Source: Mintel Oxygen Report

Book Themselves

61%

Booked By Someone

Else39%

Trip Bookings

29

2009 20120

2

4

6

8

10

12

7.4

11.3

Average Length of Stay

Year

Day

s

The average length of stay in the US is increasing for Chinese visitors


30

Business travelers prefer working in their rooms


31

With business centers becoming obsolete, hotels can add convenience by keeping tech supplies on hand for travelers

with mobile electronics


32

Business travelers prefer streamlined check-in process


33

Technology and automation is increasingly important to business travelers


34

Financials for Business Class Package

35

Breakeven Analysis on Car Acquisitions

Locations of Riverboat Casinos

• San Francisco, CA

• Santa Monica, CA

• St. Louis, MO• Chicago, IL• New Orleans, LA

Locations of Riverboat Casinos

37MYTH #1: Gaming creates nothing. It merely takes money that would otherwise be used by Louisiana residents for other purposes. FACT: Riverboat casinos have become a major economic force that benefits all residents of the state, and it generates millions of dollars of new money for Louisiana in several ways:Approximately 53% of all gaming revenue comes from out-of-state, most from Texas. As a result, on average, over $18.2 million per month is received by the state and local governments in gaming taxes.Local merchants such as service stations, restaurants and retail stores benefit from the increased traffic of out-of-state visitors.Each year, riverboat casinos pay over $368 million in salaries to some 15,000 employees.The industry has invested more than $1.7 billion in facility construction, and is employs hundreds of Louisiana construction workers to build new luxury hotels and entertainment centers.Riverboat casinos purchase over 70% of all goods and services from Louisiana vendors including computers, printing and floral arrangements.MYTH #2: The introduction of riverboat gaming into a community causes an increase in crime. FACT: There is no correlation between crime rates and riverboat casinos. In fact, studies have shown that the increased police protection afforded by the tax revenue generated by riverboat casinos often decreases crime.MYTH #3: Society as a whole suffers when gambling is introduced. FACT: Casino employment has meant a better life for more than 15,000 employees and their families, who earn an average salary of $25,001 plus full health benefits.MYTH #4: Access to riverboat gaming increases gambling addiction and leads to a high rate of bankruptcy. FACT: The vast majority of Americans gamble responsibly with little or no adverse consequences according to a new study by the National Gaming Impact Study Commission (NGISC) released in June 1999.MYTH #5: Riverboat gaming is controlled by organized crime. FACT: Gaming companies may be the most tightly controlled and regulated of any industry. Nearly all are publicly traded companies owned by stockholders, much like IBM, General Motors and Kraft. Therefore, these companies are not only bound by state and federal gaming laws, they are also regulated by the Securities Exchange Commission. There have been no accounting scandals at gaming companies such as the ones associated with Enron, WorldCom and Global Crossing.FACT: The U.S. Treasury Department recently released a study entitled A Study of the Interaction of Gambling and Bankruptcy. This study has found no connection between gambling and bankruptcy. The study makes the following conclusions:Using state-level data, we find no connection between state bankruptcy rates and either the extent of or introduction of casino gambling. This result is supported by county-level analysis that shows no statistically significant casino effect (proximity to a casino) with regard to county bankruptcy rates.An empirical analysis of bankruptcy data suggest(s) that gambling has no measurable effect on statewide bankruptcy rates in Nevada, New Jersey or Mississippi.While most available studies have pointed to a connection between gambling and bankruptcy, none has proven that gambling causes bankruptcy.These findings support the research findings of the National Gambling Impact Study Commission (NGISC).

Many negative views of riverboat casinos are myths according to the Louisiana Casino Organization

Source: Louisiana Casino Organization

38

Casino Financials and Assumptions

Source: Louisiana Casino Organization

team n final case deck

Travel

business travelers

riverboat

riverboat

mintel oxygen

company websites

drive demand

niche markets

gaming companies