September 11, 2018 Owner & Franchise Communications

2019 Budget Overview & Notable Items

Hotels across the portfolio spent much of the last quarter preparing for the successful Launch Day and, for the SPG portfolio, for the Reservations Platform deployment later this year. We want to thank you for your ongoing support and commitment as we continue the Integration journey. We continue to expect positive results in 2019 as we further harmonize processes and platforms around the globe.

As we enter the annual budget season, we’d like to provide you highlights of key changes and initiatives impacting the 2019 Budgets. Not unlike 2018, there will be complexities associated with the continued harmonization of MR and SPG Programs and Services. Leading the way in terms of more meaningful changes are the introduction of the Program Services Fund (“PSF”) and the strategic changes in our Loyalty programs. Both of these changes, which are detailed below, represent our continued commitment to ensuring a strong value proposition for you, our owners and franchisees, both in terms of financial and ease-of-business benefits.

To learn more about these changes:

owners of Managed by Marriott Select Brand hotels should contact their hotel General Manager(s).
owners of Managed by Marriott full service hotels will receive additional information later this month.
franchise management companies of all brands are encouraged to view the 2019 Budget Guidelines on MGS (EID & password required) and review a recording of the 2019 PSF Budget Overview Webinar that was held on September 19 at 2 p.m. ET.

Program Service Fund (PSF)

The establishment of the PSF continues to support the ongoing effort to harmonize allocation methodologies of required Programs and Services due to the integration. The one-time integration costs specific to SPG hotels only will be incorporated within the PSF rates for SPG brands. Marriott is delivering savings from the integration through the PSF, and the PSF yields a neutral-to-positive economic outcome to owners for the vast majority of hotels.

The 2019 Hotel Budget process will include changes as a result of implementing the PSF. We are preparing tools and materials to support properties, so they can analyze and explain the changes from implementing the PSF to the 2019 Budget. Hotel GMs will receive a direct email in the coming days with a summary of all charges that will be included in their PSF moving forward.

As a reminder, hotels with the existing bundles (Delta, Moxy, Four Points, Tribute, Aloft and Element) will be transitioning to the PSF. Note: for the transition of the current Delta U.S./Canada PSF, Marriott anticipates there will be a “surplus” of funds as a result of various cost saving measures. This “surplus” will be refunded to your properties in November 2018. This PSF surplus refund is additional to the 2018 third-party credits (the largest of which is Oracle) that properties will receive in December.

Loyalty

On August 18, 2018, Marriott implemented key strategic changes in the Loyalty programs that we believe will drive brand loyalty and higher returns for owners and franchisees. Benefits are being realized from the competitive advantage of our combined Loyalty program, and the credit card agreements with JPMorgan Chase and American Express for U.S. issued co-brand credit cards. Some of these benefits include:

A 10-basis point reduction in Loyalty chargeout rates for all Brands effective January 1, 2018.
Additional chargeout rate reductions for a majority of hotels as of August 1, 2018 with the launch of our combined Loyalty Program. Over the past two years, chargeout rates have been reduced by an average of 20-80 basis points across the System.
Continued savings from 25 and 50 basis point reductions in discount rate (interchange) fees for the American Express and JPMorgan Chase co-brand credit cards.
For SPG hotels, the coverage of cost for all global promotions by the Loyalty program.
In addition, when the new Loyalty program brand name and logo are introduced in 2019, the Loyalty program will fund the one-time cost of new collateral (initial shipment of brochures, temporary membership cards, key cards and loyalty-led key packets) to support the new program branding and pull-though. There is not expected to be any incremental cost from the new Brand Collateral in 2019.

Also reflected in 2019 Budgets are two new Loyalty Initiatives:

The In-Room Water program will expand to all full-service brands. As part of the program expansion, the Marriott, Renaissance, and Autograph Collection hotels globally will provide complimentary bottled water for all Elite members (Silver and above) beginning July 1, 2019. Loyalty will fund $1/case for the Elite in-room complimentary water. Free water funding for SPG hotels will be retired at the end of 2018.
SPG® American Express Luxury Cardmembers will be eligible to receive up to a $100 credit per stay to be used on property for qualified stays (two-night minimum stay) at participating St. Regis and The Ritz-Carlton properties. The card must be presented at check-in and must be used to pay for the stay.

Additional notable items for 2019 are included below; click on each topic to view details.

Sales & Catering Systems

Moving SPG hotels to Marriott’s suite of solutions will enable global delivery of group sales leads to all Marriott hotels through OneSource. This approach enables Marriott to streamline and simplify the pricing of the Oracle/Siebel-based suite of Sales & Catering solutions – CI/TY, SFAWeb/GPO and OneSource – effective January 1, 2019. Note:

For all North American Full Service hotels, CI/TY remains required as a brand standard.
For North American MSB hotels participating in Area Sales, the requirement for a minimum system of SFAWeb/GPO will remain intact.
Marriott is implementing a global brand standard starting in 2019 for all hotels to have OneSource as a common sales lead delivery solution for any hotels that do not have this functionality from CI/TY or SFAWeb. This will be included at no additional charge to our existing 2018 portfolio. This transformation allows all other hotel owners the flexibility to choose the Sales & Catering solution that works best for their hotel and provides more functionality at competitive prices versus third party alternatives. The cost of this standard will be covered within the PSF.

Harmonizing Sales & Catering systems enables the following pricing structure changes and delivers meaningful savings to the enterprise:

For North American hotels where CI/TY is a System and Brand Standard, the costs of CI/TY will be included in the PSF.
SFAWeb and GPO, currently billed separately based on group rooms nights at time of definite, will be combined and simplified into a single charge in 2019. Additionally, their ongoing maintenance costs will be recovered using the same fixed price matrix methodology referenced above.

For new hotel openings, brand conversions and system upgrades, we will stand up a new system-based Enrollment charge for SFAWeb/GPO and CI/TY respectively to recover the cost to install each system. The charge will include the cost of the property-based Oracle license, deployment resources and incremental iT spend.

Customer Engagement Center (CEC) Property Support Services

(Previously known as ARSO or Regional Reservations within Marriott and as SRS or Voice Full Service/Voice Overflow Service within Starwood) As an optional service, CEC Property Support Services will continue to be billed as a direct charge. Properties will have the option to forward reservation calls to Customer Engagement Centers (CECs) if they have a shared service agreement in place. Services that have existed in the past will continue in the future; however, billing methods will be harmonized in 2019. Participating U.S. & Canada hotels will be billed on a cost per reservation, except for Luxury which will be billed on a cost per call.

Consistent with prior years, rates will incorporate 3% inflationary cost increase.

Customer Issue Resolution

The CEC strives to resolve guest concerns on initial contact, however in some cases, issues must be referred to hotels for resolution. Effective 2019, hotels will be required to resolve the referred issues within 72 hours. If a hotel does not resolve an issue within 72 hours, the CEC will take over the case and charge $150 to resolve the issue on behalf of the hotel. This charge will apply to all brands, including Managed by Marriott, franchised and owned/leased.

Transaction-Based Paid Search

In 2019, SPG hotels will see a change in the billing methodology for Transaction-Based Paid Search. These costs have historically been included as part of the Sales & Marketing Fee for SPG hotels. Consistent with the MR portfolio, hotels will now see a direct charge for the program of 9% per eligible stay. SPG properties over time should expect to see incremental direct channel revenue shifting from higher cost channels such as Online Travel Agents offsetting some of the cost of TBPS implementation and sustainment at each hotel. There will be no change to the Sales & Marketing Fees and will remain comparable to 2018. The direct charge for Transaction-Based Paid Search will be partially outset by removing the Guest Satisfaction Survey and Smith Travel Research fees for those brands that currently incur these costs as a direct charge. These brands will now have these costs charged directly to their Sales and Marketing Fund.

Information Technology

The Information Technology (iT) discipline is continuing to make gains in cost reduction and increased scale to address the growing demands and complexities of our global organization. Additional organizational and billing methodology alignment will have overall positive impacts in 2019; most hotels will be favorably impacted by an average net overall cost reduction of 10%, which does not include savings achieved from third-party providers (e.g., AT&T). Hotels will see the following changes in 2019:

A 10%-20% reduction in telecom costs for Managed by Marriott and franchised hotels that use AT&T, due to a recently-completed corporate rate negotiation.
For Managed by Marriott and franchised SPG hotels:
- the retirement of nearly all of Communication and Connectivity charges (T1). For hotels with Oracle maintenance licenses, some remaining charges previously included in the T1 will continue. The remaining components will be replaced by the PSF or HR Technology program charges.
- the elimination of Starguest charges (T4) with the implementation of Empower: Guest Experience + Mobile (GXP).
- there will be meaningfully lower e-Mail and Collaboration (formerly T6, now a separate email rate), Mobile Device Management (formerly T7, now a separate Mobile Device Management rate) and Remote Connectivity (formerly T8, and now a separate MI connector rate) charges.
The broader support model also offers a variety optional services for Managed by Marriott and franchised hotels, including support for F&B applications like OpenTable and Cheftec, as well as check printing services.

SPG Program Book

The SPG Program Book has transitioned to the Property Charge Lists (PCL) which are organized by Market, Brand, and Ownership. The PCLs will include information for required Programs and Services such as Program Name, Rate, Metric, and Description. Additional details on accessing the Property Charge Lists will be shared when they are available in Q1 2019.

Thank you again for your ongoing partnership and commitment to our brands and business.