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Marriott hopes Alibaba partnership will boost Chinese demand

Despite what it calls a "modest" investment scale, Marriott International Inc. hopes that a joint venture with Alibaba Group Holding Ltd. will boost demand for its hotel rooms from Chinese travelers, executives said.

The venture will create a new Marriott booking platform on an Alibaba travel site called Fliggy, offering special rates and the opportunity to earn loyalty points for the Marriott, Ritz-Carlton and Starwood loyalty programs, CEO Arne Sorenson said in an earnings conference call. It aims to court Chinese travelers by enabling Alipay, Alibaba's digital payment system, at some of its properties, and linking the Alibaba and Marriott loyalty programs, he added.

For hotel owners, Sorenson said, the venture should mean an increase in bookings from Chinese travelers, and a lower cost of securing those bookings.

Sorenson and other Marriott executives conducted the call from Shanghai, where they were to announce the partnership with the Chinese e-commerce giant, a venture that seeks to highlight the potential for increased demand from China. In late 2016 Marriott signed up 600,000 new loyalty members in eight weeks in a targeted marketing program with Alibaba, the CEO said. The company has more than 500 hotels and 170,000 rooms open or under development in China, a total that represents 8% of its worldwide room count and 17% of its worldwide rooms pipeline.

The Chinese government expects tourists from the country to make 700 million overseas trips over the next five years, though Chinese tourists still represent a "tiny" proportion of visitors to the U.S., Sorenson added.

When asked whether Alibaba could replicate the deal with other hotel brand companies, Sorenson said there are "some features of exclusivity" in the deal for a limited time. He added that the partnership would not have occurred if Marriott had not acquired Starwood Hotels & Resorts Worldwide — a transaction that followed a bidding war with Chinese insurer Anbang Insurance Group Co. Ltd.

Following the deal, Alibaba was "very intrigued" by the size of Marriott's portfolio — particularly in the luxury and "aspirational" segments — and sought to do "meaningfully more business" with the hotel operator, Sorenson said.

For Marriott, the main benefits of the joint venture will come from increased hotel demand, he said, adding, "While we could conceivably make money on the joint venture itself, that is not our primary focus on this."

Company executives did not detail the size of the venture or either side's share, but CFO Leeny Oberg described Marriott's portion as "a really very modest investment."