High-end hotel franchisor Marriott International ( MAR -1.82% ) illustrated its ability to secure an extended recovery from the COVID-19 pandemic in its second quarter 2020 results released on August 10. But exactly when the hospitality giant will see anything close to old earnings levels remains a murky guess.

Marriott’s results showed a net loss of $234 million compared to a profit of $232 million in the year-ago quarter. Revenue fell 72% to $1.46 billion. Revenue per available room (RevPAR) in Marriott’s system of owned and franchised properties fell 88.6% year-over-year as occupancy fell and average daily rates also fell.

The company noted a normalization of conditions in its Greater China region, where RevPAR was down only 61% from the second quarter of 2019 – all hotels in the region are now open. Still, China figured as a single bright spot as economies around the world continued to see crimped leisure and business travel due to the pandemic.

Improve cash burn projections

Given its strong year-over-year swing from a healthy profit to a sizable loss, Marriott investors should dig a little deeper into the current quarter to assess the mainstay of consumer discretionaryresilience in the future.

Fees collected from franchisees and property management fees are the most glaring current weakness in Marriott’s income statement. Subtracting property management cost reimbursement revenue from overall results, Marriott’s net royalty and “other” revenue totaled $262 million, down 81% from $1.4 billion. in the second quarter of 2019.

Yet the organization incurred lower expenses associated with a reduced level of hotel occupancy, and management embarked on a major effort to control overhead. These factors, aided by Marriott’s asset-light structure (its business model leans heavily towards franchising and managing properties, rather than operating owned hotels), led to reduced operating 67%, to $1.6 billion. Thus, the operating loss for the quarter of $154 million was high but manageable.

How do Marriott’s operating and net losses compare to its cash flow? The company generated operating cash flow of $1.5 billion in the first six months of the year, although $854 million came from an increase in deferred revenue. In other words, more than half of operating cash flow in the first six months of the year came from cash received before earnings. The deferred revenue line item on the balance sheet may remain elevated for some time as deposits from group reservations remain in Marriott’s coffers even as group travel events and conferences are postponed from 2020 to 2021.

It is more informative to capture Marriott’s total cash usage, which includes all cash inflows and outflows (including capital purchases, debt service, and cash paid for taxes). During the company earnings conference call, Chief Financial Officer Leeny Oberg reminded investors that last quarter, based on an expected 90% decline in RevPAR year-over-year, Marriott estimated that its ongoing monthly cash burn would reach 90 at $95 million. With the latest figures in hand from July (one month after the end of the second quarter), the hotelier sees a continued slight improvement in its RevPAR; currently, it is following a 70% year-over-year decline. According to Olberg, Marriott’s monthly cash burn has therefore been cut in half, to about $45 million per month.

Looking forward to

At the end of the second quarter, Marriott’s current assets of $4.1 billion were exceeded by current liabilities of $6.1 billion. However, the company has about $2.9 billion on its revolving credit facility and should be able to access the capital markets to issue additional long-term debt if needed. Marriott has the resources to sustain its monthly cash burn for another year, or two if necessary.

Of course, given the company’s revenue model, its success ultimately hinges on the ability of hotel owners to stay in business despite historically low occupancy rates. Marriott has been able to help its global hotel owners reduce their occupancy break-even point by an average of three to five percentage points during the pandemic. It is also assisting some hotel owners with relaxed payment terms at this time.

For now, Marriott has reshaped its business to survive in an extremely depressed environment. The company’s financial performance indicates that a moderate expansion in key metrics – for example, occupancies rising above 50% – could greatly improve its already declining cash burn. But when it comes to earnings, visibility may well remain clouded in the second half of 2020.