As demand continues to grow on the higher end of the hotel spectrum and soften at the lower end, hoteliers across the board will have to deal with cost creep for the remainder of 2024.
During the "Data Insights" session at the 2024 NYU International Hospitality Industry Investment Conference, STR President Amanda Hite said the gap between the haves and have-nots is widening in part because of persistent high inflation.
"When you look at the overall industry, we've had this bifurcation of upper-tier chain scales and lower tier," she said. "There's a clear delineation between the two. When you look at our upper-tier segments — that's upscale through luxury, we actually have demand growing 2.1% for the first four months of the year and we have [revenue per available room] gains of 1.8%. Then you look at the lower-tier segments, and you've got demand declining 2.5% for the first four months of the year with a 2.4% RevPAR decline."
Hite said signs so far are for similar trends for the balance of the year.
With that in mind, Rod Clough, president of HVS Americas, said it's "more important than ever" to focus on the bottom line. He said that all comes back to the quality of operations; even lower-end hotels are better poised for success with a good general manager.
"Now's the time to really focus on what's the story at your properties or property and stop believing this notion that we're going to get back to [the norms from] pre-pandemic," he said. "I wouldn't buy any of those excuses. The market is what it is today, and there's not going to be any monumental shifts."
Ben Harrell, managing director of the U.S. for Booking.com, said hotels have a unique opportunity to seize some demand right now as booking windows shorten for short-term rentals and lengthen for hotels.
"So what happens is these new types of bookers are more interested in the properties that you are running, the properties you're investing in," he said. "It's playing games with the advanced purchase windows. So we can really see some changes there."
Michael Grove, CEO of HotStats, said while much of the discussion about higher costs has centered around labor, cost increases have been broad-based.
He said European hoteliers have already been forced to drive efficiency because of higher energy costs, and American hotels might be slightly behind the curve.
"I think in the U.S. where you've had such significant revenue over this period of time, now is the time to switch into that kind of mindset of really looking at operations in a similar way to what [European hoteliers] have had to do over the last few years," Grove said.
In the long term, hotel investors need to be more thoughtful about what drives revenue on property, Clough said. He added more hotels should prioritize wellness and gyms over pools.
"How many times have I — or you — gone to work out and there's two treadmills that are both full, the weights go up 40 pounds, there's one little bench there, and nobody is in the pool?" he asked.
Hite agreed it's time to be thoughtful about operations because it's not likely hoteliers will be able to broadly overcome increasing costs by increasing rates.
"What makes me nervous for us is that pressure on margins," she said. "All of our RevPAR gains are relying on rate growth, and our rate growth is not keeping up with inflation. It's going to be challenging."