LOS ANGELES — The desires to deliver positive experiences for guests and maintain profits have never been more at odds in the hotel industry than they are now, and executives speaking at the 2022 Americas Lodging Investment Summit said there's a simple reason for that.
Asked during the "Boardroom Outlook: Operations — Increasing Profitability without Sacrificing Quality" panel about the biggest issue facing the industry, BWH Hotel Group President and CEO Larry Cuculic said, "Overwhelmingly the answer to that question is labor."
Sloan Dean, president and CEO of Remington Hotels, said it's not a short-term problem, either.
"There's no one solution," he said. "And I think it's going to be a problem for many years."
Dean said the labor issue is felt across his company's portfolio, but it is "slightly better" in Southern U.S. states, where wage pressures aren't as severe.
Jeff Wagoner, president and CEO of Outrigger Hospitality Group, said labor isn't the only factor making profitability more difficult. In Hawaii, where his company is located, labor is having a less noticeable impact than inflation.
"Inflation truly is something that we're all going to be wrestling with for some time," he said. "There's plenty of examples out there of inflation and how it's going to affect us. And I don't know that it's going to go away. I think it's going to be somewhat permanent."
Cuculic said these inflationary pressures will make "2022 look very different than 2019" even if hoteliers continue to enjoy a strong rebound in demand.
"While the top line may look similar or slightly better, from our perspective, what we're concerned about is the bottom line for our hoteliers," he said.
Maintaining Service as Demand Spikes
Panelists noted the industry was caught somewhat flat-footed by the quicker-than-anticipated return of leisure demand in the summer months of 2020, in particular. They said that can't happen again without suffering damage to guest perceptions and satisfaction.
"We are, I think, in a better place because we're better equipped to deal with the uncertainties," Cuculic said. "We've learned that nothing is really totally predictable, and you have to be flexible. As a result of that, when you look at your workforce through that lens, I think you're better equipped to handle it."
Dean said his company is overall better staffed than during the busy summer months of the past two years, noting that in 2021, its open job rate was 13% compared to 7% to 8% this year.
He also said the industry, and his company specifically, is in a better spot due to operational changes.
"There has been some significant process changes, like not really doing daily housekeeping in every hotel, modifying how you deliver food and beverage, and gaining some efficiencies that will help us do better this summer," he said.
Many hoteliers have been hopeful that guests will be accepting of reductions in housekeeping to help ease the operational burden, and while that is true in many cases, Wagoner said it hasn't been in his portfolio.
"We had budgeted for 2021 a 70% reduction in housekeeping," he said. "We thought that everybody was going to want every-other-day service or was going to try to delay service, but it just didn't happen in a resort environment. We literally in the very first month of 2021 had a 90% acceptance rate [for daily housekeeping], and it continues to go up, and it goes up because consumers on vacation like to have their rooms dealt with."
At the same time, Dean said "going back to daily cleaning won't happen" at several of his company's hotels.
"Especially at our upscale and below [properties], offering a tidy instead of a daily clean, that will stick," he said.
He said other cost-cutting measures he expects to stay at his hotels include the elimination of airport shuttles — replaced by hotel paid rideshare pickups — and scaled back food and beverage operations, cutting down the number of cooks needed in some cases from three or four to just one.
"We've done a lot with food delivery and prep to make it more efficient," he said.
Coping with Inflation
Wagoner said cost increases from inflation have been persistent and noticeable in his portfolio, and they extend well beyond wage increases.
"We've got one laundry vendor, for example, in Hawaii, and they went out to all hotels and increased their laundry cost by 25%," he said. "Those costs are going to continue to remain in place. Those won't go away."
He said that hotel rates have also spiked in conjunction with inflationary pressures, with one of Outrigger's properties hitting its five-year underwriting average daily rates in the first year of operations.
He said that while some will worry that's not sustainable, consumers also benefit from wage inflation in this environment.
"I think our industry will continue to pass [inflationary pressures] on to some degree from a consumer perspective, but I don't think it's going away," he said. "I don't think we've seen everything related to inflation that we're going to see."