Inflation Surge Leads To Additional Operational Costs
By Terence Baker Hotel News Now September 8, 2021 | 8:58 AM Labor, or the lack of it, as well as its higher costs, is the biggest topic of the moment in the hotel industry, and it is a challenge that has no easy route to rectification.
Speaking at a panel titled “Labor Market Madness” at the 2021 Hotel Data Conference, Kelsey Fenerty, research analyst at STR, said hotel industry wages for non-supervisory staff are increasing due to simple economics. STR is CoStar Group's hospitality analytics firm.
Demand for rooms in the U.S. is increasing and average daily rate is performing well, but employees are either not coming back to the industry or are not attracted to it, despite rising wages.
“Inflation is rising noticeably, but wages are keeping above that rate, which is not the way traditionally it has been and results in employers having less purchasing power,” Fenerty said. “When demand for labor rises, but supply does not to the same level, then the obvious result is higher wages.”
Between January and May 2021, the hourly hotel wage rose by $1.
“Pre-COVID that rise took two years,” she said, adding the problem is being exacerbated by there being 400,000 unfilled jobs in the sector.
Fenerty said inflation and generally higher wages across the U.S. is resulting in guests having more spending power, but that also means hotel owners and managers are having a harder time controlling costs, an important requirement as the industry emerges from a prolonged period of slumps in revenue.
“In terms of wages, accommodations is way ahead of any [other sector]. Our wages have risen way higher in percentage terms than any comparable industries, and way higher than they have historically … but we still are paying the least,” Fenerty said. She said that currently the average hourly wage is $16.50, some $2 less an hour than the average retail position.
Another result of staffing shortages is that it is placing pressure on hotel occupancy, which has resulted in hoteliers taking rooms out of order. There simply is not enough labor to service them, Fenerty said.
Andrew Rubinacci, executive vice president of revenue strategy at Plano, Texas-based management company Aimbridge Hospitality, said high leisure demand has led to leisure guests being booked into corporate hotels, which suddenly might be a little less fit for those types of stays.
For example, a corporate hotel’s pool likely is smaller than one in a leisure hotel, and it cannot cope with the additional demand placed on it.
“We have seen a distinct difference in [performance in] hotels that had staff problems and those that did not,” Rubinacci said.
He added high and steady ADR has closed the gap on some of this lessened occupancy. “It is really quite amazing how the industry has said, 'This is different, it is a disruption, it is not cyclical,' and we’ve gone and kept rates really at the right point in most cases,” Rubinacci said. “But wage growth is outpacing the rapid rise in ADR, and that is the problem, and we have to maintain margins. Owners demand that.”
He added that even hotels enjoying the highest occupancy are not discounting. “Be confident in your pricing,” Rubinacci said. Looking ElsewhereAt the beginning of the pandemic, the U.S. hotel industry lost 1 million jobs, and now that some of those positions have been refilled, the industry might still have a struggle to fill the remaining 400,000.
The labor market is and will continue to be tight, and the onus is on the industry to maximize competitiveness with other sectors, which likely are paying higher wages and offering more hours’ work and more flexibility.
“You can get 40 hours a week [in the hotel industry] if you work Friday through Sunday,” Aimbridge’s Rubinacci said.
Fenerty said the U.S. labor force has changed during the pandemic, and active job-search participation remains in a decline that started with the Great Recession.
Participation today is at about 62%, either because there are no jobs to look for, because of ill health, because employees were nervous to work in a client-facing situation or because they knew eventually they would get their jobs back.
She said that rate of search has been flat for most of 2021 and is highest among the youngest and oldest age groups, the former perhaps deciding to go to college and university, the latter choosing to retire.
“These sectors provide opportunities for the industry as they are likely to return to work if they have the right incentives,” she said.
There is a gap enlarging between the jobs the industry needs to fill and U.S. unemployment numbers.
“Pre-COVID, U.S. unemployment was almost at record lows. It is dropping now, but not to those levels, [but] a great number of those unemployed would not even consider the hotel industry,” Rubinacci said.
Construction, manufacturing and retail all are close to pre-COVID-19 levels in terms of employment, but the hotel industry is not, perhaps because it can offer fewer hours of work — on average 29.4 hours a week — as opposed to 41.5 hours in manufacturing.
“Hospitality, including restaurants, also has the highest voluntary quit rate but the second highest hire rate,” Fenerty said.
Demand is reacting to openings, but Fenerty said new hires are needed to service additional room openings.
In April 2020, 814,000 rooms — or 15% of the U.S. hotel room inventory — closed. That figure has dropped to around 2% in June 2021 numbers, or just a little more than 100,000 rooms, she said.
“Demand is back to what we kind of consider ‘normal downturn bad levels,’ none of this ‘unprecedented, never before seen’ performance,” she added.
Demand, even though it is on average at 96% of pre-COVID-19 levels, is not the same across all seven days of the week.
“There is an imbalance between weekdays and weekends, which poses some challenges on the labor side,” Fenerty added.
Rubinacci said unions are not active in terms of pushing for wage increases. “They are looking after their members, working with owners,” he said.