Labor Shortage, Wages Lead Challenges Hoteliers Face
There was widespread hope that 2021 would be a slow return back to normal as pandemic concerns eased and society reordered itself, but pandemic troubles have lingered through the year.
While lockdowns and closures may be a thing of the past, new concerns were thrust to the forefront as supply chains tightened, the labor market continued to shrink and hoteliers were forced to pivot from a crisis of closure and decreased demand to the reality of returning to full operation amid a much different landscape.
Hotel & Leisure Advisors’ consultants have worked on many assignments in 2021 and have seen firsthand how some of these new concerns and trends are affecting all segments of the industry. Compiled from a year of travel, research and interacting with stakeholders, we present our top 10 list of the issues affecting the industry. While the hope is that some trends will not last, like inflation and the labor shortage, others seem poised to be part of that new normal the industry is working toward.
1. Labor Shortage In a common theme that many industries faced throughout 2021, the national labor shortage affected the hospitality industry throughout the country. As industries reopened, hotels and leisure properties were forced to staff quickly. This, combined with the many job seekers still reluctant to get back into the roles they once had, caused shortages across all segments. According to recent figures from Business Insider, the industry is still down around 2 million jobs from February 2020. In an added headache for hoteliers, a survey by Joblist found that 38% of former hospitality workers were not considering going back to work in the industry.
2. Wage Increase In part due to the labor shortage, wages and salaries grew by 0.9% from the first to second quarter of 2021. However, hospitality wages and salaries grew by 2.8%, which is the largest increase across the industry since 2001, according to the U.S. Bureau of Labor Statistics. Labor shortages have forced many hotel and leisure properties to increase wages as they compete for workers. Larger hotel and leisure companies were able to weather the increases better by offering higher wages that smaller companies or independent properties could not afford to pay. According to the Bureau of Labor Statistics, the average hourly wage for leisure and hospitality workers is $19.04 as of October 2021.
3. Reduction in Business Travel In 2019, households and businesses spent approximately $1.1 billion on travel. That number decreased by 70% in 2020, but with only a 29% decrease for leisure travelers. Business travel dropped off precipitously due to the pandemic, and while forecasters were optimistic for 2021, continued concerns with different virus variants and travel restrictions have delayed robust recovery. Many experts, including the U.S. Travel Association, believe business travel will not return to pre-pandemic levels until 2024 or later. This means that hotels that historically relied on business travelers will be at a significant disadvantage in recovery and will have to consider a shift in their business model, at least temporarily, to weather the continued strain.
4. Government Stimulus Boosted Demand In response to the pandemic, the U.S. government spent an unprecedented amount of money that was sent directly to taxpayers and businesses to help keep them afloat during the economic turmoil. Those funds, made available through legislation such as the CARES Act and the Paycheck Protection Program, provided immediate economic relief. Some hoteliers and forecasters have noted that those funds have strengthened the recovery of the U.S. hotel industry in 2021. Lodging demand has outperformed many forecasts for 2021 as many customers spent stimulus on travel.
5. Experience Economy It’s not that travelers and guests are only just now starting to put value on experiences while traveling. It’s that they are continuing to value those experiences over things. This has caused a continued shift in recent years in hotels and resorts increasing these types of offerings for guests. Hotels are now seen by many as not just a place to stay, but as a place to be and experience the culture of the surrounding area. The key to creating an experience for guests is authentic interior design, technology and a more immersive environment.
6. Daily Housekeeping a Thing of the Past? Elimination of daily housekeeping ramped up at the height of the pandemic in 2020, even while additional cleaning measures became essential. What started as a way to limit contact with guests’ rooms has also morphed into a cost-saving measure for many properties that continue the practice even as pandemic concerns abate. In our consultants’ travels, they noted that many hotels were only servicing rooms at check-out or by specific request.
7. Automation, Smart Rooms and Technology While digital check-in and digital keys were around before the pandemic began, the technology is being used more frequently and accepted by guests as a safe alternative to traditional practices. With an app-based room key, guests can submit credit card information, upload ID and electronically sign the registration card from their phones.
Currently, most hotels do not have the door locks to work with the technology, but the number that do is steadily growing, though the technology is expensive. Digital check-in and room keys will not likely ever be the only option since not everyone has a smartphone, but even as pandemic concerns ease, we will continue to see an increase in digital check-ins as people appreciate the convenience and ability to bypass the front desk.
The desire for more automation and less human interaction is not only a product of a COVID-19 environment but also a sign of a changing generation that embraces technology. In addition, hotels that implement this technology may recognize cost savings in the long term and a boost in the short term as labor shortages make technology options less of a perk for hoteliers and more of a necessity to survive.
8. Inflation Concerns The cost of nearly everything has gone up in 2021, a development that poses concerns for hoteliers. The U.S. inflation rate for hotels and restaurants as of October 2021 is 6.5% according to Ycharts, an investment research firm. As the costs of food and beverage, labor and materials increase, hotels have to either eat those costs and risk profits or pass those costs on to consumers in the form of higher room rates. This is where hotels must rely on revenue-management strategies to walk that fine line.
9. Loyalty Programs Several of the national hotel chains have continued to ease requirements to earn tier status among their respective brand loyalty programs. In many cases, qualification thresholds have been cut in half when compared to pre-pandemic practices. Rewards points within these programs have also been extended, allowing guests more flexibility in redemption.
With these changes, some chains have altered the benefits provided by each brand within their portfolio. For instance, Hilton Honors Gold and Diamond members no longer receive a complimentary continental breakfast; rather, they are given a food and beverage credit based on the number of registered guests and the individual brand that can be redeemed at any available meal period or on items from the gift shop. In our consultants’ experience, this changeover has been met with mixed feelings by travelers and hotel employees.
10. Drive-To Vacation Destinations Travel restrictions in 2020 helped to facilitate a rise in the popularity of drive-to vacations closer to home. The typically lower costs, environmental benefits and overall ease of getting to destinations closer to home have made consumers rethink long-haul travel. Staycations also have the added benefit of being relatively flexible and hassle-free.
All of this considered against the current hassle of some long-haul travel with universal masking, mandatory testing in some destinations and the possibility of quarantine, drive-to vacation destinations have an upper hand in the current travel environment. We expect that with more travelers appreciating these benefits, this trend will continue well into the future.
While not a year faced with widespread closures and mandates, 2021 has seen its share of challenges and unique trends. How individual owners and operators respond to them will determine how they weathered another year of uncertainty and upheaval.
Though increased demand from government stimulus payments was a positive for the industry, the labor shortage, inflation concerns, and wage increases are all challenges that had to be met head-on. At the same time, as travelers’ expectations for experiences and the trend toward drive-to destinations continued to flourish, some in the industry may need to be poised to pivot to those trends. Ultimately, we expect the industry to face the challenges and changes as it always does, with expertise and innovation.