The Hospitality Asset Managers Association (HAMA) on Monday announced that senior Cameron Armstrong and junior Di Wang of Michigan State University were selected as the 2016 winners of the Tenth Annual HAMA Student Case Competition. The MSU team was chosen from a select field of top hotel schools that included the Pennsylvania State University and the University of Denver. Student teams researched and prepared a case study from a list of topics that currently impact the hotel industry.
Wang and Armstrong presented on “How to Best Reach Chinese Millennials via Social Media,” a task they noted was all the trickier due to China’s restrictions on sites like Facebook and Twitter. The University of Denver’s Chris Allmann and Jon Willis focused on the “Minimum Wage Increase on the Lodging Industry” and how to mitigate its impact. Samantha Martin and Charles Garber were chosen to represent The Pennsylvania State University and researched, “Out of Control Third Party Commissions,” offering insights into how best to work with OTAs.
Working with a HAMA member and their respective university professors, student participants were required to give a multi-part presentation, complete with research paper and accompanying PowerPoint, over the course of two sessions that included initial and revised findings. Topics included “Rising Minimum Wage,” “Rising Health Care,” “Social Media Management Issues and Trends,” “Room Design – What Does the Future Room Look Like,” “Out-of-Control Third-Party Commissions (Primarily Group Airbnb/VRBO),” “Alternatives for Room Service,” and “Wi-Fi Solutions.”
Here are summaries from some of the winning entries:
The impact of, and solutions for, minimum wage increases
Chris Allmann and Jon Willis, University of Denver
This study identified three key labor issues affecting the U.S. lodging industry and provided suggestions to mitigate any adverse effects arising from a minimum wage increase. The cost of labor is the largest expense center in a hotel. On average, labor accounts for 22% to 35% of total revenue with employee wages representing approximately 70% of the total labor cost. Therefore, it is not surprising that hoteliers would be concerned about the impact of a minimum wage increase on profitability.
Turnover is the second major issue facing the lodging industry. Hotel employee turnover is estimated at 31%, a ratio that is much higher than other industries. Turnover expenses include recruiting, training, and lost productivity. Replacing a front desk agent is estimated to cost an estimated US$5,900—nearly 30% of a front desk agent’s salary. Since the employee turnover is generally associated with low wages, an increase in the minimum wage could potentially decrease turnover in the short term.
Finally, recent and pending minimum wage legislation is driving the increase in minimum wage increases. Raising the minimum wage is central issue in the presidential campaigns and a movement to raise the minimum wage has taken hold across the country. Fourteen states began the year 2016 with a higher minimum wage while another forty cities and counties have implemented minimum wages higher than state mandated levels. Most notably, Seattle, New York City, and Los Angeles have proposals to raise their minimum wages to at least US$15 an hour over time.
Mitigating the impact of a wage increase
With an impending increase in minimum wages becoming a reality, this study provided some suggestions to alleviate the potential impact of a wage increase on profitability. First, asset managers should reconsider the way labor is used in operation. For example, hotels can increasingly hire more part time employees. This strategy can generate substantial savings because it avoids the payment of part time employees’ benefits.
Another payroll cost-saving strategy would be to restructure human capital by cross training employees. For example, instead of hiring new staff for banquet, hotels can reduce their costs by cross training restaurant servers to work as banquet staff.
Second, hotels should consider outsourcing to avoid the impact of a minimum wage increase. By outsourcing departments to third parties, hotels can reduce the cost of operating multiple cost centers and consolidate expenses into a single line item on the income statement. For example, non-guest facing departments, such as laundry, can be outsourced without any impact on the guest service.
Finally, increasing top line revenue can alleviate the impact of a minimum wage increase. It involves the implementation of additional fees to increase revenues. For example, asset manager should consider charging resort fees to boost revenues. In addition, increasing prices through effective revenue management can also increase revenues.
By implementing these three strategies, asset managers can mitigate the impact of a minimum wage increase on their hotel and maintain or increase hotel profitability.
Out of control third-party commissions
Samantha Martin and Charles Garber, The Pennsylvania State University
In recent years, third party commissions have increased tremendously. Consumers like using OTAs because they have a variety of options to choose from, they can customize their traveling package, and OTA websites are highly personalized.
After comparing hotel prices offered on Expedia with hotel prices offered by the hotel websites, the Penn State students came to the conclusion that for the most part, it is cheaper for consumers to book directly with hotel web sites, and this situation has become increasingly true in recent months as hotel companies like Marriott and Hilton have strategically changed the balance of power between the OTAs and the brand web sites.
Despite some negativity surrounding the relationship between OTAs and hotels, there are benefits to hotel managers using OTAs. For instance, OTAs have great marketing capacities, they attract new customers, and their efforts potentially lead to direct bookings to hotel web sites later. Based on the Penn State student findings, they believe that the best practices for maximizing benefits would be to leverage OTA top-of-the-line marketing, be aware of market leaders, and establish a strong revenue management team.
The best practices for minimizing costs would be to know your competitors’ OTA fee amounts (and try to never pay more), refer to search engine optimization and control and balance room distribution.