Hilton CEO Chris Nassetta ended his company’s third-quarter 2020 earnings call with this: “I do believe, in my heart-of-hearts, that when we get to the other side of this, we’re a bigger, better, stronger, more efficient higher-margin business.”
Contributed by David Eisen, director of Hotel Intelligence, Americas, HotStats
It wasn’t the only time during the call, which took place in the thick of the pandemic, that Nassetta used the word “efficient” to characterize a post-pandemic operating model. At other points he remarked: “Our disciplined strategy will enable us to emerge stronger and more efficient than ever before.” And, “You will get to free cash flow and EBITDA levels of 2019 before you necessarily get back to demand levels of 2019, because you have created a much more efficient cost structure.”
The hotel industry, however, has a cognitive dissonance problem: it oftentimes acts out of line with its beliefs. Let’s say you’re a vegetarian, for illustrative purposes, but one night you slip up and eat a hamburger after having a few too many drinks. The next day you might be angry at yourself since eating meat goes against your principles.
Expenses are the meat of the hotel industry: It tries to steer clear of it, but, sometimes, there is no escaping its siren call.
All about labor
Labor is the most impactful cost to a hotel and hoteliers do their best to limit it. It’s no easy task and oftentimes vary based off property size and, of course, customer demand. Though the pandemic artificially curbed labor costs – by way of layoffs and furloughs – hoteliers vowed that on the rebound, they’d stay down. According to some, and relative to the data, keeping labor costs down is easier said than done.
There are three main factors for why and all revolve around the same reason: labor shortage.
- People have left. The hotel industry is built on hourly wages and some people have migrated to other industries, or other areas, often in search of higher hourly wages. This has pruned the talent pool and bringing those workers back could prove a challenge.
- Visas. In the U.S., many positions within the hotel industry are filled by migrant workers, but COVID-19 has stymied the flow. H2B visas, for instance, are given to non-immigrants hired temporarily to fill seasonal or intermittent nonagricultural job openings. They have been curtailed, however, because of COVID-19. The good news is that The Department of Homeland Security recently announced that the U.S. would approve an additional 22,000 seasonal worker visas on top of the annual limit of 66,000 set by Congress.
- Unemployment insurance. Some hotel workers who were laid off are loath to come back because they can earn more money not working off unemployment. The stimulus packages provided temporary boosts to unemployment benefits, starting at an extra US$600 a week through the CARES Act. In March, the American Rescue Plan provided an additional US$300 in weekly jobless aid.
In sum, the total labor supply pool has dwindled and is not coming back as quick as room night demand. Meanwhile, according to HotStats data, labor costs on a per available room basis, though down year-over-year, are rising globally. In the U.S., and as of March 2021, they are up US$10 over their April 2020 nadir, while in China, they are up more than US$12. With summer approaching, and pent-up demand calling, employers will labor to find labor.
Chris Nassetta’s hopes of efficiency are well founded. But he also might not be completely convinced. “When you get to a normalized environment,” he said, “the working capital things sort of go back to the way they were.”