Owners, brands worry about rising costs, recession
Owners, brands worry about rising costs, recession
25 MARCH 2019 8:51 AM

During the opening general session of the Hunter Hotel Conference, executives from hotel ownership and brand companies discussed the innovation needed to overcome margin erosion, when they think the cycle might end and the state of Airbnb.

ATLANTA—The traditional hotel business model might be in need of an update.

In the face of swirling headwinds like shrinking unemployment, rising wage costs and the slowdown of U.S. revenue-per-available-room growth, should hoteliers change some of the industry’s core offerings like booking flexibility and daily housekeeping? Hotel ownership and brand executives kicked off the 31st annual Hunter Hotel Conference discussing margin erosion during the “President’s panel,” and OTO Development CEO and Founder Corry Oakes voiced his support for paying for a room at the time of booking and charging to clean rooms as two examples to combat rising costs.

“I think we have to change the way we approach the business, the service model,” Oakes said. “Why we are always the last to change is beyond me. When we buy a plane ticket, we pay for it. Why are we waiting until 24 hours before somebody is supposed to show up to let them make another decision about paying for the room or not?”

If a guest stays three days, hoteliers should charge them to clean the room, he said. There’s no question the room should be clean when guests arrive, but there should be a fee associated with that, he said.

“It’s better for the environment, it’s better for our team members,” he said.

Oakes said he’s seen payroll expenses across his company’s portfolio increase in the past several years, and RevPAR growth hasn’t kept pace. But instead of just advocating for adding more fees to the average hotel stay, Oakes also said there’s room to craft a more personalized experience for each guest.

“I think we need to rethink the business model and how we package it to the consumer,” he said. “Every other consumer product has embraced personalization, and we should embrace personalization. … Let’s take great care of them at the bar, let’s take great care of them around the pool, let’s take great care of them when we pass them in the hallway so that we actually have time to make a connection instead of being so pressed for time.”

Mitch Patel, president and CEO of Vision Hospitality, said the cost of operating a hotel is higher than ever, noting the rising cost of employee health insurance and real estate taxes as particular challenges.

“Six years ago when were at these conferences, the only labor challenges we were talking about were in the construction industry,” Patel said. “But there wasn’t a lot of talk about the operations side of our business with labor. We just came back from (the Americas Lodging Investment Summit) in January and … probably the No. 1 topic of discussion was the labor challenges we’re all facing.”

Greg Mount, president and CEO of RLH Corporation, said his company is constantly looking for ways to cut expenses for owners, and technology is one direction the industry can continue to evolve.

“The brands need to innovate, and one example for us is back in December at our conference, we rolled out a robot that can do everything in the room but make the bed,” Mount said. “It’s in the process right now of being tested, and that doesn’t mean that it supplements the housekeeper, but what it means is it can work alongside the housekeeper and reduce some of the requirements that are in that room. I think those are important things for brands to look at it and help evolve and pass on to the franchisees.”

Ken Greene, president of the Americas for Radisson Hotel Group, said there’s “not one silver bullet that’s going to make the difference,” but stressed sound hiring and retention strategies to build your company’s reputation as a place where employees want to work.

“Labor is expensive, and the best way to combat labor expenses is you hire the right people and you keep them, and you do that by getting the right culture in place,” Greene said. “If you do that, you’ve got happy employees that are more willing to stay with you and they’re more willing to help you recruit.”

Economic outlook
The panelists shared their economic outlook for the rest of 2019, and while Mount and Greene agreed they’re confident that no big drop-off is coming, Oakes said the U.S. is past due for a recession.

“The yield curve has moved against economic prosperity in the last 12 months—it’s almost inverted, and every time it’s inverted in the past, it’s signaled a recession within the next 12 months,” Oakes said. “So I think it’s a time to be careful. We’re at all-time-high occupancies, all-time-high rates, as an industry things are great—we should acknowledge that things are great—but no tree grows to the sky forever.”

Patel said he expects demand to continue to grow, referencing Hilton President and CEO Chris Nassetta’s declaration: “We’re in the golden age of travel.”

“My 18-year-old, my eldest, her first paycheck she wanted to spend it on travel, and that’s music to my ears,” Patel said. “I think demand is going to continue to grow in the next 10, 15, 20 years obviously in the United States and worldwide. Supply, we just hit historical 20-something year average in ’18, in ’19—the historical average—so demand and supply, of course they’re going to come together here soon.”

But on the subject of being prepared for a downturn, Patel described the process of building a brick house strong enough to withstand a storm. Part of making that brick house is the brand with whom hoteliers partner and the debt service they carry, he said. It’s also how hoteliers serve their guests, he said.

“Let’s not forget that this is a people business,” he said. “It’s people serving people, and our businesses are more transparent than ever before through social media, so if you’re hotel is at the top 5% of a brand or at the top on TripAdvisor, that makes a brick house.

“So if you have all of those components of a brick house, when that storm comes, hopefully not only will you survive, but you will look for opportunities and you’ll be hunting for opportunities, and as we all know that’s the best kind of growth.”

Airbnb and disruptors
On the subject of Airbnb, Patel said he still doesn’t want Airbnb in the same markets as his hotels, but he pushed for a level regulatory playing field and warned against talking about the issue as if hoteliers are only worried about competition, which he added is “the wrong message.”

But Mount said he’s not so worried about the impact of Airbnb and more concerned that Amazon, Google and Facebook could jump into the travel game at any moment.

“Last year social searches outpaced Google for the first time ever; it’s an interesting thought if you start to think about it,” Mount said. “I think it speaks to this evolving consumer that isn’t necessarily so tied to loyalty programs anymore. … Airbnb for me is a non-issue, and they really only impacted some of the bigger gateway cities and they really only impacted quite frankly when there was high-demand compression. Look at what they’re doing, they’re acquiring and becoming more of a channel.”

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