By David Eisen
If you’re like me, then you live for the next hospitality industry conference. Am I right? A chance to catch up with friends, pontificate on the health of the space, pound coffee with reckless abandon, chow down on conference chicken, and stay out way too late carousing so that you look like an extra from “Night of the Living Dead” on the morning of the second conference day. Yeah, it’s the best!
In our industry, you could throw a ball blindfolded and hit a conference on practically any day of the week. Still, one of the more eagerly anticipated is the NYU International Hospitality Industry Investment Conference held in New York each June—where deals are (hopefully) made, CNBC sets up shop, and featured guests include the likes of Ivanka Trump and Robert De Niro (this year’s guest).
The conference serves as a good barometer of the current mood of the hotel industry, and touches on an array of topics. This year was no exception, and while there was an absence of new brand announcements, which usually pepper such conferences, there were some interesting nuggets, such as this admission by Hilton CEO Christopher Nassetta.
Beyond that, here’s some of what went down that caught my attention.
As time moves forward, nothing much changes at hospitality conferences. Sure, the coffee might improve—become potable, even—but conference sentiment doesn’t vacillate much. It stays at some level of caution; like how Homeland Security colors its threat levels. One thing is certain: Incaution has never been the pervading sentiment at any hotel industry conference.
This year was no different, as cautious optimism from a year prior backpedaled to caution. One likely reason: continued RevPAR abatement. It is sending shivers down every asset manager’s spine. RevPAR is forecasted to hover around the 2% growth mark over the next two years. Not great news, right? Especially considering the heady RevPAR growth rates of yesteryear. (In 2015, RevPAR grew some 6% YOY, but has steadily declined since that watershed point.) As The Dude may have once said, “This is a bummer, man.”
The problem isn’t just enervating revenues. While they are narrowing, expenses are climbing; not a good combination for any business. The pinch is being felt on both the investment and operation sides; especially the labor piece. According to HotStats, total hotel labor costs on a per-available-room basis are already up 2.5% this year through April, when compared with the same period last year. In Europe, within the same time period, labor is up 1.8%.
But there is some good news, folks. Coming back to the U.S., utility costs have been trending down, and are down 1.6% YOY on a per-available-room basis through April. Even stronger: Rooms cost of sales, which includes all intermediary commissions and distribution costs, is down 10.2% through April when compared with the same period last year. It’s all equated to a 1.9% uptick in GOPPAR through April, which in this limited RevPAR growth environment isn’t terrible. Meanwhile, Europe’s GOPPAR through April tumbled 5.7%, as TRevPAR was also down 0.7%.
Driving margin in this climate is no simple task, and one educational session at NYU tried to help by focusing on operational efficiency and profitability. On the labor front, Aaron Olson, senior vice president of hotel operations at Crestline Hotels & Resorts, estimated the cost of hiring a new employee at around $5,000, but if that employee doesn’t stick around, the number can balloon to three times that for the same position.
As a way to combat this, operators must turn (and have turned) their attention toward retention. Many hoteliers I’ve spoken with have taken this tack, but, in order to retain talent, have beefed up some benefits—monetary or otherwise.
(If you are a hotel operator, and facing labor issues, I’d advise you to familiarize yourself with Chester Barnard’s inducement-contribution theory, which holds that an employee will make and continue to make contributions to a business in exchange for inducements or incentives. In a nutshell, an employee will stay and continue to work at an organization if it is worth his or her while. In fact, Barnard proposed that incentives beyond pure remuneration, such as pride in workmanship and desirable working conditions, worked better at retaining talent.)
Anecdotally, some hoteliers I’ve spoken to have taken to making working conditions even looser, by relaxing their drug policies. So the next time you check into a DoubleTree and all the chocolate chip cookies are gone, you’ll know why!
Until next time, hotel industry!