Hilton’s CEO has warned that service cuts we’ve seen at hotels during the pandemic may be permanent, and that’s bad news for consumers and those working in the hospitality industry.
Hotels have adjusted service during the pandemic
As you’d expect, hotels have adjusted their service protocols during the coronavirus pandemic, both as a cost saving measure, and also to limit interaction between employees and staff. Among other things, we’ve seen hotels:
- Eliminate daily housekeeping
- Either cut in-room dining altogether, or serve it in to-go bags
- Eliminate some in-room amenities, ranging from minibars to coffee machines
- Close bars, restaurants, and other outlets
In the short term there’s nothing wrong with that, and all of this is reasonable enough. The problem becomes that when changes are made, they’re often not reversed. Just look at the concept of airline fuel surcharges, or the fact that we still can’t take most liquids through security nearly two decades after 9/11.
The new normal of hotel room service
Hiltons will become “higher-margin businesses”
While the hotel industry has no doubt struggled a lot in the past year, Skift has some interesting facts on how the financials of some hotels have improved. Looking at the US industry big-picture:
- Full-service hotels have lowered their financial breakeven point from 47% occupancy in 2019 to 30% occupancy in 2020
- Limited service hotels have lowered their financial breakeven point from 43% occupancy in 2019 to 36% occupancy in 2020
In other words, hotels don’t need to fill as many rooms to breakeven, which shouldn’t come as much of a surprise. Hotels have lowered operating costs by getting rid of amenities and reducing staffing. As you can see, we’ve seen the margins improve most at full-service hotels, since they have the most amenities and staffing to cut.
Surely you’re thinking “well once things get better, proper hotel service will resume, right?” It would appear not. Hilton CEO Chris Nassetta said the following during a recent investor call:
“The work we’re doing right now in every one of our brands is about making them higher-margin businesses and creating more labor efficiencies, particularly in the areas of housekeeping, food and beverage, and other areas. When we get out of the crisis, those businesses will be higher margin and require less labor than they did pre-Covid.”
So yeah, a focus for Hilton is making hotels higher-margin businesses and creating more labor efficiencies, specifically with housekeeping and food & beverage. The intent here is pretty clear — many of the cuts that have been made during the coronavirus pandemic are here to stay.
Don’t expect daily housekeeping to be a standard amenity at hotels in the future, and expect some of the food & beverage “efficiencies” to stick around.
Will daily hotel housekeeping ever return as a standard amenity?
Will the competitive landscape allow this?
No matter how you slice it, the intent here is bad news for hotel guests, and especially bad news for those working in the hotel industry, since it sounds like there will be fewer jobs. Every business wants to be higher-margin, and Hilton’s CEO is making it pretty explicit that many of the current cuts will stick around.
Let’s be clear, the focus here isn’t on offering better value. That’s to say that hotels aren’t looking to cut costs and lower rates, but rather they’re looking to charge the same but offer less.
What’s my take on all of this?
- Ultimately the hotel industry is competitive, and I don’t think the landscape will allow hotel groups to go quite as far as Hilton is inferring here, though I do think some things won’t return to pre-coronavirus service levels
- I’m probably in the minority, but personally I think it’s reasonable enough if daily housekeeping never fully returns, with the exception of luxury hotels; I have no interest in having someone in my room every day, and the entire system just seems inefficient and unnecessary
- Room service and minibars have not been much of a money maker for the hotel industry, though they are nice amenities to have; I wouldn’t be surprised to see minibars replaced with grab-and-go options in the lobby, and to see room service permanently delivered in to-go packaging
- While I’d be sad about room service changes, when I’m staying at hotels in the US I typically use a food delivery service to order food anyway, since it’s cheaper, gives you more variety, and the food is typically better
Will hotel minibars survive the pandemic?
Hotels have significantly cut service during the pandemic, both to cut costs and to minimize contact between people. Hilton’s CEO is now suggesting that the hotel industry will be higher-margin going forward, creating more labor efficiencies in the areas of housekeeping and food and beverage.
Personally I think the hotel industry will be permanently transformed, but not as radically as Hilton’s CEO is hinting at. Ultimately consumers still have certain expectations, and if Hilton doesn’t offer what guests want, other brands will.
What’s your take on how hotel service will evolve post-pandemic?
(Tip of the hat to View from the Wing)