Obviously the pandemic has been incredibly tough for the travel industry. However, it seems like the hotel industry in particular is hell-bent on making the guest experience worse in the long run, essentially trying to take cues from ultra low cost airlines.
We’ve seen Hilton’s CEO say that we should expect many service cuts to be permanent. We’ve also seen CEOs of major hotel investment companies make statements that guests won’t like. One hotel company CEO wants guests to tip more rather than raising wages, while another hotel company CEO wants to unbundle room rates, and “stop giving things away for free.”
Some more hotel executives had some interesting comments during a recent conference, which guests won’t like.
Hotel CEO wants to stop pre-pandemic “amenity creep”
Several senior executives in the hotel industry made some noteworthy comments during a recent panel at the 2022 Americas Lodging Investment Summit.
For example, Ashford Hospitality Trust CEO Rob Hays is happy that the pandemic has allowed hotels to combat “amenity creep,” whereby hotels offered amenities they didn’t really need to offer pre-pandemic. For example, we’ve seen many hotels temporarily close club lounges, and he wants to make that permanent to combat labor shortages and increasing costs:
“That’s something brands were pushing hard from the loyalty side, and I think this has given us the ability to kind of rethink some of those amenity creep issues.”
Extended Stay America CEO Greg Juceam said that it shouldn’t just be about what guests want, but rather about what they’re willing to pay for:
“We have to ask ourselves not just ‘What do the guests actually need?’ but equally ‘What are they willing to pay for?'”
IBF Hospitality CEO Ray Bhai said that the scaled-back operating model we’ve seen during the pandemic has been particularly important at full-service properties, which require more labor. These hotels have also suffered from a greater loss in demand than limited service properties, which are more leisure oriented. He believes many of the cuts will be permanent to protect profitability, despite pushback against owners from the hotel groups:
“We’re seeing from the brands that they are pushing to try to take things back to normal. It’s a work in progress, and will depend market by market where the demand is and what the situation is.”
Hotels are trying to turn into airlines
It’s not really a secret what’s going on here, as CEOs of hotel investment firms have made it pretty clear that they’re looking to ultra low cost airlines for inspiration on how to run their businesses. A few thoughts:
- Historically the major hotel groups (Hilton, Marriott, etc.) have had some power to dictate terms, while the pandemic has changed the power dynamic, and now the individual companies that own hotels seem to be in charge
- The reason hotels can’t get staffing is that they aren’t willing to increase wages sufficiently; they’ve also made this clear, as we’ve seen the CEOs of hotel investment firms say that they don’t think raising wages is the solution, but rather guests should tip more (how convenient!)
- Coronavirus gives hotels the perfect excuse for not offering services; even if a hotel is 100% full and in Florida (where there are virtually no restrictions), you’ll still see hotels blame coronavirus for not offering services that don’t turn a direct profit
- Many hotel club lounges aren’t directly profitable, but rather are intended to keep elite members happy, so of course these executives view that as an easy thing to cut to increase margins; they’re not looking at the big picture of why guests choose their hotels
It’s going to be interesting to see how this all progresses. With hotels you really have three parties — the guest, the owner, and the brand that the management or franchise agreement is with. With leisure demand in many markets at an all-time high, and hotel brands not really enforcing brand standards consistently, it’s really the hotel owners who are making the rules right now.
Fortunately I do think there’s some balance here, at least in the long run:
- Once things normalize and/or we see a recession, hotels won’t have the power that they currently have
- I don’t think all hotel groups will cut equally, and over time we may even see hotel groups add back amenities as a competitive advantage, and then other groups may be forced to match
Bottom line
Unfortunately the pandemic has led to a race to the bottom in the hotel industry. While service cuts were initially marketed as temporary, hotel owners seem to have decided that many of these cuts should now be permanent, and are easy ways to increase margins.
We’ve seen hotel CEOs suggest all kinds of service cuts, and it seems that the latest cut being recommended is for club lounges. Many lounges have been closed temporarily due to the pandemic, and it looks like we should expect them to just not reopen. I’m curious if the major hotel groups stand up for guests, or simply give in to owners.
What do you make of hotels closing club lounges and cutting other amenities?
(Tip of the hat to View from the Wing)
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