Hotel owners and operators are struggling with staff shortages in the aftermath of the pandemic, even as demand for rooms has rebounded. For many, profitability will depend on how they respond to the labor challenges.

They are still feeling the effects of the tremendous decline in profits suffered in 2020, and still having to work through their profitability issues with their lenders and investors, says Robert Mandelbaum, research director at CBRE Hotels research group. Accordingly, they’re trying to control labor costs – their largest operating cost – while balancing guest needs.

Salaries, wages and other labor benefits account for nearly 50 percent of hotel operating expenses, while also significantly influencing guest satisfaction, which in turn affects hotel profitability.

“Understanding the operational side of things and also having the appreciation of how labor and workers are contributing to the profitability of hotels and, eventually, the value of the assets is paramount,” says Charlotte Kang, managing director, hotels and hospitality at JLL.

“We’re starting to see labor costs rise again, but not to the degree that business volume is coming back,” Mandelbaum says. Guest satisfaction scores have also declined, due largely to reduced staffing levels.Total revenue for 7,000 US hotels tracked by Mandelbaum’s group dropped 61 percent in 2020 before rebounding 72 percent in 2021. But labor costs per available room dropped 47 percent in 2020 and rebounded only 30 percent in 2021.

As of January 2022, hotel staffing had rebounded to 69 percent of its pre-covid level, after bottoming out at 28 percent in April 2020, during the pandemic, according to Hotel Effectiveness, a labor management software provider that tracks statistics on its more than 5,000 hotel clients in North America.

Low versus high service

During the height of the pandemic, operating cashflows were most resilient for hotels in the lower-service segments – economy, limited-service, select-service and extended-stay properties, Kang says. That’s because they could cut staff and levels of service more easily in response to low occupancy.

For full-service and luxury hotel properties, the labor situation was more challenging during pandemic restrictions and, later, the Great Resignation, when employees across industries resigned en masse. Those hotels had to maintain minimum service standards to uphold their brands and property positioning.

Customers of high-service hotels were generally understanding when they would receive lower levels of service during the pandemic. For example, hotels might have cut back on daily or even twice-daily housekeeping services, and not provided the daily cleaning plus a nightly turn-down service that may have been typical before the pandemic, Kang says.

But as pandemic restrictions are lifted and the hotel market continues to recover, customers will again expect pre-pandemic levels of service.

So, for any hotel with a labor-intensive business model, such as luxury hotels, it will be imperative for management to evaluate operating models to figure out how to manage customer expectations and align those expectations with the available staffing, Kang says.

Many full-service hotels are now asking guests at check-in if they want to opt out of full housekeeping services, while select- and limited-service hotels are asking guests if they want to opt into the pre-pandemic level of housekeeping, says Del Ross, chief revenue officer of Hotel Effectiveness.

Hotel Effectiveness stats show a significant change in housekeeping services from before the pandemic. In January 2019, 75 percent of full-service hotel rooms were cleaned for stayover guests, compared with 33 percent in January 2022. For extended-stay rooms, 39 percent were cleaned for stayover guests in January 2019, compared with 15 percent in January 2022.

Besides less frequent housekeeping services, some guests may prefer to keep other labor-saving services that hotels implemented during the pandemic, such as check-in apps that allow guests to bypass the front desk and access their rooms with their mobile phones, or more grab-and-go pre-plated breakfast service, Mandelbaum says.

Scrambling to hire

For many hotel managers in 2021, the recovery in demand for bookings came about so quickly that they didn’t have time to plan ahead with their hiring, Ross says. “They did not anticipate the demand surge, so beginning in mid-March, they were scrambling to keep up with demand as they were hiring more people than they’d ever hired [for that time of year].”

The hiring scramble led to short-term employment rates among the highest Ross has ever seen, he says. Quick terminations – when employees leave within 90 days of their hiring – peaked in the third quarter of 2021 at 29 percent of all new management hires and 60 percent for new non-management staff. Any turnover is expensive for hotels, because each instance typically adds 30 percent to the annual cost of that position.

Hotels were so short-staffed that their out-of-order rate – the percentage of rooms that aren’t available because they haven’t been cleaned – climbed to 6 percent from March through December 2021, compared to 4.2 percent before the pandemic.

If a hotel is not able to perform to its maximum potential because of a shortage of staffing, it will ultimately impact how much revenue it generates, which over time will impact the value of the hotel, says Philippa Goldstein, an analyst who tracks the UK hotel market for Knight Frank, a London-based real estate consultant. However, hotel labor shortages in the aftermath of the pandemic have not dampened the market for hotel property transactions, she says.

Hotel Effectiveness numbers show that US hotels have raised 2022 wages for every position category, including an average increase of 12 percent for room attendants and laundry workers, and 21 percent for newly hired laundry workers.

But hotels need to provide more than pay increases to attract and retain staff, Kang says. Employees are also looking for upward mobility in their work, cross-training opportunities to gain experience in other areas of the hotel and a better work-life balance, and they want to feel appreciated. Hotel management has to come up with an internal compensation strategy that retains the trained talent that they need to service those customers.

Chris Adams, founder and chief executive officer of Ellis Adams Group, a hotel consulting and design business, says the hotel labor shortage won’t change “until we can change the perception of how we demand labor, and what we demand of them, and show we actually care about their future and we’re looking out for their betterment and their careers.”

Hotel operators will also have to re-think every aspect of their operation – from cleaning rooms to front desk services and laundry to food and beverage services – to look for efficiencies where services can be performed faster and with fewer people, while maintaining or improving the guest experience, he says.

Adams predicts that an Uber-style disrupter in the hotel industry will emerge with a successful labor model. “They’re going to go out on a limb and do something really different. They’re going to disrupt the norm of what we see and they’ll start to get results from it. And when that happens, the market will demand that everyone else follows suit,” he says.