How to Keep Hotel Expenses Down? Ask an Asset Manager.

The money minders have been working overtime and offering guiding tips. 

It doesn’t sound right to talk about the “benefits” of COVID-19, but if there’s any upside to the pandemic, it’s that massive disruption to business has forced hotels to find operational efficiencies—resulting in lower costs—without damaging the guest experience.

That’s critical in this environment, where occupancy is slowly increasing as costs are, too. According to HotStats data for North America, occupancy was 32.1% in the first quarter and hit 39.8% in April, while total overhead costs PAR in Q1 2021 were $32.98 and $36.68 in April.

Meanwhile, in China, occupancy was 45.8% in Q1, but climbed to 68.6% in April. Total overhead costs PAR in Q1 hit $27.56 and by April were up to $29.60.

Asset Navigation

The pandemic has spotlighted the work of asset managers, tasked with steering the ship amid the storm. How, then, did asset managers suppress costs? For starters, they asked service providers to renegotiate contracts, and advise others to do the same.

“If you never ask, you never know, said Michael Doyle, managing director and EVP for CHMWarnick, a hotel asset management company and owner advisory service, with its main headquarters just outside Boston. “Clients aren’t afraid to ask for lower rates or better services, so put yourself in their position, and if the answer is no, you’re where you were when you started.”

More specifically, he added, “Look at your contract terms with third-party providers, like cleaning services, and see where you can negotiate while taking a fair approach. We still have fairly suppressed demand so if you expect your property’s rebound to come in 2023, try backloading the agreement. Dangling contract extensions gets [suppliers] to open their eyes. That’s been very effective for us.”

Labor Lessons

Next, reconsider and make changes to the labor model, suggested Michelle Russo, CEO and Founder of asset manager and advisory firm hotelAVE.

“Our operational efficiency division built a dynamic staffing model, where occupancy defines staffing,” she said. “At every five-point increment [in occupancy], we review levels.”

In the U.S., labor costs per available room in April 2021 were $41.76, up 68.1% over the same time a year ago, when COVID-19 dug in.

One area where cuts could easily be made, Russo noted, is—with the aid of technology—in food and beverage staffing.

“You can have guests order and pay with QR codes and other touchless tools, and then use runners, instead of servers, who take orders, bring food or even drop requested items, like ketchup,” she said.

Closer examination of labor forces hotels to consider whether they really need full-time managers in an area, such as a small restaurant for 20-30 guests, or if someone else on staff oversee it, Russo said.

Alternatively, Doyle is partial to part-time labor. “Part-timers can be more loyal and more qualified because you can run into teachers or other professionals looking for more working hours. It’s an important strategy long-term, given the cost of benefits,” he said.

Providing internships is another cost-saving device. “They’re a great source for future employees, if you train them and treat them well,” he said.

Some other strategies CHMWarnick has deployed include cutting down on the cash banks it sets up for employees, and being conservative on operating inventory.

“All the handling of money that goes on when the banks have to refill is a real effort, so we’re trying to minimize work for the reduced staff,” Doyle said. “People are happy to use their phone or credit card for transactions, or the cash machines we’ve put in the lobby to break down bills.”

When it comes to buying back linen, glass and other OS&E, he continued, “Hoteliers think they want to build back to full inventory, but if it’ll be a few years to recovery, we have to be thoughtful about managing those expenses.”

In the end, the best way to re-open hotels while managing costs can be summed up in two words: use caution.

“I would rather be way more conservative about how I’m reintroducing cost,” said Russo, “versus overdoing it.”

Photo by Josh Appel on Unsplash