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How to Keep Hotel Labor Costs Down When Business Ramps Up

Some changes made to cope with the pandemic likely will be industry norms, while the crisis also spotlighted the need for new practices to be put in place.

When the coronavirus pandemic surged worldwide in 2020, sending hotel occupancy into free-fall, owners and management companies worked to reduce labor costs wherever possible. On top of layoffs and furloughs, corners were cut—when they could be without damaging the guest experience—and many employees were tasked with multiple jobs.

Now, as the industry gears up to get back to business, what will hoteliers do to control labor costs? How many measures that have been deployed over the past year to avoid the destruction of gross operating profit will remain in place?

“Many laid-off hotel staff have found other jobs, and the lack of talent will force the hand of hotel operators in finding ways to reduce labor costs through automation, elimination or efficiencies,” said Scott Berman, who is a principal at PwC and leads its hospitality & leisure practice.

These are important changes to make, given that “labor is typically the largest expense incurred by a hotel,” he added. In the U.S., total labor costs per available room for full-year 2019 was $97.80. That number fell to $46.25 in 2020, a 52.7% decrease and huge cost savings. However, there’s room for that cost to escalate sharply as occupancy moves back to higher levels.

Ways to Save

In large part, the large dip last year in labor cost stems from most hotels significantly reducing housekeeping services for longer-term stays in response to occupancy levels cratering, noted Anna Rench, VP of Acquisitions and Asset Management at McNeill Hotel Co.

“That represents approximately a 35% reduction in spend,” she said, “which would translate to somewhere between $1.50 and $1.75 of savings per occupied room.”

Housekeeping also could be modified by future thinking inventions, PwC’s Berman said. “Robotic vacuums likely will be introduced for public areas during the overnight shift and gradually make their way into the guest room.”

Meanwhile, mobile check-in has become a standard operating procedure at most properties and that time-and-money-saving move for employees is expected to remain in-place. Changes to food and beverage, like more grab-and-go items and slashed breakfast buffets, also likely will be long-term fixtures of operations.

But what big picture changes can hoteliers make to effect lasting change?

First, “They need to employ a dynamic staffing model,” by linking property management and payroll systems to ensure staffing is on point, said Del Ross, Chief Revenue Officer at Hotel Effectiveness. Otherwise, he said, hotels hire based on past occupancy performance, and “overstaffing by 15% to 20% could be devastating to GOPPAR.”

Second, Ross said, “Hotels need to evaluate or change their productivity standards,” to minimize the time spent on tasks and leave room for more to get done. “We’re expecting to add more than one million positions in the next six months, and they’re going to be inexperienced,” Ross said. “If you don’t have those standards, good luck. The ROI of labor is productivity and if you’re leading your market, you’ll dominate in a world where profitability measures success.”

Lastly, he added, a wage reassessment is overdue. “Experienced hotel people have mostly moved to other industries, and new-hire wage rates are the same as they were a year ago. Hotels must figure out a strategy both to entice new people and to lure back those who’ve gone to Amazon and Door Dash. Those that do will have a competitive advantage.”

Hoteliers who apply the lessons of the pandemic will be ahead of the game, Ross said. “Incredible ideas for new processes are going to be born out of this and if we don’t operationalize them, we’ll squander this opportunity. Never let a crisis go to waste.”

Download Profit Matters:  Global Hotel Performance Review 2020

Photo by Volha Flaxeco on Unsplash.

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