Hotel CEOs Concede a Lasting Labor Shortage May Reshape Guest Experience

The chief executives of the world’s largest hotel companies recognize they have a labor shortage problem that isn’t going away anytime soon. 

The hotel industry, with nearly triple the unemployment rate of the U.S. national average, grappled with staffing issues even before the pandemic. But the health crisis sent room demand into a nosedive and drove companies of all sizes to reduce staffing levels to a minimum last year with furloughs and permanent layoffs. 

That decision continues to wreak havoc on the industry, even as demand pushes occupancy rates higher and higher. 

“The baggage we carry as a result of laying off so many people in the pandemic … That is a hard one to overcome,” David Kong, CEO of BWH Hotel Group, which owns Best Western, said Monday at the NYU International Hospitality Industry Investment Conference. “People always feel like you’re going to abandon them in a crisis and there’s no safety net.”

Kong was joined by IHG Hotels & Resorts CEO Keith Barr, Accor CEO Sebastien Bazin, Marriott Interntional CEO Anthony Capuano, and Hilton CEO Christopher Nassetta on a panel that discussed a variety of issues facing the hotel industry amid the pandemic recovery.

While the hotel industry saw a boost in hiring last month, the overall hospitality sector is still down about 1.4 million jobs from pre-pandemic levels. Kong’s statement is a rare moment of brutal honesty among hotel leadership. 

Many of the CEOs at publicly traded hotel companies — several of whom were on the panel with Kong — spent the last few months on earnings calls predicting a wave of job applications once the summer travel season died down and extra U.S. unemployment benefits included in pandemic relief measures lapsed in early September. 

But hiring woes extended into the fall, and even October’s stronger jobs report in the U.S. was well below summer performance. Industry leaders Monday as well as on third quarter earnings calls in recent weeks appear to finally recognize the labor shortage crisis is a structural problem not entirely pinned to government stimulus and benefits.

“This is an area where we’ve got to collaborate. For decades, the employment base-at-large viewed travel and tourism as a safe harbor set of industries. They can deliver plentiful jobs. They can build long careers,” Capuano said. “When you look at the job losses that the industry has faced over the last few years, that confidence has been shaken.”

Changing Guest Expectations

Staffing levels — or lack thereof — will determine how successfully the hotel industry comes back from the health crisis. While guests may have been forgiving of bare-bones service before, demand levels are on the rise. Guest expectations of what constitutes an acceptable hotel experience will rebound to pre-pandemic levels, too. 

“We’re all seeing our customer satisfaction scores in this industry, across the board, go down,” Barr said. “We have to get people back into the workforce. Fundamentally, we just don’t have enough people in the workforce.”

Technology can address some of that with contactless features like mobile check-in and check-out reducing staffing requirements for a front desk. But some of the issues are likely going to involve structural shifts in what a hotel stay is supposed to look like. 

Hilton rolled out an opt-in housekeeping practice earlier this year where daily housekeeping during a stay isn’t a given at many of its brands. Instead, a guest has to make the request for if or when they want their room serviced. 

Marriott hasn’t immediately followed suit, with Capuano noting on an investor call last week the company is “evaluating how we strike the right balance between guest expectations and the economic challenges that our owner community continues to face.”

But Barr hinted a similar initiative to Hilton’s is underway at IHG.

“We’re having a debate, and I think we have to communicate and retrain customers. I’m of the view that housekeeping will be transformed in this industry,” he said. “When you’re at home, do you change your sheets every day? Do you wash towels every day?”

A Corporate Wake-Up Call

Monday’s panel didn’t provide many details in what these major hotel companies planned to do in appealing to more workers, but there appears to be a growing sentiment the industry needs to do a better job marketing itself — and pay more. 

“We’re not known as the highest-paying industry or the one providing the most benefits,” Kong said. 

The lower-paying reputation is a pronounced obstacle in the industry recovery and growing need for more workers. Hotel companies like Hilton helped furloughed workers find jobs in industries with similar skill requirements for hospitality workers like retail, and some of those industries provided a financial lift when workers needed it most. 

The retail industry had a 17.5 percent, or $2.68 per hour, wage premium for frontline workers to hotels, according to a CBRE report earlier this year. The wage gap existed before the pandemic, when retail pay was 14 percent higher than hotels. 

Many hotel owners rolled out sign-on bonuses this year to bring in workers, but actual wage increases weren’t as common. But hotel executives acknowledged on recent earnings calls higher pay is likely a given going forward — and can even be paid for by rising hotel rates in the current inflationary environment. 

Wage increases at Hyatt averaged between 10 and 20 percent recently depending on the job and the city.

“We do think that that wage rates will be higher,” Hyatt CEO Mark Hoplamazian said on an investor call last week while noting the company had thousands of open positions across the U.S. “There’s no question about that.”

But hotel executives see the other element in bringing more workers back to properties involves showing upward mobility is possible. A housekeeping or front desk job doesn’t stop there, the thinking goes. That can be a stepping stone to a general manager role or even higher. 

“It’s incumbent on us [and] incumbent on everybody in the room to tell the story of what a terrific set of industries it is and how easy it is to build a really productive career,” Capuano said. “But we’ve got some heavy lifting to do.”