This article is part of our Business Transformation special report, about how the pandemic has changed how the world does business.
As travel picks up amid signs the pandemic is waning, the hotel industry hopes its fortunes will rise too. But so far, it’s not clear when that moment will arrive — or whether some of the changes they have had to make will become permanent.
Hotels have struggled with labor shortages, for example, that have forced some to close completely and others to scale back services — like daily cleaning of guest rooms and restaurant hours.
Given the uncertainty about whether those workers will ever return, one industry expert predicts robots will take over some of the tasks once done by workers who have found better paying jobs elsewhere.
Hotels are also experimenting with ways to boost revenue — for instance, charging extra for some services, scaling back reward programs and adding amenities to attract longer-term guests free to “work from anywhere.”
The impact of the pandemic on the industry has been uneven at best, with U.S. cities like New York among the hardest hit. One glimmer of hope: the Biden Administration announced it will open U.S. borders in November to vaccinated travelers from certain countries, including Canada and Mexico.
In China, travel has been greatly affected by Covid-related lockdowns, and Africa’s low vaccination rates have depressed international travel there, said Jan Freitag, national director for hospitality market analytics at CoStar Group.
Michael Bellisario, lodging analyst for Robert W. Baird & Co., said in the week ending Oct. 2, 20 percent of hotel rooms in the New York metropolitan statistical area — which includes New York City and surrounding communities — remain closed, though there are some signs of improvement.
The Grand Hyatt New York in Manhattan, which closed in spring 2020, is scheduled to reopen under the new name Hyatt Grand Central New York on Nov. 1, while the New York Hilton Midtown, closed since March 2020, reopened on Oct. 4; both are convention favorites. The Four Seasons Hotel New York, on East 57th Street, has been closed since summer 2020 and is not expected to reopen before next spring.
One obvious change likely to persist, particularly at three- and four-star hotels, is a decline in customer services.
When called back to work, employees — housekeepers, doormen, porters, as well as workers in kitchens, restaurants, parking garages, health clubs and spas — often opted not to return to jobs that frequently paid a minimum wage.
Many have found jobs with better pay, hours and benefits at companies like Amazon, Walmart and Home Depot. Also exacerbating the labor shortage at U.S. resorts, Mr. Freitag said, has been the inability to hire seasonal workers from outside the United States, a group they heavily depend on in normal times. Similarly, the hotel labor pool in the United Kingdom has been affected by Brexit-imposed restrictions on immigrant workers, Mr. Freitag said.
This shortage of labor has had an impact on the guest experience, from longer check-in lines to reductions in daily guest room housekeeping.
Hilton, for example, announced in a press release in July that complimentary housekeeping would be available only by request at its three and four-star properties, though housekeeping at its luxury brands — Waldorf Astoria, Conrad and LXR — and its Asia-Pacific properties would not be affected.
It is unclear whether changes in housekeeping frequency will last. Regardless, Henry Harteveldt, president of Atmosphere Research Group, a travel marketing research firm, expects hotels will become increasingly reliant on robots, which can disinfect guest rooms or prepare coffee or salads in kitchens, helping hotels make up for lost human labor and reducing costs.
One way hotels can improve their labor shortage is to offer prospective workers higher wages. However, Patrick Scholes, lodging analyst for Truist Securities, said that would require raising wages of existing employees in comparable positions, as well. To do both and maintain profit margins, hotel owners would have to raise room rates — a move that would cut into demand, particularly at urban hotels, in the current climate.
Raising rates would likely further suppress demand among travelers alienated by declining services — what Mr. Bellisario called a “Catch 22” problem for which there is “no answer.”
Another grim front: business travel. With so much business now conducted through video calls, such travel is dramatically down, especially at urban hotels. Bill Gates predicted last year that half of all business travel will not return. Mr. Freitag said executives will likely “take a hard look” at travel expenses and cut where possible.
One segment of the hotel industry that generally has thrived during the pandemic is resorts. Mr. Freitag said one example of the segment’s health was the record-breaking sale for $148 million — $2.5 million per key, or guest room — of the Ventana Big Sur resort in California in April by Geolo Capital, a private equity firm, to an affiliate of Hyatt Hotels. And Mr. Gates purchased a controlling stake in the Four Seasons Hotels and Resorts in September from Prince Alwaleed bin Talal of Saudi Arabia. The price tag: $2.21 billion.
Many resorts are offering “work from anywhere” packages, especially to well-heeled travelers. These can feature a better rate for extended stays, plus amenities such as a ring light and microphone in guest rooms to improve video calls. The Mandarin Oriental, Washington D.C’.s “MOBase” membership program offers guest rooms converted to private residential office suites.
To return to profitability, hotel owners are expected to cut other costs besides labor.
Mr. Harteveldt said one way they can do this is to tweak participation in their brands’ loyalty programs. Owners of branded hotels pay their brands — such as Marriott, Hilton, Hyatt and IHG — every time a loyalty program member stays at their hotel and earns points.
Mr. Harteveldt said he expects owners will try to make it harder for loyalty program members to redeem program points for free reward stays by limiting the number of rooms available for these stays, and by requesting that brands elevate their properties into higher reward tiers, which require more points for free stays. Limiting rooms for free stays will mean hotels will have more inventory available for revenue-producing paid stays. He further predicted hotel brands will permit such changes because they do not want to lose owners to competing brands.
Tyler Morse, chairman and chief executive of MCR, the fourth-largest hotel owner-operator in the United States, said another way to boost profitability is to charge guests for services such as pool use, early check-ins and late check-outs, much like airlines charge passengers purchasing cheap fares to check bags or book a specific seat on their flight. (Certain hotels, both branded and independent, have charged for early check-in and late check-out for years.)
Several years ago, Mr. Morse began imposing early check-in and late check-out fees at the TWA Hotel at John F. Kennedy International Airport and the High Line Hotel, both in New York, as well as fees to use the pool at the TWA Hotel.
Mr. Harteveldt, however, said such fees are a “prime example of how a hotel can kill any degree of guest preference.” Since travelers have far more choices in hotels than airlines, he said, they have far less loyalty. They may pay extra fees, he said, but “not come back.”
