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Hotel Industry’s ‘Healthier Picture’ Clouded By Gas Prices, Inflation As Summer Arrives

For the first time since the pandemic began, travelers are more concerned about gas prices and inflation than they are Covid-19 when making travel plans, according to a survey from the American Hotel & Lodging Association released Wednesday.

The results come as hotels are on pace for a record number of bookings for leisure travel and charging room rates higher than they did before the pandemic, paving the way for a summer of revenge for the industry. 

As domestic leisure travel picks up, challenges associated with staffing and inflation become more pressing for the hotel and lodging industry.

"I’m much more optimistic about the summer today than I was 60 days ago,” Donohoe Hospitality President Thomas Penny said. “I think for many folks, they began to socialize the reality that we’re going to have to live with [Covid] … Folks began to just say they’re traveling no matter what.”

The pandemic left a scar on much of the hospitality industry that has yet to fully fade. In an era of remote work, business travel continues to suffer, leaving the industry with a projected $20B shortfall by year’s end. Inbound international travel to the United States has suffered too, not just because of U.S. restrictions, but because many countries require lengthy quarantine periods once tourists return.

Against that backdrop, though, is the major resurgence of domestic leisure travel. Revenue per available room, the industry's leading performance metric, was higher in March and April than 2019 levels, in part thanks to the strongest occupancy levels since before the pandemic, according to PwC. 

“It’s a healthier picture than we’ve seen at any other time, but let’s not kid ourselves, it’s still a long way away from recovery," PwC Hospitality and Leisure leader Scott Berman said.

As Memorial Day arrives, many hotel operators are less worried about the pandemic’s public health impact, and they are instead focused on its residual effects on inflation, staffing and making space for business travelers’ return.

“People are not necessarily decreasing their spending on leisure travel,” Chartres Lodging Group President and co-founder Maki Bara said. “They may not be getting their second pair of shoes or barbecue set, but they’ve had enough with what’s been going on and they’re taking that trip.”

Nine out of 10 travelers are considering inflation when booking trips today, and the same proportion reported factoring gas prices into their plans, according to the AHLA's survey. 

Roughly one-third of those surveyed by the industry group said they were considering canceling a trip outright due to gas prices alone.

But some industry leaders, citing pent-up demand, think those externalities will lead travelers to shorten vacations more often than they cancel trips altogether.

In fact, Penny said those cost concerns could be a blessing in disguise for certain markets, such as his home base: Washington, D.C. The city’s plethora of free museums and entertainment options centered around the National Mall are a draw for those looking to keep costs low while still traveling somewhere new.

A Holiday Inn hotel, owned by Donohoe Hospitality, that sits one block from the National Mall in D.C.

“That's a competitive advantage for this market that we think will serve us well and ease inflationary times,” Penny said.

The nation’s capital also benefits from international travel, Penny said, which he hopes will pick back up as foreign restrictions ease.

Other markets stand to benefit from the return of international travel. Bara said that California’s Bay Area and Hawaii have both suffered from a lack of tourists from Asia, but that is beginning to change.

Japan, which imposed a 14-day hotel quarantine on all citizens returning to the country at the start of the pandemic, lowered that restriction to five days, and beginning on June 1 vacationers returning from certain countries can skip restrictions altogether.

Accommodating those returning travelers will be a challenge. AHLA President Chip Rogers said that the number of job openings in the hotel industry stands at roughly 1.5 million, compared to 1 million in 2019. He said that because many of those 2019 job openings didn’t get filled, though, the staffing hole the industry finds itself in may be closer to 2 million unfilled positions.

“If you've ever thought about a career in the travel industry, now is the time,” Rogers said. “There is a massive hiring spree.”

Bara said her hotels have had to get creative beyond just boosting wages when hiring for positions, offering incentives like a $100 food and beverage voucher just for those looking to interview.

“Sometimes I feel like I’m selling a timeshare,” Bara said.

The shortage has also focused her hotel managers on tightening their staffing fundamentals, ensuring that employees get their schedules in advance and not overscheduling them because burnout is costly.

Hotels are also trying to do more with less, outsourcing as many jobs as possible that can be done externally. In some places, that means allowing food-delivery services to replace room service, keeping staff limited to essential roles like cleaning and maintenance, Rogers said.

Some hotels are leaning on outside services to provide food and beverage options as staffing challenges persist.

“If someone else can provide the labor for food, then that's the best option right now,” Rogers said.

Staffing concerns aren’t just impacting a hotel’s day-to-day management, they’re also impacting future deals. Bara said when she’s underwriting deals for hotel properties in any U.S. market today, she’s incorporating higher wages above inflation to take into account the difficult labor market. 

“If certain markets have other options, then that becomes more challenging, we have to sweeten the pot even more, or if a market isn't as deep and we're just competing with even other hotels for the same worker,” Bara said. “I don't think there's a market out there that hasn't been impacted.”

As Bara looks ahead, she still sees opportunities for deals in the sector’s uneven recovery. Because business travel has lagged, she believes there are urban properties in cities like New York and Chicago that are undervalued and may represent an opportunity for investors.

But she cautions that in such an uncertain world, no market is immune to the challenges brought on by two pandemic years and the financial uncertainty to come.

“I don’t think anybody knows what’s going to happen in the next few months just because there’s so much going on in the world,” Bara said. “I think people are taking a step back and trying to be a bit more cautious.”