As Hotel Rates Recover, Amenities Might Lag

Surging leisure demand combined with labor shortages are creating a uniquely challenging rate environment for corporates.

Pent-up demand has many business travelers eager to hit the road, but they won’t be alone. They’ll share the road with leisure travelers, for whom the prospect of seeing the people and places they missed during the pandemic is proving impossible to resist. 

The surge in leisure demand has helped drive hotel rates close to pre-pandemic highs for some hotel brands. Sunny fourth-quarter hotel earnings pushed forecasters to speed up projections for full recovery. Commercial real estate service CBRE in March revised its recovery timeline for the U.S. hotel industry from 2023 to 2022—projecting rate, occupancy and revenue per available room to reach 2019 levels this year. 

Globally, domestic leisure travel is driving the recovery in most markets, similar to patterns emerging in North America. That said, overall performance recovery will be somewhat slower, according to hotel industry data firm STR, with full recovery in the Middle East not expected until 2023, Europe in 2024 and Asia-Pacific in 2025. But particularly in Europe, rate will rise first—before occupancy and RevPAR—led by the U.K., which already has seen rates bounce close to pre-pandemic highs, according to the researcher. 

As is the case in the U.S., the hotel industry in the U.K. and Europe has been buffeted by macroeconomic challenges, including supply chain and labor shortages, which are expected to continue even after governments ease two years of travel restrictions and corporate travel gets a jumpstart in 2022. The result of increased labor and supply costs, say many industry observers, will be higher rates passed along to corporates but potentially decreased on-site services as well. Business travelers and travel buyers will need to adapt. 

Operational Challenges Linger

Travel managers surveyed last fall in BTN’s 2021 Hotel Survey pegged onsite food and beverage availability and lack of onsite staff at the front desk or in other roles like housekeeping as their key concerns for travelers hitting the road. Those concerns may linger as hotels and onsite vendors continue to spin up their operations with fewer workers.

“A lot of hotels haven’t opened up [all their] rooms yet,” American Express Global Travel Business EVP of global clients and general manager for the Americas David Reimer told BTN in March. “Some hotels aren’t at full service because they can’t get team members to help run the hotel.” 

Then-CEO for Best Western Hotels David Kong last year told BTN that intermittent housekeeping for multi-night guests likely would become normalized for much of the hotel industry, due to staffing level changes and ongoing challenges. “If you need to have a housekeeper clean the room every day, you’ve got to have a lot more people, you need more staff. We can’t hire the people. I mean, we were lucky to have people show up. It’s very tough,” he said. He also noted reduced breakfast buffets at Best Western properties due to local regulations and the number of workers that would be needed to execute a buffet-style set up in certain markets, adding that Best Western was working to deliver the full breakfast experience as soon as possible.

But the challenges are the same for restaurants that operate onsite, which often are independent vendors. Seven out of 10 restaurant owners in the U.S. reported worker shortages in a survey conducted in February by the National Restaurant Association, a U.S. trade group, and they didn’t expect the situation to improve this year. In the U.S., the labor issue for hotels and restaurants is compounded by reduced immigration during the past two years. In the U.K., in particular, reduced participation from EU-based workers due to Brexit complexities has hamstrung the local hospitality market. 

Hotels are working to get staffing levels up to meet demand. 

“A big topic of conversation at all levels within the Marriott organization is to ensure that we have the staffing capabilities to service the guests and their expectations coming to the hotels,” said Marriott International VP of global sales for the U.S. and Canada Kathy Mouw. “We’ve done job fairs, and we’re offering different incentives to attract the right talent and to retrain and retain what we have.”

Both Mouw and Accor SVP of guest experience for North and Central America Andrea Torrance said current staffing levels are different per market and are based on returning business levels. In Boston and Chicago, where the return to business travel has been slower, Torrance said, “hotels there probably look a little dormant.”

“Some hotels aren’t at full service because they can’t get team members to help run the hotel.”

Amex GBT’s David Reimer

Could Tech Mitigate?

Even before the pandemic, hotels were emphasizing technology, particularly apps. Touchless technology “was happening before the pandemic. Now, if you can do a contactless check-in right down to the room key, I think people will take a digital form anyway they can,” said Amex GBT’s Reimer. 

At the height of the pandemic, many felt the less contact the better, he said, and some have become accustomed to that approach. “People don’t necessarily want to talk to people,” Reimer added, “so if you can move faster and get done what you need to do without making a phone call, without having any interaction, a lot more people will choose digital first.”

Mouw added that apps can do more than check travelers in and out, citing keyless door entry and housekeeping and service requests. 

Even so, digital strategies and guest expectations depend on the market, noted Torrance. Especially in the upscale and luxury hotel tiers, digitizing the experience may go against the brand mission and the guest expectation. “In the first year, people were so ready for [apps]; they didn’t want to talk to anybody. People now are striving for that human contact and to actually see a smile.”

What About Amenities?

In BTN’s fall Hotel Survey, buyers voiced concerns about reduced sales staff and their hotel partners’ ability to negotiate new contracts, or renegotiate or mitigate existing preferred partnerships based on the realities on the ground. 

“Where we haven’t had that steady level of demand, maybe we don’t have all the sales staffing back,” said Mouw. “But at least for the U.S., the sales staff is pretty much back. We’ve had to make sure we can respond to leads.”

Smaller or independent properties, on the other hand, “work with diminished sales teams, and sometimes with no sales teams at all,” said HRS SVP global supplier relations Lukasz Dabrowski. “We work with plenty of independent hotels that do not have commercial workforces, and they’re making a tremendous effort to live up to expectations.”

Whether a big brand or an independent, not getting what you negotiated is a situation that doesn’t sit well with ConferenceDirect VP and team director and strategic meetings consultant Deborah Borak. 

“Sometimes restaurants or club lounges aren’t open,” said Borak. “What does that mean if you have breakfast or club access included in your rate—are you just out of luck, or can you negotiate room service delivery or another option?”

That uncertainty was one reason a travel buyer for a major energy company chose to renegotiate the company’s entire hotel program for 2021—despite industry advice to roll over rates for the pandemic year. The buyer said the company took a very different approach to the request for proposals, targeting market rates with the help of Yapta (now Coupa) and Tripbam data and making some allowances for strong leisure markets. The buyer presented those requests in each market to half as many hotels than were in the program before and included a mix of last-room available and regular rates. The approach alleviated potential resource strain for the targeted partners and sought to push total volume to fewer hotels. 

The company achieved a 20 percent reduction in overall hotel rates in 2021 compared to 2020. After the first year with the new program, the buyer leaned into strong partnerships to roll over those 2021 rates to 2022. 

“It wasn’t like flipping a switch,” said the buyer. “There was a lot of engagement and discussion and understanding what would make it easier for my partners. I’m super-fair, and I’m very transparent. That goes a long way.” 

That’s the kind of process many buyers may be relying on in 2022: leaning into strong partnerships for the best win-win opportunities. In companies where business travel is rebounding—and there are many of them—suppliers are eager to respond. 

And while achieving full pre-pandemic normalcy will be a challenge that hotels continue to face in 2022, said Torrance, “Even if we can’t provide what was contracted three years ago … I think we can always find solutions.”