Hotels are struggling to implement cost cuts without disrupting the service levels to which their guests are accustomed, but some clients are taking notice.
Declining room rates, occupancy and revenues have forced hoteliers to make some tough decisions. Initially, hotels slashed headcount to cut costs, and the ongoing slump in the economy caused them to reduce restaurant operating hours, curtail or eliminate transportation, and shave amenities. Swapping name-brand toiletries for generic ones and limiting their number may seem trivial, but it can affect guest satisfaction dramatically, especially if there are fewer employees to ensure that the guestroom is always stocked.
"Our travelers, including myself, are having customer service issues at most hotels. The service levels have fallen short with the current economic crisis," said Bechtel corporate travel supervisor Julius Dakey.
Although others said they have not noticed changes, hotel executives themselves have reported reductions. "Everyone is trying to make cutbacks that aren't noticeable to the customer," said J.D. Power and Associates vice president of travel and real estate industries Paula Sonkin. "Even in the luxury properties, you don't want to cut back in the areas that are most important because you don't want to give people a reason to be dissatisfied. Satisfaction is your differentiator to your competitor."
"How much are cutbacks worth?" asked Bob Langsfeld, Corporate Solutions Group partner. "I wouldn't want to worry about getting ready for an event because I have nothing to shower with. Where is the breaking point?"
Hotel managers are trying to approach but not cross that line.
Omni Hotels made subtle service cuts such as offering one room key to single guests instead of two, altering the temperature in guestrooms and limiting the garnishes on food and beverages. Dan Piotrowski, general manager of the Omni Berkshire Place in New York, said the brand made cuts that would generally go unnoticed by a guest.
[PULL_1]"If you start taking away the things that are important to guests, that's when they start looking down the street and are willing to pay $5 or $10 more to have those amenities," Piotrowski said. "Then six months down the line, it's tough to get that customer back."
Many jobs have been lost at the property level, forcing some hotels to eliminate or reduce concierge services. The new redesign of the Courtyard brand by Marriott replaces concierge service with touch screens (called GoBoards) in lobbies where guests can find local details, directions, weather and information from USA Today, Virtual Earth and other Web sites.
Marriott International executives in late April said that along with layoffs, the company made sweeping changes throughout its brands, including removing newspapers at guestroom doors, shutting down whole floors, consolidating suppliers, shortening restaurant menus and reducing restaurant and retail outlet hours, according to CFO Carl Berquist.
"Our first efforts to cut costs were at the corporate level where we reduced overhead, which had no impact on the guest experience," according to a guest column for USA Todayby Starwood Hotels & Resorts CEO Frits van Paasschen. "Our efforts to reduce costs in our hotels have been aggressive, but we've worked hard to focus on things that do not negatively impact the guest experience, and we measure this every day. If there is even the dimmest silver lining to this downturn, it's that with fewer guests we can deliver better service and truly connect with them, which bodes well for us upon recovery."
[PULL_2]Strategic Hotels & Resorts, owner of 19 luxury and upper-upscale hotels that include the Ritz-Carlton Half Moon Bay, and Fairmont and InterContinental properties, stated in a recent financial filing, "In most cases, we are in advanced stages of implementation of hotel-specific contingency plans designed to reduce costs and maximize efficiency at each hotel. This includes, but is not limited to, adjusting variable labor, eliminating fixed labor, reducing the hours of room service operations and other food and beverage outlets, and reducing, when possible, the implementation of certain brand standards."
Sunstone Hotel Investors Inc., owner of 44 upper-upscale hotels that include properties in the Fairmont, Hilton, Hyatt, Marriott and Starwood portfolios noted in a May financial filing, "We continue to work with our operators to identify operational efficiencies designed to reduce expenses while minimally affecting guest experience." The company also acknowledged "there are limits to how much our operators can reduce expenses without affecting the competitiveness of our hotels."
Not New, Just Worse
Although the problem has worsened in recent months, the challenge of "trying to cut costs during economically difficult times while still attempting to meet high customer expectations" is not new, as evidenced in J.D. Power's North American Hotel Guest Satisfaction Index Study. According to the latest version of the study, released in July 2008, "Overall satisfaction with hotels is down notably." The study found that four of the six major hotel segments--upscale, midscale full service, midscale limited service and economy/budget--declined in overall guest satisfaction, compared with 2007. J.D. Power had gathered feedback from more than 53,000 guests who stayed in hotels between May 2007 and June 2008 and found that problems with hotel/room maintenance were more common in 2008 than 2007. Deteriorating maintenance was one of the five most frequently reported issues by guests across all segments.
J.D. Power's Sonkin in an April 2009 interview said hotels during the first half of 2008 noticed that customers were booking lower-tier properties, signaling growing economic challenges. "You don't want to skimp in certain areas as people are moving down. Customers still expect a clean room, they still expect everything in working order, they want Internet access and wireless Internet access not only in their rooms but across the whole property," Sonkin said. "If those things work, then you can gain some loyalty even from someone who is coming from a [luxury property] to an [upper upscale] or a [midscale]."
Although the hotel industry in early 2008 had yet to see average daily rate, occupancy or revenue per available room declines, it was just a matter of time in the sense that all businesses were beginning to suffer, she said.
"The facts from an economic perspective are that the hotel industry was riding pretty high for the first half of 2008," said Scott Berman, PricewaterhouseCoopers principal and U.S. industry leader for hospitality and leisure. "Business was steady, rates were holding and then early in the fall the financial services industry started to experience its bad news, and the trickle-down effects impacted hotels immediately. That domino effect continued to the point where major Fortune1,000 companies had canceled all of their meetings in major resort markets for the next two years.
"The hotel industry is going through its umpteenth contingency plan," Berman added. "When you have a lot fewer guests and those fewer guests are paying lower room rates, the expectation is there is going to be some drop in satisfaction. Naturally, guest services and conveniences are going to be impacted."
Omni's Piotrowski said that during the past four or five years--as the hotel industry's revenues climbed--competition grew stiff among hotel brands to the point where everyone tried to offer the most amenities, leading to a glut of items that often go unused by the guest.
"In times like this, you really look at that and say, 'Is that amenity really affecting the customer's buying decision or experience? Does that particular amenity or service represent your brand and have a positive impact on the customer experience?' The ones that don't, those are the ones that you look at and say, 'We can do without it,' " Piotrowski said.
At Marriott, first-quarter 2009 management wages were down approximately 10 percent, and hourly productivity was "way up," Berquist said. He noted that employees were working in multiple departments and often at multiple hotels in order to contain costs.
Many Factors Impact Service Perceptions
Corporate travelers are noticing that the response times to various hotel issues are delayed as a result of staff cutbacks, said AllianceBernstein global travel manager Claudia Hurtado. Carol McDowell, manager of corporate travel services for the Financial Industry Regulatory Authority, said travelers are experiencing customer service issues with front desk staff. Many meetings sales managers have been "let go," according to Education Testing Service senior corporate meeting planner Diane Deidloff. "It appears that sales managers are wearing more than one hat and increasing their responsibilities," she said. "The customer service side has not been affected, but what is offered has been."
Ovation Travel Management executive vice president Michael Steiner said: "It's a buyer's market, which is allowing our clients to stay at pretty much the same properties at a lower price point, so we haven't seen a lot of trading down. We have seen the average room rate decrease and the per diems go down, and we have heard from some travelers that the level of service from the higher-end properties has come down a bit--not drastically yet, but if things continue it might. We have some really tight relationships in key markets where we are getting feedback from clients on which hotels are delivering the service that our other clients feel is appropriate, and we're directing our clients as best we can to those properties."
According to American Automobile Association officials, "[In] our travel department, we haven't heard anything from clients complaining about declines in service. At a recent five-diamond (the highest rating) conference, hoteliers from these properties made mention that while there have been some staff cuts, they are working very hard to maintain the high standard of service with remaining staff."
"I haven't heard anything from travelers on staff levels in hotels," agreed Michael Hall, manager of global travel services for Johnson Controls. "Of course, with the economy the way it is, and our company laying off at the rate it is, no one seems willing to raise their voice to protest anything these days."
Management Alternatives president Carol Ann Salcito said, "None of our clients have mentioned a decline in service. I think that is mainly due to the fact that they are happily receiving reduced rates from so many of their preferred hotels."
Starwood's van Paasschen claimed customer satisfaction numbers were "at a record high across all brands." During the company's first-quarter earnings conference call, van Paasschen said: "We've simultaneously driven record guest satisfaction scores and flow-through even better than our 50 percent target." Starwood did not return calls and emails seeking details on how it measures satisfaction.
While experiences may differ, no one argues with the premise that hotels have to limit cost cutting or jeopardize guest satisfaction. Buyers also should be cognizant of the need to balance guest satisfaction, rate and current market conditions, noted several sources.
"You as a travel buyer really want that strong supplier base," said Jan Freitag, vice president of Smith Travel Research. "You don't want to beat [suppliers] when they are down. The travel buyer is in the driver's seat, yes, and you can take advantage of that, to a degree. But if you have a group booked into a property, and your group shows up and the property is in foreclosure--that doesn't help anybody. Just be mindful of what you are trying to negotiate and not try to extract every last ounce of value from the negotiation. You want a supplier that is going to be with you through this downturn and then a couple of years into the upturn.
"Are service levels going to be affected in the upper end hotels? No, they are going to cut the back of the house as much as they can. But if service delivery suffers, you aren't going to go back to them when you have the money," Freitag added. "People are getting creative on how they are looking at service delivery and how they can impact their bottom line without impacting the guest service."
Going Green For Savings
"One of the positive outcomes is more folks are moving green faster," said Fred Karl, associate director for global travel at Shire Pharmaceuticals Inc. "These green initiatives save labor hours to clean and service the product, energy to run the washers and dryers, and cost on product to clean the items; lights are being turned off more ... small things like that all add up at the end of the month."
Marriott's Berquist said the company moved in this direction during the first quarter: Many properties have been encouraged to shut down floors, thus conserving energy.
To help its general managers measure, manage and report energy usage, InterContinental Hotels Group encourages them to use an online tool that also lists actions the hotels can take to reduce waste and the consumption of energy and water, according to IHG. If all 4,000 hotels in the company's portfolio utilize this, hotel owners could save about $200 million a year.