As we get ready to flip the calendar to a new year, we are reflecting on the hospitality industry in 2022, which has proven to be a dynamic and interesting year. Many of the challenges that plagued the industry in 2021 still exist but in many instances to a lesser extent. By year-end new challenges such as the highest inflation rate in 40 years and the fear of a recession have started to have an impact. But the industry remains flexible to the needs and desires of the guest and continues to pivot to meet the challenges of the future.
H&LA’s consultants have worked on many assignments in 2022, bringing with them the opportunity to see firsthand how some of these new concerns and trends are affecting all segments of the industry. While the hope is that some trends will not last, like inflation and the labor shortage, travel trends continue to evolve. How the hospitality industry will respond will impact the growth of the industry in the coming years.
- Labor shortage. Regrettably, this is a retread from 2021. The national labor shortage continues to plague all aspects of the hospitality industry. According to recent figures from the Bureau of Labor Statistics, the industry is still down approximately a million jobs from February 2020. Much of the labor shortfall is in the housekeeping and culinary departments. With unemployment at 3.7% and visa restrictions limiting immigrant workers, the hospitality industry faces a diminished labor pool. While surveys indicate that wages rate as the most important consideration in returning to hospitality jobs, changes in employment culture, including better flexibility and work-life balance as well as professional development, can serve as powerful incentives to attract employees. Hoteliers have needed to move toward a labor structure where employees work across multiple positions to afford greater flexibility with labor planning, expanding cross-training, and increasing productivity. Being flexible and investing in training and development opportunities are important factors for staff retention. Hotel operators note that a motivated, satisfied, employee provides better customer service, repeat business, and value for the guest.
- Wage Increase. The hospitality industry has had to come to grips with the fact that competition for labor is not just between hotels, restaurants, and attractions. Many employees laid off during the pandemic have moved on and are not expected to return to the industry. Labor shortages forced hotel and leisure properties to increase wages as they competed for workers. According to the Bureau of Labor Statistics, the average hourly wage for leisure and hospitality workers is $20.51 as of November 2022, up over 22% from November 2019. In addition to marketplace competitive wage increases, 28 states, the District of Columbia, and Puerto Rico have increased their minimum wage since 2019. Additionally, 19 states and the District of Columbia have indexed their minimum wage to inflation, meaning the wage is automatically adjusted each year for increases in prices. Lastly, 46 localities have minimum wages above their state minimum wage. For the hospitality industry which has tight profit margins, this becomes an ever-increasing challenge.
- Supply Chain Issues. While labor issues continue to take center stage, the abatement of supply chain issues has not yet fully materialized. Developers continue to struggle to get goods from manufacturers abroad. Freight costs have increased and there is no expectation that 2019 prices will return. Hotel operators tell us that delayed upgrading or property improvement plans (PIP) is a common theme at many properties. The practice of looking for discounts or bargains late in the process is gone due to the long wait times to get materials and the costs and difficulties connected with lengthening projects. Supply shocks were not limited to developers. The suspension of avocado shipments early in 2022 due to concern for food inspector safety in Mexico, the reduction in poultry availability, especially turkeys at Thanksgiving, due to Avian influenza, and the war in Ukraine’s impact on food supply worldwide are just some of the headline-making events that have impacted operations. Pre-planning and remaining nimble are the needed ingredients for successful projects and operations over the next year.
- Inflation. The Consumer Price Index (CPI), which measures the cost of a basket of goods and services, peaked at 9.1% in June 2022 and has been on a slow decline since as it was measured at 7.1% year-over-year in November 2022. The inflation level is on a downward trajectory, but it is still well above the Federal Reserve’s target inflation level of 2%. While rising prices have impacted the spending patterns of households, the leisure traveler has continued to express the desire to travel. However, according to an article in the New York Times, companies are beginning to limit travel as the economy slows, with some banning nonessential travel. The Federal Reserve’s policy to combat inflation is to raise interest rates. Since March 2022, the Federal Reserve has raised its benchmark interest rate by 425 basis points from 0.25% in March 2022 to 4.50% in December 2022, the highest level in 15 years. The goal is to calm the inflationary drive, which is eating into consumer purchasing power without causing a recession. Comments from Federal Reserve Chair Jerome Powell suggest that additional increases in the benchmark interest rates are likely driving the rate over 5.00%. While the monetary policy may or may not cause a recession, it is putting pressure on the construction lending markets. Banks and debt lenders have become more selective as the higher construction costs are placing pressure on leverage. Developers who found projects attractive at the beginning of the year are having to take a long look at the viability of the same project as the year comes to an end.
- Bleisure Travelers. After spending most of 2020 sequestered in their homes, leisure travelers burst onto the travel scene in part supported by government incentives. A side impact of the pandemic was individuals’ desire to seek a better work-life balance. An example of this work-life balance is the extension of business trips into leisure days before heading home or ‘bleisure’ travel. Travelers take advantage of flights and hotel rooms partly paid for by their employers to so some sightseeing in the destination area. A 2022 study conducted by American Hotel & Lodging Association found that 89% of those surveyed wanted to add leisure time to their next business trip. Sixty percent of global business trips turn into bleisure trips. For hotels, a bleisure traveler tends to stay at the same property in which the business trip or conference took place. In a study conducted by Expedia, a bleisure traveler will spend 3.7 nights at the business conference or trip and additional 2.6 nights enjoying leisure activities substantially extending the length of stay. Although hotels are securing additional nights, it also raises the number of occupants per room, especially during the week. Such a practice puts additional demand on housekeeping and food and beverage service. While road warriors have engaged in this practice for years, the desire for a positive work-life balance suggests this trend will not go away.
- Group Travelers. In response to the pandemic, group activity came to an abrupt halt in 2020. The first to return to the market were social groups, such as weddings and reunions, but not necessarily to hotel ballrooms. Many were held at outdoor venues with limitations on the number of attendees. As restrictions were lifted across the country, commercial and association groups introduced blended conferences that accepted live attendance but also offered Zoom-style attendance. While the trend of blended meetings has waned, the need for state-of-the-art technology has remained. In 2022, conference demand made a comeback. Conferences attended by members of H&LA in 2022 showed strong positive numbers with the Hunter Hotel Investment Conference welcoming over 1,700 hotel industry participants in March, the World Waterpark Association Conference hosted a record attendance of over 1,500 attendees in October, and the IAAPA Expo registered nearly 37,000 attendees in November. Group and business travel is showing an overall steady recovery with 4.3 million group room nights already booked for the first half of 2023 according to Amadeus. The desire to meet face-to-face in a conference setting is re-establishing itself and can be expected to continue to increase in future years.
- International Travelers. According to the US Travel Association (USTA), the US travel market has rebounded faster than international markets guided initially by strong leisure demand. In 2023, commercial transient and group activity is poised to offset leisure travel should it taper off. But the international traveler continues to lag behind pre-pandemic levels. The strong US dollar makes US tourist destinations more expensive relative to comparable international target markets. However, the USTA points out that the arrival of international travelers would be stronger if the wait time for visas could be reduced. Potential visitors from the top 10 countries to the US can wait 400 days on average before being granted permission to travel to the US while some countries can wait as long as 800 days according to the USTA. It is estimated that the delays will cost the US approximately 7 million international visitors and $12 billion in 2023.
- New Destinations. Being tethered to our devices during the pandemic fostered an explosion of travel opportunities once restrictions were lifted. Common themes that have emerged for travelers are led by the ability to unplug from their devices. Luxury glamping experiences and wellness retreats have shown strong demand since the restrictions have eased. While reconnecting with family remains a motivator of travel, such trips are not just to Gramma’s house but include multigenerational trips to theme parks or once-in-a-lifetime locations. Immersive nature experiences are high on the list for younger travelers. With the rising cost of travel, many will continue to look for opportunities closer to home, making staycations continually popular.
- Technology. Enhancing the guest experience needs to be a driving force for all hoteliers. A positive guest experience leads to stronger loyalty, positive online reviews, new reservations from positive reviews, and return visits. The need to innovate is a must to achieve profit goals as the hospitality guest is changing. For example, the availability of EV charging stations is a deciding factor for EV drivers. It is estimated that 26.4 million EVs will be in use by 2030 and the hospitality industry needs to be prepared for this trend. Most new hotels that we have visited have charging stations while many older hotels are introducing them. Contactless check-in experience and virtual concierge services continue to be integrated into the hotel industry. Hotel chains have developed apps that serve as a point of guest contact, incorporating incentives within their loyalty programs, and allowing guests to engage with past or future hotel stays without additional stress on staff. The usage of chatbot technology has grown rapidly by both brand and independent hotels.
- Sustainable Travel. Studies have found that over 75% of travelers will try to stay at an eco-friendly hotel. According to a Bookings.com survey, over 50% of travelers would feel better staying at a hotel with a sustainable certification. There is a growing trend in travelers looking to avoid high-demand destinations, with a third looking to travel in the off-season and over a quarter choosing to go to less popular destinations. Commercial Property Assessed Clean Energy (C-PACE) financing has developed into a valuable tool in securing financing for the hotel industry. The vehicle provides financing for improvements that provide a sustainable benefit.
In 2022, the hospitality industry continued to be influenced by lingering impacts from the COVID-19 pandemic, such as labor shortages and supply chain issues, but the market has taken steps to address most challenges. But as always, new challenges have arisen with high inflation and the increasing cost of money. The leisure traveler continues to look for dynamic alternatives and a better work-life mix in their future. Many of these trends and issues will continue into 2023, making it another year of challenges for the industry. However, as the industry has proven time and time again, the ability to be dynamic and pivot towards those challenges and trends will serve the hospitality sector well heading into a new year.