Avoiding the race to the top 

We’re always being told to live in the now, stop and smell the flowers and be ‘present’ in our lives. Beware the vanishing sands of time! Tomorrow you might be dead! It’s inspiration wrapped up in terror.

Here in hotels, we’re not new to inspiration wrapped up in terror. Every hotelier who has ever dabbled in ‘lifestyle’ knows that today’s striking chair in a lobby is tomorrow’s past trend. 

But it seems that, for once, hotels are living for today and nuts to the future, but it might not be the liberation they were hoping for.

Anyone who has tried to book travel at the moment will notice a troubling phenomenon; everything’s booked and everything that isn’t is gopping expensive. The ‘there are no trains’ booked up. The €500 each for a two-hour flight expensive. And in hotels, rates which make you wonder whether they are not, in fact, timeshare and that after your stay you will forever own that room. 

Stories are starting to come out about hotels giving up on their revenue management and letting rates ride as high as they can, with demand backing them up. And why not? It’s been a difficult couple of years and why not make hay while the sun shines? Embrace the current! 

Future loyalty or likelihood of anyone ever using a hotel again appears to be a thought for another day. It’s not as easy as all that. Many of the hotels who are letting the numbers spin on the dial are also unable to open all their rooms because of staff shortages. This is not profiteering, but an attempt to break even at the risk of breaking the guest in the process. 

As people with eyes have noticed, the price of everything is going up. Hotels will, like all of us, have to address this. The inflation crisis is a problem for hotels not only because consumers will be cutting back on hotels, but because they have their own bottom lines to think of. Hotels are frequently warned not to race rates to the bottom when desperate for guests, now they are being asked not to race to the top.

On the group’s Q1 earnings call, Hilton CEO Chris Nassetta told analysts: “While macro risks and uncertainty exists, forecast for economic growth remain healthy. Additionally, our ability to reprice rooms in real time creates a natural inflation hedge. And as demand has picked up, we have certainly been able to do that, and we expect that we will continue to be able to do that. 

“I think as the year goes on, we expect the largest part of revpar growth to come from rate growth. We obviously expect to see occupancy growth as well. But I think net-net, it will be majority driven by rate.”

Clearly Nassetta is not encouraging sky-high rates here, just a return to the glory of 2019. But his owners will be facing costs which will not be familiar to fans of 2019. 

At Marriott, Anthony Capuano, CEO, told the assembled: “As always, we’re keeping a close eye on wage and benefit inflation, but we’re optimistic that our cost reduction efforts could mitigate inflation in future years.”

CFO Leeny Oberg fleshed this out, adding that the group’s efforts to create leaner operations meant that even with revpar down compared to 2019, managed margins were similar. She added: “We expect to continue to see gains in occupancy as we move forward, which will be helpful. We will keep some of this productivity gains, maybe 200 basis points around the world to help us offset inflation. But we’re really glad that we reprice our rooms every night in terms of ADR, because there’s no doubt that that’s been a big help in managing these margins.”

So where do hotels find themselves? In a state not unlike that during the pandemic. The pressure is on to cut the cost of operations down to the bare bone, only now there are guests staying, not just one team member roaming the halls keeping the taps from seizing. 

The hope had been that once travel was open again, lost profits could be made up. But that time is not now and hotels must draw on the lessons learned during lockdown and consider factors such as; technology, to brand or not, to F&B or not, to shake up asset management or not and, for some, to continue or not. 

Scroll to Top