Rising costs threaten hotel margins

Rising costs threaten to squeeze hoteliers’ margins despite the strength of the recovery in travel this summer.

Asli Kutlucan, chief development officer at hotel management company Cycas Hospitality, said: “Energy costs are at an insane level. Every piece of equipment in hotels is consuming energy. Does every room need to have a minibar and does it need to be on the whole time?”

Kutlucan told a webinar hosted by hospitality data analyst STR and commercial real estate consultancy CoStar: “Occupancy is holding. Rate growth is very strong. But the pain [from] cost pressures is everywhere.”

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STR director Thomas Emmanuel reported: “Occupancy is back [and room] rates in the US and Europe are 15% up on 2019. The higher the class of hotel, the stronger the rate recovery. The lower the class, the stronger the occupancy recovery.”

Bookings in London, Paris and Dublin “indexed above 2019” in early June, he said. But Emmanuel warned: “There are storm clouds ahead around the cost of living.”

Gonzalo Aguilar, Marriott International chief operating officer for Europe, agreed saying: “We start to see pressures around inflation and energy costs. We see strong bookings for summer. Rates continue to grow. But maybe we’ll have different concerns as we get to winter. We’re looking where we can to re-price inventory, but there will be a limit.”

Yannick Wagner, Accor head of development for Germany, Austria and the Nordic countries, argued: “The comeback has been impressive. We have record bookings. The luxury segment is performing well with extremely high rates. The budget segment has also performed well. The big question is what happens beyond the next three months? November is a black box. Everybody is wondering ‘will Covid come back?’”

Sophie Perret, senior director at hotel consultancy HVS, told the webinar: “We’re between two dynamics. There is nice Revpar [revenue per available room]. But costs are building as we speak – the cost of fuel, of goods, of payroll. It’s very tricky.”

She noted the shortage of staff meant “hotels at the luxury end are tending to cap capacity so they can deliver the service customers expect”. Perret argued: “We need to consider higher salary rates.”

However, Borivoj Vokrinek, head of strategy advisory and research at commercial real estate service provider Cushman & Wakefield, insisted hospitality is suffering “an immigration problem, not a labour problem”. He argued: “We need governments to relax immigration rules.”

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