If your favorite $200 a night hotel became $350 in the last year, or your favorite $500 became $1000, you’re not alone. I know that doesn’t help in the slightest, but it’s true.
Hotels have increased in price in 2022 at a staggering pace, greatly outpacing many other areas of inflation. And yes, there are plenty.
Asking a hotel group CEO, you’d probably hear that the reason for the shocking prices which hotels are snapping up, is that their labor costs have gone up and that we’re all doing our part to make sure mouths are fed. Soon thereafter, the violins come out, the heartfelt story of a one on one between the same CEO and a hardworking cleaner is given with earnest tone of voice.
We all wipe the collective tears away, and swipe our card to cover the now 2x more expensive hotel providing half the usual service. Welcome to travel is 2022, with no sign of change for 2023.
But if you ask Paul Donovan, who happens to be the chief economist at UBS whether hotel CEO’s are singing an honest tune, he’ll tell you it’s pretty much BS. Donovan crunched the numbers and found that it’s really just profit driving prices up.
Shareholder Profits Are Driving Hotel Prices
The Guardian wouldn’t typically be my first choice for balanced financial news, but in this instance there’s a pretty credible look offered. As people battle over strikes and wage issues, there’s a renewed focus on root causes for rising costs of living.
The UBS example from the hotel sector is an interesting one, since it explains why money just doesn’t seem to go as far, with no instantly clear or logical reason behind it. Speaking on Donovan’s findings, the Guardian offers…
He examined the rise in wage costs across the hotel sector, adjusted for productivity since the end of 2019, and found it was between 5% and 6%. Restaurant and hotel prices had risen 16%.
Donovan found hotel operators were using fewer staff to improve productivity, limiting the impact of wage rises. This rise in efficiency was being channelled to shareholders, not consumers, who were fed a story that prices needed to rise to cope with rising wage bills.
More broadly, corporations in the US made quarterly profits of almost $3tn in the three months to the end of September, up from $2.4tn two years earlier and an average $2tn in the eight years before the pandemic.The Guardian
Pay More, Get Less
Basically, hotels are making fewer people do “more” and therefore even if people are being paid more, there are fewer people being paid overall. So even when factoring in what could be a generous 5-6% increase in labor costs, hotels charging an average of 15-16% higher rates means at least 10% is just wider profit margin than before.
Hotels are making more now off of guests than they were in the times before. Wild demand, in many cases pent up for years; as well as an expectation that everything now costs more has helped fuel this without question. So at least the experience is better, right? Wrong.
There’s nothing wrong with increasing profits, but it’s fascinating to see glaring margin rises occur in such short order, without a product improvement. My issue is not with increased prices necessarily — markets drive those — but in diminished experience.
Give Back To Guest Experience
I think it would be really hard to argue of a case where a specific hotel is offering much better service or amenities than prior to the pandemic. Many hotels also replaced daily housekeeping with greenwashing ideas of “optional” housekeeping, where you need to specifically request it to get it.
I’m not a climate expert, but I’m willing to believe that someone feather dusting a room or simply making a bed isn’t going to change the environment. It certainly will change the number of cleaners you need to employ though! Washing towels, that’s a different story.
Next time you check into a big box hotel, just know you’re paying more because the shareholders are profiting more, not because their costs are higher or the service will inherently be better. It’d be great to see guest satisfaction statistics parallel profits!