If the atmosphere at The Lodging Conference, held in Phoenix at the JW Marriott Desert Ridge Resort, is any indication, the hospitality industry is ready for the return of travel.
“With 1,900 people in attendance, our second-largest attendance ever, and perhaps the largest of any hotel development conference this year, it is a clear signal that our industry is getting back on track,” said Harry Javer, producer/founder, The Lodging Conference. “Everybody was upbeat and optimistic—and thrilled to see their colleagues, clients and friends in person.”
While the general tone of the conference was optimistic, there are still challenges ahead for the industry as it returns from the COVID-19 pandemic.
What the CEOs are saying
During the opening general session, “A View from the Top,” moderator Chip Rogers, president/CEO, American Hotel and Lodging Association (AHLA), surveyed both the audience and the panel of CEOs on the issues facing the industry.
All agreed that the current labor woes are still a major concern. There aren’t enough people interested in filling the jobs that are available.
“There’s a simple solution to this: immigration reform,” said Tyler Morse, chairman/CEO, MCR. “There are millions of people that want to be in America and a lot along the Southern borders. They want to come here tomorrow. And we could fill a lot of these 10 million positions in a heartbeat… We are killing ourselves from a wage-rate perspective rather than opening up the parking gate on the Southern border and giving people the American dream.”
Some CEOs offered that changes must be made to the basics of employment, with Mike Deitemeyer, president/CEO, Aimbridge Hospitality, saying that offering flexible schedules for employees will help recruit people to the industry. “We’re working hard to appeal to folks who historically haven’t worked in the space because of rigid structure and times,” he said. “We’re finding some level of success with that. It’s training, it’s benefits. We’re rolling out a new plan to our part-time employees trying to appeal to them and once again just bring the other folks into our space.”
David Kong, president/CEO, BWH Hotel Group, said that the industry must pay competitive wages to recruit and retain talent. “I love compensation as the price of entry,” he said. “If you don’t pay people fairly and provide some benefits competitive with whomever you’re competing with for that same talent, you can’t even hold on to people, let alone try to recruit people. So, I look at that as a price of entry, and this question is about recruiting people.”
Those rising wages are impacting value though, according to Gilda Perez-Alvarado, global CEO, Hotels & Hospitality Group, JLL. “What investors are telling us right now is that the P&Ls that they are looking at for 2020/2021 performance is very strong, [but] it’s artificially strong because the hotels are not fully staffed,” she said. “When they’re doing the underwriting going forward, they are thinking about wage inflation [and] fixed costs going up…I don’t know that we will go 100% back to the staffing that we used to do—maybe the right model is 75-80% of it. We’re going to have to do more with less, but we are definitely going to see wage inflation going there.”
Rob Palleschi, CEO, G6 Hospitality, emphasized that when recruiting, it is important to promote the opportunity for career advancement that hospitality offers. “If we want people to work in this industry, shouldn’t we all believe that career opportunities are the best here?” he said. “Shouldn’t we be the biggest proponents of that and be the most energized around that we should be the cheerleaders for this? This is why this [industry] is great because we all started as desk clerks and in housekeeping.”
Rogers also asked when the industry will again see the numbers achieved in 2019, the CEOs—and the audience—generally believed it would be in 2023 or 2024. Geoff Ballotti, president/CEO, Wyndham Hotels & Resorts, who said he expects the return to come in 2023, pointed out that some categories are already there. “When you think about economy and midscale limited-service hotels…the last two months [there was] 15% revenue growth over 2019 in those economy and 5% in midscale.”
The state of deals and operations
During the general session, “Deals: Development, Investment, M&A,” moderated by Ken Greene, president/CEO, AAHOA, industry execs offered their take on issues in those areas of hospitality.
While the market for deals has been slow, Jim Chu, EVP, global franchise & development, Hyatt Hotels, believes that it is beginning to pick up. “Everybody was waiting for stressed pricing, which as we all know, really hasn’t come as a general matter,” he said. “So, I think there has to be an updated expectation on what returns are. When the deals are happening, there has been an adjustment on what the expectation on what returns on capital have been and that has changed.”
According to Greg Friedman, managing principal/CEO, Peachtree Hotel Group, deals are starting to happen on the equity side. “From the standpoint of…the last 15 months, everybody is sort of betting on the fact, especially going back to…May and June 2020, a lot of people expected that there would be this huge opportunity to buy for huge discounts and getting this ‘COVID discount.’ It really never came to bear.”
He said that more certainty is available when it comes to pricing, adding, “Candidly, I think there’s a lot of motivating factors that are going to drive potential asset sales in the fourth quarter of this year.”
When asked to offer potential investors advice on where to spend their money, Allison Reid, chief development officer, Kimpton Hotel Group, said to go where you have knowledge. “I would invest what I know, where I know…because, like anything, things evolve, things change.” she said. “Who believed 9/11 or COVID would happen? So, these are long-term investments. So, if you’re saying, ‘I need to go where the money’s going, I don’t really understand this segment but everyone’s going there… That is a recipe for disaster. The sponsor is the primary issue for lenders. Does this sponsor know what they’re doing? So, if you know what you’re doing—if you know a segment, invest there.”
While there have been many downsides caused by the pandemic, Brian Quinn, chief development officer, Sonesta International Hotels Corporation, offered that it has provided opportunities to take a look at operations. “Let’s innovate a bit and get back to finding things that are value propositions for both the owner and the guests,” he said. “There are things hanging out there, around breakfast, around housekeeping, around activities, around acceleration and the use of technology. Let’s get after it… We have the opportunity to innovate our way out of some of this, and put some new tools franchisees and owners’ hands around how to tear through their P&L and find some new margins.”