“The No. 1 thing we hear from our franchisees is getting the labor they need into their hotels,” Choice Hotels International president and CEO Patrick Pacious said this month during the company’s first-quarter earnings call in response to a question about staffing shortages. U.S. hotels and other suppliers say they are struggling to get workers back as demand heats up, which could lead to servicing problems and higher prices for business travelers in the coming months.
“It’s one of the most important issues because it is very difficult, particularly here in the U.S., to get labor, and it is constraining recovery at certain times because you just can’t get enough people to service the properties,” said Hilton CEO and president Christopher Nassetta during Hilton’s first-quarter earnings call.
Along with hotels, ground transportation firms and restaurants say they are struggling to bring back staff. “When it comes to recruiting workforce, in January, 8 percent of restaurant operators rated recruitment and retention of workforce as their top challenge; by April that number had risen to 57 percent,” said National Restaurant Association SVP of research Hudson Riehle.
“Across the entire industry, ground transportation has an employee shortage issue, a base of people who do not want to come back to work,” said ground transportation industry consultant David Kilduff. “Drivers in the limo, black car, taxi, ride-hail and especially the bus industry are extremely hard to find.”
Airlines generally have not cited similar problems with respect to general staffing. This is in part thanks to ongoing federal aid to the aviation industry to prevent layoffs. When asked whether Delta Air Lines was having issues bringing back staff, CEO Ed Bastian said, “I don’t think it’s an issue for the airlines, but I know the hotels, the rental car providers, as you say, are having a difficult time getting staff back.”
Reasons Not to Work
Reliance on U.S. federal government aid was a common reason cited for why many employees haven’t returned to work. The American Rescue Plan, the U.S. federal Covid-19 relief legislation enacted in March, offered most workers $1,400 in direct aid and supplemented unemployment benefits with a weekly payment of $300.
“The federal government, for all the right reasons, way back when did a top-up of unemployment insurance and on top of the state unemployment insurance and obviously sent out $1,400 checks,” said Nassetta. “And they did all these things to support people who are in harm’s way, all of which made sense at the time. Maybe some of it makes a little bit less sense now in the sense that the demand is there and the jobs are there, yet people don’t have as much of a need to come back to it.”
Another reason cited was safety, considering that many employees would be conducting in-person services. Drivers, for example, have to sit in confined spaces with other people. “It’s a dangerous job when you are driving people, “said Kilduff. “You can die from Covid. For safety, people stay at home.”
We’ve experienced a pronounced need for incremental staffing coinciding with an inability to quickly fill those staffing needs, especially in markets where demand for room nights is high.”
Hyatt’s Joan Bottarini
In some cases, employees have left the industry for better opportunities. Some former ride-hail drivers are choosing to provide delivery services instead for personal safety and higher pay opportunities. “For the chauffeur industry, a lot of them went to Amazon or are trucking because you can make more money,” said Kilduff.
Both Riehle and Nassetta also said many employees have not come back to work because they have to watch their children in the wake of school closures.
Understaffed Amid Higher Demand
All this comes as demand begins to ramp up again. On May 7, Transportation Security Administration officials screened more than 1.7 million people at U.S. airports—the highest number since before the pandemic. Hotel occupancy in March reached 54.6 percent, the highest reported for any month since February 2020, according to STR.
The growing demand, mostly leisure, combined with the staffing shortage is hampering supplier operations. “We’ve experienced a pronounced need for incremental staffing coinciding with an inability to quickly fill those staffing needs, especially in markets where demand for room nights is high,” said Hyatt Hotels Corp. CFO Joan Bottarini this month during Hyatt’s first-quarter earnings call.
“The shortage is affecting rental car suppliers from being fully staffed and may play a part in [whether] locations reopen,” said Kilduff.
“We’re having a crossing point where the demand is starting to accelerate but the ability to fill the demand is just not there,” said University of Illinois computer science professor and data scientist Sheldon Jacobson.
Suppliers already were experiencing problems with servicing travelers adequately during the pandemic. Average guest satisfaction scores for hotels during the pandemic fell to its worst level in more than a decade, according to the American Customer Satisfaction Index.
In earnings calls, multiple supplier executives forecast strong travel demand in the remaining quarters of this year. Executives at Accor, American Airlines, Uber and Lyft, for example, expect demand to pick up in the coming quarters.
“The next stage of the U.S. travel recovery has commenced,” said Tourism Economics president Adam Sacks said in a statement. “An effective vaccine rollout and generous fiscal stimulus will drive the fastest single-year economic expansion in nearly 40 years.”
Prices Heat Up in the Summer
Suppliers, competing with multiple economic forces, are raising wages to bring workers back. “With fewer people in the workforce, the stimulus supports still in place, worker safety concerns, the need for caregivers to remain at home, and much greater competition with other industries for workers, operators are returning to pre-pandemic recruitment techniques for hiring,” said Riehle. “These include higher hourly pay rates, additional benefits, and professional development opportunities, among others.”
“Employee costs are going up in the U.S.,” said IHG CFO and group head of strategy Paul Johnson this month during the company’s first-quarter earnings call. Noted Hilton’s Nassetta, “I do think in the short term … there’s going to be wage pressure, wage inflation.”
Uber and Lyft each already have increased compensation to attract drivers back to their platforms. In each of their earnings calls, the ride-hail firms reported their drivers have made elevated earnings.
As employee wages increase, suppliers may raise prices for the traveling public. “This is going to drive up costs because when you have supply and demand issues, you’re going to have to pay people,” said Jacobson. “This is going to drive up the cost of travel.”
The ride-hail industry already has increased prices. “Riders have been relatively less sensitive to the price increases triggered by the higher demand, especially since they were industrywide,” said Lyft CFO Brian Roberts. “Demand outstripped supply, which led to elevated prices for ridesharing.”
I do think in the short term … there’s going to be wage pressure, wage inflation.”
Hilton’s Christopher Nassetta
Suppliers like Choice are coming up with ways to reduce their labor costs. “We as a company and our franchisees in tandem with us have done a number of things during the pandemic to save on labor costs, everything from housekeeping on request to a flexible Grab and Go Breakfast,” said Pacious.
Supply Will Catch Up, But When?
The staffing shortage will be resolved, but the question is when, according to Jacobson. He expects the situation will stabilize by June. Jacobson pointed to the U.S. Bureau of Labor Statistics’ April jobs report, in which the leisure and hospitality sector outperformed all other sectors. Leisure and hospitality gained 331,000 jobs in April, outperforming the overall U.S. jobs increase of 266,000, a weak overall performance caused by losses in delivery, transportation and temporary help, among other sectors.
Still, the majority of that April increase was generated by employment gains in restaurants and other eateries, according to BLS, and the increase in “accommodation” jobs totaled 54,000. According to BLS, “employment in the [leisure and hospitality] industry is down by 2.8 million, or 16.8 percent, since February 2020.”
In April, unemployment in the leisure and hospitality sector fell to 10.8 percent, down from 15.9 percent in January. “The numbers we saw which were positive for the travel industry are going to be dwarfed by the coming month or two,” Jacobson said.
Supplier executives, however, expect the problems exacerbating the staffing shortage will be resolved by the second half of the year. “I think it will be tough between now and September,” said Hilton’s Nassetta. “By the time you get to September, mass vaccination will hopefully be behind us. Kids will be back in school, and people will feel safe that it’s safe to go back, and they want to get back and be earning a paycheck. And so I think it will then stabilize as we get into the latter part of the year.”
“We think that in Q3 and beyond, we’ll start to see a few trends that should give us real tailwinds on the driver side,” said Lyft CEO Logan Green this month during the company’s first-quarter earnings call. “One is, just as more and more drivers are getting their second [vaccine] dose and feeling safer driving and as overall case rates come down, I think that’s really going to change a lot of the kind of feelings of health and safety around driving,” he said. “Two is the federal unemployment benefits are sunsetting in Q3.”
The $300 weekly supplement to unemployment benefits is scheduled to end Sept. 6, although that could change. “Politicians have a way of changing things on the fly,” said Jacobson. “We saw that with the Paycheck Protection [Program] extension, where it was going to expire in March but at the 11th hour, they extended it for two months. It’s going to be coming to an end in a few more weeks, but at the same time, they’ve run out of money. Will they replenish the money? Will they extend it? All of these things are factors that make it very difficult to come up with solid forecasts because in some sense the goalposts keep changing. “
Hilton’s Nassetta suggested the current federal unemployment top-up would expire in September, as expected. “I guess it could be extended,” he said. “My impression is it will not be.”