The shock 4.2% rise in US annual consumer price inflation earlier this month has set alarm bells ringing across the financial world.
It was perhaps the most obvious sign yet that the world’s largest economy is in danger of overheating, something that will have a knock-on effect to the hotel industry.
Even before the US Department of Labor released April’s statistics there were worries of what a rapid rise might mean for hospitality.
“[O]f course, it's a concern,” said Hilton CEO Chris Nassetta on an earnings call earlier this month.
There are two areas in particular that are worth keeping an eye on.
The first is wage inflation. Nassetta said Hilton was able to balance this out partly from cutting costs across the business.
At Marriott chief financial officer Kathleen Oberg said increasing staff costs could be balanced out by increased revenue, where typically, “when you have inflation on wages, you often also have inflation on ADR [average daily rate], which helps to offset that.”
While, hotel companies seem to think they can at least balance out wage inflation, increased development costs represent a trickier problem.
Nassetta said that there was a similar situation after the global financial crisis, albeit for different reasons, with new construction starts falling.
“We're pivoting now, just with more tools in the toolkit, meaning conversions become a much larger part of what we're doing,” he said.
Marriott CEO Tony Capuano added: “We are seeing increases in construction costs both on the labour and materials side. But as you’ve heard from us in the past, our owner community doesn’t necessarily try to time the market based on cost factors in a given quarter,”
For Wyndham’s Geoff Ballotti, the most noticeable impact so far for franchisees has been on the furniture, fixtures, and equipment side of things.
“I think our franchisees are hopeful and most economics, every economist I read is of the belief that with the easing of quantitative measures, mills are going to return to normal capacity and the production will soon return to normal and delivery will pick back up,” Ballotti, said in an earnings call at the end of April.