Hotel CEOs allude to recession, but remain reassured

NEW YORK—Chris Nassetta, the CEO of Hilton, uttered the "R" word during a CEO panel at the NYU Hospitality Industry Investment Conference, here at the Marriott Marquis, but it wasn't recovery. No, recession, which has been top of mind from Wall Street to Main Street and remains a looming specter as the Federal Reserve decides how to deal with blazing inflation and contiguous macroeconomic concerns that are impacting the U.S. and the globe. Amid the turmoil, hoteliers remain rosy over the prospects of the hotel industry.

"We have to be prepared for it," Nassetta said of the anticipation of a recession. He said that in order to tamp down inflation that is being felt from the gas pump to the food aisle, the Fed would need to take measures to slow down the economy through tools such as raising interest rates. Despite the possibility of a recession, Nassetta was confident in the hotel industry's ability to survive and prosper. "The industry is pretty sustainable," he said. "There is a massive amount of pent-up demand. Even in face of reduced economic growth, we are still seeing robust growth in our industry."

That was the prevailing sentiment among other CEOs: the U.S. economy might be coming apart at the seams, but people are still going to vacation. In fact, not just leisure, but corporate travel is seeing a breakthrough after a paltry couple of years, according to Mark Hoplamazian, CEO of Hyatt Hotels Corp. "It’s proof positive that it's not just leisure travel," he said. "Corporations are desperate to get their people back and nurture it."

High demand coupled with high rooms rates is contributing to the current euphoric mood. In past crises, such as 9/11 and the Great Recession, it took as many as four years to regain revenue footing, but as Tony Capuano, CEO of Marriott International, pointed out, "In less than two years we are achieving extraordinary rates that took four years to get back to after 9/11." The ramp-up this time has been much quicker. "I have never seen so much demand or pricing power," said Sébastien Bazin, CEO of Accor.

The one problem area is Greater China, noted Keith Barr, CEO of IHG Hotels & Resorts, where lockdowns and heavy testing measures have made travel nonexistent. "It is the elephant in the room and the most challenged market globally," he said, adding that he doesn't believe that borders will open until the spring of next year. "But when travel is happening in China, there is huge demand," he said.

Major Headwinds

Though the top line continues to shine, there are operational challenges; none more than labor, which is making it difficult to run hotels optimally and forcing instances where despite demand, there aren't enough bodies to service it. "Many hotels probably can't have full occupancy," Bazin said. "There isn't the personnel. Not having people back in the industry is a tragedy."

Bazin said that Accor is missing some 25,000 workers or 10 percent of the workforce. "Owners have to get the best pricing ever to sustain margin," he said. "Thank God customers will pay the price."

Labor will be the biggest challenge for hoteliers moving forward with more jobs to fill and at a higher cost. "It was dire, now more modest, but it’s super complex," Nassetta said. "People now aren't as hesitant to go back to work, but it will probably take another couple of years to normalize."

Hyatt's Hoplamazian sees the labor quandary as more than just filling roles but changing how employees are required to do their jobs. He referred to "antiquated" practices at hotels over how shifts are scheduled, for example. "We are stuck in the old world," he said.

"We haven't had flex schedules or same-day pay," Nassetta added.

Meanwhile, Barr said byzantine immigration policies are hamstringing hoteliers' ability to staff hotels.

Hotel CEOs also took aim at the current state of U.S. testing measures that still require a negative test to enter the U.S. This is unlike many other countries that have dropped all testing requirements. Many referred to it as maddening, especially in light of the recent National Travel and Tourism Strategy announcement by Commerce Secretary Gina Raimondo that focuses federal government efforts to support the U.S. travel and tourism industry and sets a five-year goal of attracting 90 million international visitors to the U.S. each year.

The Covid-19 testing requirements are "ridiculous," Barr said.

"Even some countries that locked down aggressively still have a testing requirement," Capuano said. "It’s crazy."

Despite strong demand and pricing power, hoteliers still face ballooning costs lines that are having an impact on the bottom line. Said Nassetta, "Unless you own a resort in Florida, you are not back to profitability. Margins might be higher, but overall profitability is not."