The reset in hospitality employment

With hospitality opening up once more, the sector is coming to terms with both permanent job losses, and also skill shortages. For hotels, plans to improve returns by cutting staffing, may be eroded as they discover they have to raise pay rates, to fill vacancies.  

After a long period in partial or complete closure, businesses are reporting a range of challenges, including restarting furloughed staff, attracting replacements for those who may have left the sector or returned home to other countries, and reskilling rusty performers. Issues are affecting a range of businesses, from cruise operators to hotels and restaurants. In the UK, Brexit appears to have added to the problem, as overseas workers left for home, concerned at the practical consequences of the political move.  

The pandemic forced most hospitality sector businesses into drastic cost-cutting, culling staff and putting many more onto government-supported furlough schemes. It also sent senior executives into huddles, working out how they could turn changing consumer expectations into opportunities.  

The restart of hospitality has seen staffing and cost issues around the globe. Figures from Hotstats note that US labour costs are up nearly USD20 per available room, since May, noting that “hoteliers find that they have to shell out more and add incentives, to lure employees who are either still reticent to return to hospitality, or have switched career paths.” 

In Europe, Hotstats says total labour costs are 46.8% higher than a year ago, and only EUR6 below total rooms revpar. In the Middle East, labour costs are steady while in Asia Pacific, overhead costs are up 44.9% against a year ago, while USD12 lower than in May 2019. 

One early opportunity that presented itself, as consumers worried about catching covid-19 from others, was to reduce daily housekeeping in guestrooms. While triggered from a hygiene standpoint, it quickly became an opportunity for potential cost savings, long term.  

And in a bid to reduce problematic interactions at the reception desk, many hotel groups accelerated plans for digital check-in and check-out. For some, this meant extending a system already presented as a privilege to regular business guests. Again, the move presented an opportunity to review the need for front desk human resources.  

Trade union Unite has called out the reduction in housekeeping services, reckoning it could account for the loss of up to 181,000 jobs. In a special report, Playing Dirty, the US union operation sets out how hotel company behaviour will hit its members:  “Almost since this crisis began, hotel executives seized on the pandemic as a chance to end the practice of daily room cleaning, long a target of efforts to reduce labor costs in housekeeping.”  

“The end of daily room cleaning in US hotels would eliminate as many as 180,000 jobs held primarily by women of color and create more difficult workloads for housekeepers left to clean dirty rooms after days without disinfection. It would fundamentally change the experience of traveling and cut housekeepers out of the recovery, exacerbating income, racial, and gender inequality.” 

The union points to public comments from Hilton’s Chris Nassetta, and Jim Risoleo of Host Hotels, both looking forward to cost savings from a reduction in room cleaning frequency.  

Unite’s calculations suggest that the cuts talked about could reduce the US hotel housekeeping wage bill by USD4.8bn annually.  

On the flip side, and specifically in the UK, trade body UKHospitality reported “widespread anecdotal reports of an acute shortage in various roles, particularly front-of-house staff and chefs, which in some areas is preventing sites opening and forcing businesses to restrict their trading hours.” 

It has launched a 12 point plan to help attract employees to the sector, filling vacancies in the short term but also emphasising the opportunity for careers in hospitality. The organisation’s CEO, Kate Nicholls, said: “It’s clear that we need to attract new people to our sector and highlight the benefits of a job or career in hospitality. Prior to the pandemic, we employed 3.2m people and were the third largest private sector employer in the UK. By working closely with Government on implementing this plan, the sector can restore confidence and bounce back even stronger, so hospitality is once again seen as a dynamic and exciting sector of growth, and a provider of fulfilling careers that will help power the UK’s economic and social recovery.” 

Alison Brittain, CEO of Whitbread, said in a recent update that staffing was hard, but not overly problematic. The group maintained staff on furlough during the lockdown, topping up their pay:  “We’re in a slightly different position, We had the benefit of using flexible furlough, and kept many of our hotels open. We’ve now got a much more flexible workforce, too. We’re not immune to the problem, we’ve had some hotspots, particularly coastal.”  

Brittain pointed out that, despite furlough being available, some employers chose not to retain staff, as they were still liable for National Insurance costs. It is those businesses that will now struggle to rehire.   

And Nick Northam, vice president Europe at management group Interstate, said there was a danger the sector is overdoing its concerns. He told Hotel Analyst that while finding hotel staff was tough, it was not substantially worse than prior to the pandemic. 

HA Perspective [by Chris Bown]: The trimming of payrolls and questioning of staff resources is a natural part of any business cycle downturn – and for many businesses, it is no bad thing.  

But what’s been different this time around, is that the pandemic was far from uniform in the way it impacted different sectors. Hospitality and travel were hit far harder than other sectors, while demand in some areas spiked. So we had airline pilots delivering groceries, and musicians doing Amazon drops. Government furlough schemes helped many businesses but – as Brittain pointed out – not everyone used them. And anyhow, bored staff on furlough had plenty of time to reconsider their future, plot that big career change, start their own business.  

The complaints around the reduction in room cleaning from Unite do have some merit. Cutting too deep simply stores up fresh problems, and the ultimate result will be far more nuanced. When we recently spoke to Katherine Grass, CEO of operations specialist Optii, she pointed out that some hotels have already reinstated daily cleaning, realising that it makes for a far simpler check-out clean, particularly for longer staying leisure guests.  

And it is clear that the staffing issue is not one peculiar to the UK post Brexit, it’s an issue elsewhere in Europe and in the US, too. Better wages and conditions will be needed, plus in some markets – notably the UK – there needs to be broader work, as UKHospitality has pointed out, to ensure the sector is not just seen as place to work between “proper” jobs.  

For those figuring out how to operate in a more lean fashion, then perhaps a look towards the high wage markets of Scandinavia may be helpful. There, they are already used to paying strong money for staff – so they don’t waste them, and design their new brands to be lean from the start.  

Additional comment [by Andrew Sangster]: The view that there is currently a short-term blip in the labour market thanks to furlough is probably correct. But there is also a longer-term trend that hospitality businesses are going to need to adjust to. And it is the UK that is the biggest economy at the forefront of this change. 

Without wishing to get embroiled in what is too often an emotionally charged topic, it is hard to ignore that the Brexiteer claims about immigration were well aimed. The amount of EU immigration to the UK was much higher than official statistics at the time suggested and it is difficult to see how this did not lead to a distortion in the labour market that benefitted employers at the expense of employees. 

The rise in the populist parties across Europe and most of the advanced economies globally, has, I would suggest, been driven by the growing gap between rich and poor. Economists use the Gini coefficient as a measure of this disparity, the higher it is, the more unequal is wealth / income distribution.  

Since the Reagan / Thatcher style labour supply side changes during the 1980s, the Gini coefficient has risen markedly in most advanced economies. Most people now accept that the reforms brought in were necessary (debate still rages on how they were introduced) but there is growing disquiet about the ongoing disparity between the richest and poorest in society. 

To ease this political pressure, the share of economic growth going to capital is going to have to shrink and the share going to labour grow. Wages are going to have to go up meaningfully in real terms and the Gini coefficient head back towards where it was pre-1980. 

In a rich, advanced industrial economy like the UK, keeping tight immigration controls on workers coming in to do lower paid work is essential for these aims. The current UK Government appears to be setting policy with this in mind.  

For the hospitality sector – as with any other sector – this means raising productivity to offset higher labour costs. While prices can be raised in the near-term, this will not be a long-term solution as inflation will take hold. 

Efficient and effective op-cos are going to be ever more essential to drive the returns for prop-cos. Returns on capital are going to be much more variable than they have been over the past few decades and active rather than passive strategies have to be the way forward. 

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