An Analysis of the Surge in Hotel Operational Costs

December 5, 2023
An Analysis of the Surge in Hotel Operational Costs

Just as consumers are increasingly feeling the pinch of inflation, so are we in the hotel development industry. The cost of essential goods— from food and gas to linens, cleaning chemicals, and durable goods— is steeply rising, escalating operational costs. Read on to learn Narsi Hotels’ expert analysis on the subject.

The Consequences of Inflation

Inflation is an economic reality that affects us all— hotels and customers alike. It’s like a price tag that’s constantly increasing. Durable goods, which we rely on for our day-to-day operations, are not spared, nor are changes aimed at sustainability. It’s a challenging situation; we solve one problem only to face another.

According to STR data, the impact of inflation on hotel operational costs is increasingly visible in the hospitality industry. The Consumer Price Index (CPI) rose by 6.4% over the past 12 months and by 18.4% when compared to the same period in 2019. As a result, the bar for profitability is higher for hoteliers, especially when pricing rooms during uncertain economic times.

When adjusting for inflation, only 62 markets (37%) recently achieved real average daily rates (ADRs) at or above 2019 levels. Despite the traditionally slower travel season, real revenue per available room (RevPAR) in 46% of markets (77 of 167) matched or exceeded the 2019 period comp.

The Push For Sustainability

Sustainable development offers the hospitality industry a chance to positively influence three important groups: guests, staff, and the environment. As the hospitality industry, including big players like Hilton and Marriott, move towards sustainability, we’ve all witnessed unexpected financial repercussions. The shift from individual toiletries like soaps and shampoos to bulk products has led to a near-tripling of costs, directly affecting operational expenses and room rates. However, prioritizing sustainability is still a positive step for hotel development company. It can give customers and employees long-term cost savings through efficient resource use— and, more importantly, help the planet.

Examples of Marriott and Hilton Sustainability Initiatives

  • By 2025, Marriott aims to source responsibly 95% of products in their Top 10 priority categories, which include animal proteins, bottled water, cleaning supplies, cocoa, coffee, guest room amenities, paper products, seafood, sugar, and textiles. Read more from Marriott.
  • Hilton has pledged to reduce their Scope 1 and 2 carbon intensity by 61% by 2030. The Hotel Marcel New Haven, Tapestry Collection by Hilton, which opened in 2022, is believed to be the first net-zero carbon emissions hotel in the U.S. Read more from Hilton.

The Creeping Costs

The hotel industry is often faced with the challenge of ‘amenity creep,’ which is a constant need to add new features and services to meet growing customer expectations. This includes not just the direct cost of the room but also the hidden expenses related to various amenities. Some examples of these added operational expenses include:

  • Breakfast
  • Coffee
  • Wi-Fi
  • Cosmetic and guest supply restocks
  • Laundry
  • Other energy costs

Energy and Soft Goods: The Hidden Inflationary Costs

In the hotel industry, hidden inflationary costs emanate from unexpected quarters, such as soft goods and, a huge contributor, energy. As global oil prices rise, energy costs, a major component of hotel operations, are directly affected. The impact is felt in utility costs and, ultimately, room rates. Similarly, soft goods (hotel essentials like linens, towels, and curtains) have quietly increased in cost and have impacted the hotel’s bottom line.

How Hotels Can Adapt To Operational Costs

  • Energy-Efficient Hot Water Systems: Hotels can curb energy expenses by exploring energy-efficient hot water systems like heat recovery, solar panels, or geothermal solutions.
  • Revamping Housekeeping Strategies: Implementing efficient cleaning schedules, reducing laundry frequency, and investing in durable linens are cost-effective ways to manage operational expenses.
  • Sustainable Transport Solutions: Investing in electric vehicle charging stations, bike sharing/rental services, or collaborating with local public transportation systems can attract eco-conscious guests and reduce the hotel’s carbon footprint.
  • Dropsize Incentives for Suppliers: Encouraging suppliers to deliver larger quantities less frequently can minimize transportation and packaging costs. Volume discounts can further reduce the cost of goods.
  • Optimizing Laundry Operations: Efficient laundry operations through energy-efficient equipment, water-saving techniques, and optimized laundry schedules can control costs.
  • Data-driven Staffing Strategies: Using data analytics to efficiently identify peak times and staff can help manage labor costs. Training and development further reduce hiring and training expenses.
  • Creative Employee Engagement Initiatives: Developing creative and inventive ways to engage employees and make a long-term retention impact is a big part of the Narsi Hotel experience.
  • Preventive Maintenance Approach: At Narsi, our emphasis on preventive maintenance helps extend the life of our assets by 15%-20%, preventing costly repairs and replacements. Knowing an object’s shelf life helps the property act proactively instead of reactively to give guests the best experiences possible.

Join us on our journey of changing hotels for the better. Contact Narsi Hotels today to learn more about how our hotel development company manages and overcomes operational costs.

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