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.
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.
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.
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:
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.
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.