Like the airline industry, the hotel industry adapted to health constraints during the pandemic, notably by reducing the services provided to customers to avoid contact.
As in the airline industry, many of these measures were seen as cost-cutting in disguise, even if some of them were easier to justify. Logically, we could expect a return to normality once the pandemic was over, but according to Hilton CEO Chris Nassetta, these measures are here to stay.
Many services eliminated to limit interactions
Health precautions have led hotels to cancel a number of services. For example:
- Closing of bars, restaurants and lounges.
- Suppression of bottled water, minibars and coffee machines in rooms.
- Suppression of room service replaced by takeaway “boxes”.
- No housekeeping in rooms.
Of course, this was not to the delight of customers, but in the health context of recent months, these measures were largely understandable.
No return to normal at Hilton!
Naturally, customers were expecting a return to normalcy by the end of the pandemic. But Hilton’s CEO recently cast a pall over the situation by declaring that :
“The work we’re currently doing in each of our brands is to turn them into higher-margin businesses and create more labor efficiencies, particularly in housekeeping, food and beverage, and other areas. When we emerge from the crisis, these activities will have higher margins and be less labor-intensive than before Covid.“
At least he has the merit of saying things frankly, because in other words he tells us that the measures taken in response to health constraints have helped hotels to considerably improve their margins, and that he therefore intends to continue in this vein even once the crisis is over.
COVID was bad for business but good for margins!
It’s certainly one of the paradoxes of this crisis, but COVID has not been all bad news. If it was bad for business (although in the US the situation was much less catastrophic than in Europe), it led to measures that mechanically increased hotel profitability.
According to SKIFT, in the U.S., hotels providing a “complete” service to their customers (upscale and mid-range) saw their break-even point drop from 47% to 30% occupancy, while “low-cost” and entry-level hotels providing reduced services dropped from 43% to 36%.
Hence the temptation to continue down this highly lucrative path.
Towards a two-tier hotel industry?
This raises the legitimate question of whether we’re heading for a two-tier hotel industry, with an accentuation of what we’ve known until now.
Indeed, low-cost hotels with reduced services are nothing new. On the other hand, it’s hard to imagine the clientele of high-end hotels going without room service or accepting that housekeeping is not done until the room is returned.
That leaves the in-between segment, which could be tempted to lower its service levels, which would still affect a large part of the market.
But let’s take them one by one:
– Room service: this is unthinkable in the top range, but why not in the mid-range and below, with either no service at all, or a pick-your-own lunchbox service?
– Coffee machines and minibars: for a long time now, many hotels have had empty minibars for decoration only, which is a shame. On the other hand, doing away with coffee machines could be seen as a real pettiness.
– Housekeeping: here opinions differ. I know a lot of people who don’t care if we come and make their bed every day, no matter what kind of hotel it is. As far as I’m concerned, I like to find a tidy, clean room and a made-up bed when I come back in the afternoon. Here again, it’s hard to see the top end of the market doing away with this service, which for some is also a sign of hygiene.
– Bars and restaurants: it’s conceivable that mid-range and lower-range properties will close their restaurants and replace them with takeaway snacks. Keep the kitchen, but simplify the meals, without the service. But here it also depends on the type of hotel, the clientele and the location.
Towards an “unbundled” hotel industry?
In the end, apart from housekeeping and restaurants, this wouldn’t change much. But it’s conceivable that, like the airline industry, the hotel industry could start offering “unbundled” rates, by taking certain services out of the standard price and charging extra for those who want them.
This is already the case with rates with or without breakfast. On another scale, this is also the case with the widespread resort fee scam. Perhaps some will consider taking things a step further, with daily cleaning or not, provision of a coffeemaker and coffee in the room (it would be petty, but after what we saw in the air…), paid access to the gym or swimming pool…. In some properties, this is already the case. The end of free wifi? Some might think about it.
This uncoupling of rates would also make it possible to increase the value of their loyalty programs at a fraction of the cost! By including as new benefits things that used to be free, but which we would have made chargeable for non-members, we could easily swell the list of advantages offered to “status” customers. But given that these customers are generally found in hotels whose standing would not easily accommodate such a drop in service…
Not everyone will be able to follow Hilton
In fact, the real question is whether Hilton will be alone in taking this route, and our answer is twofold: many will think about it, not everyone will be able to afford it.
Many will think about it, because lowering your break-even point so radically can be seductive, and not to think about it would be a professional fault. But as we’ve seen, there’s a whole range of hotels where this wouldn’t be accepted by the clientele, and it would be enough for competitors not to follow suit to shoot oneself in the foot.
But if you look at Hilton’s brand portfolio, you’ll see Hilton, Waldorf Astoria or Conrad, where it’s clearly not possible. But at Double Tree or Hampton they’re already on limited service, and a little more or less…
More difficult at Marriott. Moxy and Aloft have already been designed in part around this idea of reduced service, particularly in the restaurant sector, and with a few exceptions, few of the world’s leading brands fit into the typology of the mid-range hotel that can cut back on its services without customers complaining.
Easier at Accor which, if the group invests massively in a luxury sector where it was too absent and lacking in execution, has a host of mid-range brands that could downgrade their service across the board or on a case-by-case basis depending on the hotel (Mercure, Ibis …).
Bottom line
It’s too early to know what the post-pandemic hotel world will look like, but while the temptation to play the margin card to the hilt may be tempting, only certain categories of hotels will be able to afford it: the mid-range, and not all of them.
Upscale customers would be turned off, and the downmarket has often already cut back on everything it can. There remains the middle range, where this will have to be assessed on a case-by-case basis.
Image : room service by Dean Drobot via Shutterstock
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