Five Tips to Tackle Hotel Costs

Between the rising cost of labor, decreased demand and ever-changing COVID-19 protocols, hotels have taken numerous hits to profitability. Conditions likely are going to remain challenging for some time to come, but Chris Cylke, COO of asset manager RevPAR International, has a quintet of tips for hoteliers to manage costs more effectively.

1. Review

Contracts should be reevaluated, Cylke advised. That may sound like a replay from the early days of the pandemic, but the time has come to once again renegotiate. “Due to the limited availability of goods and labor, costs are rapidly rising, but rebidding contracts ensures that each vendor is providing the best pricing. Additionally, in some contracts you may be able to lock in firm pricing before costs go up,” he said.

2. Inspect

Cylke recommends hoteliers look closely at every nook and cranny of their properties and think creatively to convert spaces into revenue generators. “Unused guest rooms can double as office space for a large-scale accounting audit or during a trial,” Cylke said. “Meeting space can be used for short-term storage, retail pop-ups, or by a third party.” Cylke pointed to one hotel the company asset manages that converted part of the lobby into meeting space. “It’s about finding those spaces that have higher and better uses,” he said

This is a particularly good idea since hotels have lost so much lucrative group business—business that has been slow to return, representing big losses. Consider Conference and Banqueting revenue in North America: According to HotStats data, year-to-date September, it came in at just $0.85 per available room compared compared to $3.90 in the same time period of 2019, according to HotStats data. Similarly, in Europe, C&B RevPAR cratered to €0.47 YTD September, a long cry from the €2.19 over the same period in 2019.

3. Automation

It’s often discussed and Cylke advises hoteliers to deploy technology where possible to keep labor costs down. “[It] is really important,” he said. One change that can be fairly quickly is in parking. “There’s no reason you can’t have an electronic gate instead of a parking attendant, or mobile apps for guests to pay for parking,” he said. At one hotel in South Florida, gates were installed, which eliminated the need for valet parking and bellman service on weekdays. “We’re saving $250,000 annually,” he said.

4. Streamline

Evaluating food and beverage operations is another way to save on cost. Consider ghost kitchens, a restaurant industry trend whereby establishments eliminate dining rooms and make their food available through commercial kitchens and delivery services—saving money on real estate and possibly staff. It’s something that can be adapted to hotels.

“Properties have large kitchens for banquets but that those events aren’t coming back quickly so let’s make the facilities available for lease or demand from other area locations,” Cylke said.

5. Staff

Lastly, Cylke recommended two related types of staff changes. One, “complexing,” or having a group of hotels appoint one employee to manage an aspect of multiple hotels, such as sales or accounting, while eliminating on-property positions. Second, promoting from within while cutting down on executive-level roles.

In the former, Cylke said, a group of select-service hotels, could, for example, make a tenured general manager into a regional one and elevate staff who’ve shown commitment into a hotel manager role and groom them to become general managers. “This saves on training and you’re also not paying for a headhunter or relocation fees,” he said.

Another Cylke recommendation, pertaining to promotion, is to eliminate the director of engineering position, but elevate the supervisor from an hourly role into a full-time position.”

“Hotel owners will look to make sure costs are tightly reigned in next year,” Cylke said. “It’s about taking a cautious approach to adding expenses as we build back revenues and demand into 2022.”