The Inflation Story: How A Global Economic Downturn Impacts the Hospitality Market

Global inflation reached an all-time high in 2022, and there is no possible measure yet to bring it under control. If prices keep on increasing at a rapid rate, it will affect industries that had just begun recovering after the pandemic. For instance, the rate of inflation in hotels, inns, and the hospitality sector, in general, has shot up by 20.4% in the European Union. Even though experts are divided, the general consensus says hoteliers have to be well-equipped to manage the present demand and prepare for a potential slow growth period in the near future.

Labor shortage issues

The pandemic created a shortage of labor supply which is still continuing. The migrant laborers working in the US and the UK were left jobless when COVID-19 hit, and they headed back home. Many of them are not willing to return to the hospitality industry. Because of this surging demand for labor and the lack of supply, labor costs have gone up significantly, which has also increased the operational costs of hotels. Between March 2021 and March 2022, the labor cost per occupied room has gone up by 26.8% in full-service hotels.

While there are plenty of vacancies right now and the pay is high, finding staff is still challenging for most hotels. But why? The pandemic pushed workers to seek work-life balance, so a large section may have moved to other industries, or perhaps they are getting more benefits from government stimulus than working in hospitality. The bottom line is, now workers need more than money to stay or to return to the industry. The onus is on hoteliers to optimize workload using technology, offer additional perks than just salary, and create an environment that attracts new employees.

Impact of supply chain crisis

The Russia-Ukraine war led to a worldwide supply chain disruption. At a time when hotels are already bearing the brunt of low labor availability, breakdown in the supply chain and rising gas prices have made it difficult to procure necessary goods (for example, food, beverage, cleaning supplies, linens, etc.) at the right time. To combat the situation, 79% of hotels are paying a higher cost for food and beverage supplies, increasing the operational costs further.

Offering customer satisfaction has become challenging

People were stuck within the four walls of their homes for two long years because of COVID. Now that things are coming back to normalcy, the demand for travel and accommodation is high again. But the problems remain—not enough staff is available to cater to the needs of the guests, the supply chain issues have messed up the usual processes, and hotels have increased their charges to tackle the high operational costs. All of these combined could be a huge turn-off for guests if hotels fail to meet their expectations.

Is there a brighter side?

Not everyone thinks inflation is bad for the hospitality industry. The prices of hotels and flights have gone up for sure, but as compared to the pre-pandemic rates, they are still down. Economy hotels can make the most of this situation and increase occupancy rates, as travelers cautious about budget are more likely to book an economy stay than a luxury one. On the other hand, high-end hotels can have the option to increase their prices further, using the present scenario as a logical cause.

How hoteliers can stay prepared

The current economic downturn is affecting the entire world. As an individual hotelier, you cannot change the situation, but you can stay prepared for unpredictable times using technology. When a disrupted supply chain, energy crisis, labor shortage, and wage hikes push your operational cost to the ceiling, using hotel tech could be a viable solution. MyCONECT’s two-way integration to the hotel PMS makes way for you to streamline workflows and ease the workload of the staff, offer a convenient and contactless guest experience, and increase RevPAR the smart way.

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