Labor Shortages and The Impact on Hotel Operating Costs

How Modern AI Solutions Offset Rising Costs That Cut into Hotel Profits

By John Smallwood, President of Travel Outlook
January 2023

Thanks to the perfect storm of the last two years, costs are skyrocketing across multiple industries, and the hospitality industry is no exception. Maintaining control over your hotel’s operation is key to running a successful and profitable business.

Hotels all over the world have had to adapt to rising costs thanks to inflation, the pandemic, and labor shortages, all of which combine to threaten profitability and longevity. In a perfect world, hotels can seamlessly meet a never-ending stream of demand to tap into a consistent revenue stream that covers their operating costs and then some. When traditional revenue management strategies fail to make a dent in your operating cost, it’s time to look for new, modern solutions.

Continue reading below to learn how artificial intelligence (AI) can help to offset rising costs that cut into hotel profits.

How Rising Costs and Labor Shortages Affect Hotel Operating Costs

It’s no secret that rising costs affect hotel profitability. Some fixed costs may change over time but not on a day-to-day or even a month-to-month basis. That includes rent/mortgage, property taxes, insurance, bills, human resources, and franchise fees. Variable costs change according to demand, are more challenging, and influence a hotel’s day-to-day operations. This typically includes hourly employees, utility costs, marketing, linens, toiletries, cleaning supplies, food and beverage, credit card processing fees, and technology costs.

An easy solution would be for hotels to raise the rates they charge guests per night, but in an over-saturated market with Airbnb rentals, discount OTAs, and so many options out there, a significant price increase may not be the answer.

For many hotels, recent labor shortages compound the effects of increased operating costs and severely cutting into their bottom line. The bottom line will inevitably suffer when a hotel sees a sharp increase in its fixed or variable costs and cannot reasonably increase rates to generate more revenue.

A Common Cost Reduction Strategy

With the rising cost of hotel operations, it can be difficult to know where to begin when it comes to cutting costs. When costs outweigh revenue, it’s time to optimize your hotel’s operations to run as efficiently as possible, starting with labor.

Optimizing labor is critical to reducing overall costs because labor often makes up roughly 50% of a hotel’s operational costs. The more common approach is for hotels to cross-train employees to handle responsibilities across multiple departments to meet staffing needs. But that can lead to a decline in customer service and overworked staff.

Reduce Labor Costs Without Sacrificing Customer Service

When hotels cut labor, and the front desk staff is forced to man the reservation lines, the guests’ experience is put at risk. To reduce the stress on overworked employees during the current labor shortage, and to reduce labor costs, many hotels are turning to third parties to manage reservation lines.

For hotels that prioritize the guest experience, choose a specialized hotel call center team that functions like your own. The best hotels and resorts in the country partner with call centers that positively improve customer service, reduce labor costs, and free up front desk staff to focus on current guests. This helps to increase the hotel’s voice channel revenue while improving guest satisfaction.

Use the Latest AI Technology to Lower Your Hotels Labor Costs

Outsourcing your hotel’s voice channel to a premium hotel call center isn’t the only way to save on labor while improving customer satisfaction. As demand for travel increases and labor shortages linger, many hospitality industry experts are turning to the latest advancements in artificial intelligence.

Annette, The Virtual Hotel Agent™, is the next great leap forward in the hospitality world. Annette enhances a hotel’s ability to provide top-notch customer service while reducing labor costs. She can be programmed with your hotel’s very own voice talent and uses natural language processing to learn conversational tones from social media, movies, and TV shows. Annette is the ultimate solution to reduce your hotel’s labor costs without sacrificing the high-quality customer service your guests expect and deserve.

Meet Annette, The Virtual Hotel Agent™ by Travel Outlook, and learn how much she can save your hotel.

Looking for ways to address hiring and staffing challenges and control front desk labor expenses?

 Learn more about Annette™, the first AI-powered virtual agent dedicated to hotel guest service.