If your favorite $200 a night hotel became $350 in the last year, or your favorite $500 became $1000, you’re not alone. I know that doesn’t help in the slightest, but it’s true.
Hotels have increased in price in 2022 at a staggering pace, greatly outpacing many other areas of inflation. And yes, there are plenty.
Asking a hotel group CEO, you’d probably hear that the reason for the shocking prices which hotels are snapping up, is that their labor costs have gone up and that we’re all doing our part to make sure mouths are fed. Soon thereafter, the violins come out, the heartfelt story of a one on one between the same CEO and a hardworking cleaner is given with earnest tone of voice.
We all wipe the collective tears away, and swipe our card to cover the now 2x more expensive hotel providing half the usual service. Welcome to travel is 2022, with no sign of change for 2023.
But if you ask Paul Donovan, who happens to be the chief economist at UBS whether hotel CEO’s are singing an honest tune, he’ll tell you it’s pretty much BS. Donovan crunched the numbers and found that it’s really just profit driving prices up.
Shareholder Profits Are Driving Hotel Prices
The Guardian wouldn’t typically be my first choice for balanced financial news, but in this instance there’s a pretty credible look offered. As people battle over strikes and wage issues, there’s a renewed focus on root causes for rising costs of living.
The UBS example from the hotel sector is an interesting one, since it explains why money just doesn’t seem to go as far, with no instantly clear or logical reason behind it. Speaking on Donovan’s findings, the Guardian offers…
He examined the rise in wage costs across the hotel sector, adjusted for productivity since the end of 2019, and found it was between 5% and 6%. Restaurant and hotel prices had risen 16%.
Donovan found hotel operators were using fewer staff to improve productivity, limiting the impact of wage rises. This rise in efficiency was being channelled to shareholders, not consumers, who were fed a story that prices needed to rise to cope with rising wage bills.
More broadly, corporations in the US made quarterly profits of almost $3tn in the three months to the end of September, up from $2.4tn two years earlier and an average $2tn in the eight years before the pandemic.The Guardian
Pay More, Get Less
Basically, hotels are making fewer people do “more” and therefore even if people are being paid more, there are fewer people being paid overall. So even when factoring in what could be a generous 5-6% increase in labor costs, hotels charging an average of 15-16% higher rates means at least 10% is just wider profit margin than before.
Hotels are making more now off of guests than they were in the times before. Wild demand, in many cases pent up for years; as well as an expectation that everything now costs more has helped fuel this without question. So at least the experience is better, right? Wrong.
There’s nothing wrong with increasing profits, but it’s fascinating to see glaring margin rises occur in such short order, without a product improvement. My issue is not with increased prices necessarily — markets drive those — but in diminished experience.
Give Back To Guest Experience
I think it would be really hard to argue of a case where a specific hotel is offering much better service or amenities than prior to the pandemic. Many hotels also replaced daily housekeeping with greenwashing ideas of “optional” housekeeping, where you need to specifically request it to get it.
I’m not a climate expert, but I’m willing to believe that someone feather dusting a room or simply making a bed isn’t going to change the environment. It certainly will change the number of cleaners you need to employ though! Washing towels, that’s a different story.
Next time you check into a big box hotel, just know you’re paying more because the shareholders are profiting more, not because their costs are higher or the service will inherently be better. It’d be great to see guest satisfaction statistics parallel profits!
Corporate greed is alive and well. Sure they will bark “costs are rising and we have to cut back, blah blah blah” With corporate CEOs seeing between 35 to 35000% increases in profits they pay themselves more become accustomed to more more and more!! It’s not going to stop anytime soon because every day Americans “expect” prices to rise and therefore are brainwashed in believing it’s “just the way it is”. The spread from poor to the very rich is only going to get worse. It’s everywhere including our government spending more more and more and we the people getting less less and less. It’s total BS and just a step closer to Armageddon and the total social distraction of the human race
It’s about time people realized this and stopped blindly blaming “inflation” for everything. Many industries are seeing record profits and are using inflation as an excuse to jack up prices due to the ridiculous “requirement” that profits increase quarter after quarter. It’s no longer enough to continually make a ton of money – they need to make more and more on an ever increasing upward trajectory while trying to find ways to blame the price increases on anything other than greed.
All businesses and government agencies first blamed Covid for rising material and living costs. Now that life is back to normal they single out inflation as “the boogey man”. Educate ourselves by checking out
https://theintercept.com/2022/11/04/federal-reserve-interest-rates-savings/https://theintercept.com/2022/11/04/federal-reserve-interest-rates-savings/
As a Fed Chair, Powell has no educational and professional background in economics. Trump dumped Yellen whose background is entirely in economics for the Fed Chair position. When we have a lawyer as Fed Chair and ex-investment bank CEO as Treasury Secretary, nobody would expect the economy would work for the working middle class. Virtually all Trump appointees and nominees are incompetent in their positions. If meritocracy is becoming extinct the country will be on fast track becoming a third world country.
Go spew your Trump (TDS) hatred somewhere else…it greatly diminished your post to garbage….
Nope, trump IS garbage so very apt post.
Not all agencies, just some. Of course, Biden and non-thinking cronies are still saying their buzz word, TRUMP. Own your truth; you stopped the US from being energy independent so EVERYTHING & EVERYONE is impacted by it. Educate yourself before spewing false information. Petroleum prices are higher so anything that uses it, is higher. Simple economics.
Lights, heat, vans cost more to operate and if I need to cover a shift with OT, that costs more than straight time.
If you want to vote for someone who has made your life more difficult, own it and blame yourself for another bad choice
Supply and demand. Like all businesses, hotels charge what the punters will pay. There are enough suckers booking at the higher rates.
Me, I’m changing. I’ve cancelled all future travel plans to North America where hotel inflation is rife. Europe with its vast choice of owner-managed boutique hotels beckons. I have dozens of places on my must-visit list, and I’ll be back across the pond when recession bites the USA.
I work in retail and I’ve seen prices on many consumables go up 30-50%. That’s NOT inflation-driven, particularly when inflation is in single-digits. It’s completely greed-driven. And, “NO”, prices will NOT come down when inflation eases up. I used to take a lot of road trips when I could get a decent 2 or 2.5 star hotel for less than $100. Those days are OVER – and my road trips are over and done with as well. I REFUSE to pay outrageous room rates with signs in the lobby announcing that “due to COVID” or some such excuse the hot breakfast is still a mushy apple and a stale granola bar, and housekeeping services are only done on stays of 3+ nights.
What you think is up by 30-50% (probably exaggerated) is compounded by inflation and supply chain. So not understanding how supply chain works, if the factory that produces Reeses’ is hit by 7% for raw materials and labor, the price it has to charge, is not 7%.
Try to follow the math, sugar up by 7%, p-nut butter by 7%, chocolate by 7%, the net is not 7%. Now I know math is not the strong point for most, (especially the ones’ who believed Buffet’s secretary paid more in taxes than he did) the cost of the candy is up by 20%, at the least. Let’s factor in increase in labor, increase in energy to produce by 7% and I haven’t even transported it anywhere.
Again, speak from a place of fact, not ignorance.
You might want to check your numbers there. In your Reese’s example, if each of the cost components of the product (e.g, chocolate, sugar, peanut butter) go up by 7%, then the total cost of that product will go up 7%. Not 20+%. Also, literally no one thinks Warren Buffett pays less taxes than his secretary. The claim, which he has made himself, is that he pays at a lower tax rate than his secretary.
The fact that you went out of your way to write a condescending comment mocking others’ supposed ignorance and mathematical ineptitude, and within that same comment laid out your own wildly incorrect arithmetic is…Ironic? Funny? Both?
You really thought you were being clever when you said, “I know math is not the strong point for most…” Sheesh, what a self own.
Why do people say hotels are “greedy” or act like they (or any other service provider) is obligated to price their product at a certain point. It is all supply and demand. As long as enough people pay a higher rate to keep profits at a certain level the rates won’t go down (and shouldn’t). Either you are willing to pay or you aren’t. It reminds me of the people whining about how much Disney World costs and that they can’t afford to take their kids like that is a Disney issue. They are under no obligation to ensure you are able to take your rug rats to Disney World. Again, either you can afford it or you can’t. End of discussion.
It’s not the end of the discussion
It is because folks are entitled to think they should be able to do what they want without paying for going price for it. They want it free; they need to move to a socialist country and then they can have everything for free, which will be nothing.
Most of these folks also have no idea about how things work; they think it’s magic. Well, it’s not and the cost to bring one a product, experience or service takes work, coordination, money and people. You don’t want to pay it, stay home
I can’t say this is restricted to hotels… car rentals and airline tickets seem to be similarly ‘over-priced’ currently.
Whether that’s due to shareholders demanding more returns due to lower sums received for the last two years or opportunistic CEOs seeking to maximise their personal income is a moot point.
Pretty soon, they will need to either drop due to decreased demand because people can’t afford it, or maintain current levels and wait for people’s income to increase to the point where people consider things more relatively affordable.
Still stinks, though
Really? It is cheaper to fly across country than 20 years ago. Are you working for the same price you worked for 20 years ago? Why do you think the employees should? I need the drugs some of you are taking to live the dream you think should be a reality
Thanks for the great article. Clarifies so many things. Especially the “old” covid excuse for every shortcoming. I and my work colleagues all decided to start being very picky about hotels, Avoid all who seem shortstaffed or whose service standards have come down. Some stil have lcosed exec lounges or short on cleaning or amenities. need ot stay away and i think they will learn a lesson quickly
It’s the biggest current scam going. Two choices here at minimum. By the company’s stock so you can participate in the growth. Two and more relevant- book late. Later the better. I was looking at hotel costs off 600 plus tax a night two weeks ago. When I looked on the day and days I was there same rooms were 200. Yes you’re rolling the dice but to save 400 plus a night is well worth it
My golf travel company booked a high-end golf trip to Hawaii for two German clients for Nov 2020. As borders were closed for international travelers till Nov 2021, we had to reschedule their tour twice. Clients finally went in Nov 2022 but the very same trip increased by 25% in price. (from $ 20k per person to $ 25k per person). Insane!