It has been a relatively good 2023 for hotels as people are traveling and business and group travel has continued its rebound, but issues like labor and inflation continue to linger. Hotel Business spoke with Bruce Baerwalde, president, McKibbon Hospitality; Gregg Forde, president/COO, Island Hospitality Management (IHM); and Kyle Hughey, CEO, Charlestowne Hotels, to get their takes on the state of the industry.
—Gregg Wallis
The industry entered 2023 facing a number of headwinds. What was the year like from your point of view?
Baerwalde: 2023 has trended much in the way most expected. The front part of the year was where most of the revenue growth occurred, and the backside has been slower with some declines. Group and negotiated have been somewhat improved but there’s still a way to go to get where we need to be on weekdays.
The labor market continues to be a struggle. We have tried to improve upon the directly employed associates and have had some success. Still, we remain reliant on contract associates in most of our hotels. Cost pressure on food operations remains a focus for our company, and cost of goods sold has been a challenge in 2023. Overall guest satisfaction has been somewhat improved, but not at the pace we would like to see. We will continue to support and incent our teams to improve the guest experience.
Forde: It’s been a great year for IHM. Our company continued to see growth in additional properties under management, and our portfolio of hotels had steady and sustained year-over-year revenue increases.
Hughey: This past year presented so many unknowns, especially when it came to the state of the economy. It was a near perfect year for us from a development and hotel management perspective. We brought on two new properties that needed revenue management and marketing support, began work on three new development projects (opening between 2024 and 2025) and opened two new hotels this year—Hotel Verdant in Racine, WI, and Little Mod in Charlottesville, VA. Finally, we also took over management of four existing hotels. To add nearly a dozen properties to our portfolio in one year is considered a huge success for our third-party management company, and one we’ll continue to build upon.
Gregg Forde Island Hospitality Management
Labor continues to be a challenging issue for the industry. How have you been able to attract and retain employees at your properties?
Baerwalde: We are focused on the basics. Wages on the high end of the market, train teams well—always making sure supplies and tools are in place. Recruiting has improved with the use of AI. It is allowing us to reply faster to associates that have expressed interest in open positions we are working to fill. The results have been promising, as we are filling positions in half the time we were prior.
The associate experience is as important as the guest experience. Our associates deserve to have what they need in place all the time—an environment that is consistent and positive; and leadership that is interested in them and their career paths. We don’t always get it right and when we don’t, we own the resolution and listen to our teams. If we have each of these aspects in place, we will continue the trend we have seen of stabilizing turnover and less reliance on contract associate groups.
Forde: We have implemented several strategies to attract and retain employees. We offer competitive wages and benefits, such as health insurance, a robust 401k match, paid vacation and flexible schedules. We provide training and development opportunities, such as our Pathways Program, which observes its
20-year anniversary next year, and mentoring programs. We create a positive work environment, where employees feel valued, respected and appreciated through our DEI initiatives, and we solicit employee feedback and suggestions that are ongoing throughout the year, not just from the annual opinion survey. Most importantly, we act on the trend feedback to affect positive change. And we recognize and reward outstanding performance, with recognition programs along with bonuses and incentives.
Hughey: At Charlestowne, we’ve taken a multifaceted approach to labor and employee retention. We’ve learned that retention is more than offering competitive wages. Employees want to feel valued, which correlates directly with culture development. On the corporate side, we’re constantly encouraging innovation and publicly celebrating employee successes. We’re also providing more opportunities for upward growth with our new organizational structure, which we introduced earlier this year.
Flexibility has become key, both on the corporate level and with our on-site hotel staff. We’re providing different scheduling options and increased remote work opportunities at the corporate level, and looking at shift patterns to accommodate better work/life balance for our hotel staff.
We’re also finding ways to better communicate to each generation of workers to support them in more catered ways. For instance, we’ve noticed that the Gen Z workforce thrives on constructive and constant feedback, so we’ve created more opportunities for dynamic feedback exchanges and two-way communication. We’ve enhanced our own internal digital platforms to support this trend, so we feel better equipped to take care of the next wave of hospitality workers.
Another approach we’ve taken with success has been to tap into our local collegiate population to provide students with internships and mentorships. We have a handful of revenue managers who we worked with as interns and now direct our revenue teams. We’ve even started looking at students with non-standard (no hospitality) degrees to obtain employees with unique backgrounds to support our evolving industry.
Kyle Hughey Charlestowne Hotels
We saw a few management companies acquired this year. Do you think that trend will continue?
Baerwalde: Yes, I do believe the trend will continue. The pace will likely remain the same, and the consolidation will be of smaller groups that are looking for greater scale to support their hotels and associates. There will likely be a continued trend of owner/operators that move to outside management groups to achieve the same, with more resources and support.
Scale does not always translate to results. We understand that to be consistently achieving our goals we have in front of us, we must be able to do the simple things well. While scale does not guarantee that, it does give hotels a better opportunity to deliver on expectations. If the consolidation is done right, it should translate to improved culture and results throughout organizations.
Hughey: Due to the tightening of capital, we’ve seen this trend slow a bit already since the beginning of the year. Now, we anticipate most of these future transactions will become more strategic or niche in nature. For instance, a branded or larger management company might purchase an independent management company to more strategically build out their arm of boutique and independent properties. These mergers are happening less frequently now, but that’s also likely since many major mergers have already occurred over the last two years.
What do you expect in 2024?
Baerwalde: I expect 2024 to see much of what the recent trend has been— slower revenue growth and challenges with talent acquisition/retention. I do expect a continuation of improved guest experiences with hotel teams settling in and adapting more to the post-pandemic world. Hotels will be trading at a faster pace than 2023, the result of renovation requirements, debt maturity and evolving portfolio strategies. Negotiated and group demand will continue to improve, especially on the larger convention segment. Inflation, while slowing down, will continue to pressure operators to be careful and purposed about spending.
Controls and discipline will be tested all year. Lodging will be challenged to continue to show young adults the career they can have, and that the industry is strong. Leaders will be tasked with developing others, college degrees or not, as the path to a successful career in lodging is a very real option. There has not been a better time.
Forde: The hotel industry is expecting a continued recovery, and we are forecasting ADR and total RevPAR to be ahead of 2019 levels. Beyond the financials, key trends that we foresee continuing to shape the future of the hotel industry will be ongoing digital transformation, sustainability, personalization of hotel experiences and innovation. We are focused on new opportunities to enhance the customer experience through leveraging the digital upgrades and increased training for team members. Data analysis will drive operational efficiency and provide a competitive advantage. Overall, we look forward to a continuing upward revenue trend and positive outlook for the industry.
Hughey: Labor will still likely remain a challenge across the industry. At Charlestowne, we’re analyzing every property we work with to find the best labor structure for them. We believe it is a hybrid approach that starts with a traditional staffing model, which then supported with temp labor in busier seasons. All expenses are under scrutiny, so hoteliers will want to make sure their spend is benefitting guests or bringing strong ROI.
On the revenue side of the business, we’ll continue to analyze success on a market-to-market basis. This past year saw some markets stabilize or decrease and others pick up steam. So, in order to evaluate success and growth, we need to analyze each market on its own.
From a Charlestowne-forward perspective, we’re planning to open three hotels in late 2024/early 2025 that are currently under development and working with our internal branding and creative team.
As we continue to grow as a company, we want to figure out how workflow, communications and leadership evolve with us. We’re adding some exceptional talent to our teams, and we want to find ways to leverage that talent to best serve our hotels and owners. This comes down to creating more opportunities for our hotels and corporate staff to connect. Next year, we have two major summits with hotel GMs and corporate teams planned, which will create moments for organic connection, collaboration and innovation.
