On May 5th, 2023, almost 3 years after Covid-19 first hit, the World Health Organization (WHO) finally declared the official end of the pandemic. Many businesses had already begun rebuilding from the losses they experienced during those three years. Despite the impacts of Covid-19 gradually subsiding, many industries are still struggling to get back to their pre-pandemic state. Of those industries, global hospitality has had an especially hard time rebuilding after consumer behaviors and industry landscapes have changed so dramatically. From hotels and resorts to event venues, hospitality sectors face numerous challenges as they strive to reach a stable place in the market.
Challenges Faced by the Hospitality Industry
In 2020, at the pandemic’s peak, the hospitality industry reduced its workforce by more than 18%, totaling 62 million jobs lost worldwide. As the demand for travel and accommodation has slowly grown over 2021 and 2022, the industry needed to re-fill many of the jobs that were lost during the pandemic. Staffing shortages have been a major problem for the past three years and are projected to be a driving factor in the unease of the industry. While staffing has certainly improved, 2023 hospitality employment is predicted to remain millions below what it was in 2019.
In addition to employment challenges, rising costs from inflation continue to challenge hospitality businesses. The desire to travel has increased since 2020, but inflation has made it more challenging for consumers to pay for their trips. The average household is cutting back on even the most basic expenses, like food and utilities, which leaves travel lower on the priority list. Business travel, which is a main source of profit for the industry, is also cutting back as remote work takes over and companies look to cut costs.
Aside from consumer habits, inflation has also raised labor costs for hotels, resorts, and event spaces. Equipment, goods, food and beverage, and transportation are more expensive now as well. This has made it challenging for the industry to manage its financial well-being while battling labor shortages and more frequent vacancies.
In addition to labor shortages and inflation, global unrest has had a significant impact on the overall travel and hospitality sector. With wars looming over multiple countries, and gun violence spreading across the United States, travelers are more hesitant when planning trips. Reputation has always had an impact on travel and tourism in general, but with social media spreading news more intensely, the impact is felt more than ever before.
When one of these factors plays into the industry at once, concrete steps can be taken to challenge them and reduce the overall impact. However, the hospitality industry has dealt with all of these factors more simultaneously, creating a ripple effect that is difficult to overcome.
Outlook for the Hospitality Industry Expects Positive Turnaround
Back in 2020 and 2021, the outlook for the hospitality industry was bleak. Experts were examining profits dropping billions of dollars and labor shortages continue to increase. It was difficult to predict how long it would take to recover from years of lost profits, but more recent examinations have been overall positive.
According to recent reports by the EY organization, despite the continuation of inflation, the demand for travel will increase this year through 2030. Optimistic outlooks for hospitality are relying on leisure travel increasing, with most people planning at least one vacation over the next 6 months, Surveys also showed that group business travel will increase by 13% according to convention center statistics. In addition, a survey conducted by Morgan Stanley showed that corporate travel budgets are to be 98% of what they were in 2019 before the pandemic hit. These predictions are extremely positive given the outlook a few years ago, and those in the industry are working hard to combat the remaining challenges and stay in alignment with the predicted turnaround.
With regard to occupancy, though still below pre-pandemic levels, they are expected to grow at an annual rate of 4.1%. Given the downfalls of 2020 and 2021, any growth rate is a positive sign for the industry.
How can Hospitality Businesses Thrive in the Current Economy?
Businesses in the hospitality industry are looking forward to growing their profits and overall well-being over the coming years. While the outlook is positive, it's still a challenging economy that requires a strategic approach to growth.
Hotels and venues should adjust their prices to accommodate inflation costs, and ensure their pricing is competitive with the current market. They should also closely monitor revenue and losses, and plan for any unexpected expenses.
Sales enablement is a crucial aspect of bringing in new and returning customers, and finding innovative ways to cut costs while still marketing to the target audience will help grow revenue with lower upfront investments. Experts recommend using sales software and automation that can streamline sales and marketing, providing a long-term plan that won’t incur high costs over time.
While there is no one way to grow in this economy, all businesses should be cautious and aware of the challenges they face, and find innovative ways to combat them.
Hospitality Insurance with ECBM
ECBM understands the unique challenges the hospitality industry faces. Our experts have the tools and experience to provide coverage that will ensure the overall safety of your business, and protect you against the varying risks you may have. Our aim is to provide you with the highest quality coverage at the lowest possible cost, so you have peace of mind knowing your business is in good hands. For more information on how we can serve your business, contact one of our agents.