HotStats: Zero-based budgeting is essential amid volatility

ZERO-BASED BUDGETING is essential for hotels amid near- and long-term volatility, according to a blog from HotStats. The blog also suggested that hoteliers need to turn to other futureproofing or future-cushioning methods.

In a recent blog post, Michael Grove, COO, HotStats said that zero-based budgeting, a method of budgeting in which all expenses must be justified for each new period starting from a zero base, is very necessary given the fluidity of the global economy and, ultimately, its impact on hotel operations. At the recent 2022 M3 Partners meeting, Grove first illustrated the pandemic’s effect on worldwide profits and how it’s changed the landscape.

"It’s worth reminding ourselves of the importance and magnitude of the U.S. hotel industry’s share on the global scale, which has only grown during the pandemic,” Grove said in the article.

According to the blog post, almost half of global profits are produced in the U.S. and that share only rose as the pandemic slackened.

"A massive 47 percent of hotel profits are achieved in the U.S., up 6.6 percentage points since 2019, the result of myriad variables, including a large domestic market and staycation trend," Grove said in the post. "Meanwhile, severe lockdowns and restrictions in Europe and Asia-Pacific sent their percentages down as the Middle East received a boost in the fourth quarter 2021 from Expo 2020 in Dubai."

The blog post added that the recovery in the U.S. almost back to attaining pre-pandemic profit on a nominal basis.

"Within the U.S., asset classes reacted differently to and during the COVID pandemic. As luxury hotels fell the fastest and farthest, they popped back the quickest and the most—now eclipsing 2019 GOPPAR. Extended-stay, limited-service and select-service saw the least vacillation while full-service hotels fell flat, but are now back to 2019 levels," Grove said.

"The biggest pain point for hoteliers—and employers globally—has been labor: sourcing it, hiring it, keeping it. For the hotel industry, labor across the board is still down versus baseline 2019 but is rising in the housekeeping and F&B departments. Hotels in the U.S. added 22,000 jobs in April. As labor costs remain somewhat muted, other expenses across the P&L are surging," the blog post said.

According to Grove, the labor challenge continues with struggles in recruitment and retention of staff compounding inflationary increases in pay.

"Increased costs are slowing the profit ramp up, however, much is being offset by efficiencies. It’s time to revisit ROI on energy-reduction projects, with owners making more of a pivot to ESG measures," he added.

In another recent blog, Grove said that major challenges faced by U.S. hotels are labor, the return of corporate, group and conference travel, the impact of inflation on cost lines and the energy crisis.