Hotel profitability might take a while to recover

1. My family was on a staycation last weekend and it told me more about the state of the hospitality sector.

2. Hotels were hit hard by the pandemic and even after two years, Singapore has not fully open to tourists. But some signs of recovery have been underway.

3. The improving occupancy rate was obvious to me during breakfast where the restaurant was filled to the brim. And it was clear that the hotel was severely understaffed to be ready for such a crowd.

4. There were long queues for every station and the food were not prepared well. The shrimp wanton noodles had neither shrimp nor wanton. A staff, who was clearly untrained, served 3/4 milk and 1/4 tea to another customer.

5. The restaurant crew were generally flustered and trying to keep up. They were doing their best but it was too overwhelming.

6. I wondered if it was an isolated case but it wasn't. Such situations were already reported in the news last month. There was a case where customers were waiting for 2 hours to check in because housekeeping was behind schedule.

7. If we look at the Singapore hotel statistics, we are seeing the average occupancy rate climbing in 2021, peaking at 78% in Nov 2021. In comparison, pre-covid was over 80% while the worst period of the pandemic was 40%.

8. Revenue Per Available Room (RevPAR) was at $156.45, compared to >$180 pre-Covid and $36.25 at the bottom. Hospitality has came a long way and survived the bad times. We are operating close to pre-Covid numbers.

9. The customers have returned but the staff have not. During Covid, many hotels have laid off staff and some decided not to return if they have found a greener pasture. Foreign labour is not coming in so the labour pool is small for the hotels to tap on.

10. To make things worse, post-Covid measures require more staff than before. For example, I saw a staff dedicated to monitor the safe entry movements. At the restaurants, more servers were needed because we are no longer allowed to self-service for drinks and food.

11. Even if getting new staff is possible, it takes time to train and it would never immediately replace the experience lost during the exodus. Expect hotel quality standard to suck for a while.

12. I would also expect the labour cost to climb as a result of this shortage and hiring pressure. The fastest way to bring more job candidates to the pool is to increase the pay so hotels who are desperate might engage in a bidding war.

13. This may not be a bad thing but it will eat into the profits of the hotels. Hence, we may see revenue growth but profits remain thin if any. Dividends continue to be low or non-existent. So shareholders don't be too quick to expect a full turnaround for hotel stocks even if we open up.