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Thursday, October 13, 2011

Hotels Have Less to Cut if Economy Falters

USA Today: If the economy worsens and people start curbing travel again, will hotels cut their payrolls to the extent they did in 2009?

The short answer: No. There are fewer managers, housekeepers and clerks to cut today than during the depths of the recession, according to the CEO of the nation's largest real estate investment trust.

A Wall Street analyst posed the question yesterday to Ed Walter, CEO of Host Hotels, during Host's fairly optimistic third-quarter earnings call. Since Host owns 120 hotels with well-known names such as Marriott, Four Seasons, Hilton, Sheraton, Fairmont, Westin and Hyatt, I thought you might like to hear his reply.

Hotel staffing levels, after all, can have a direct impact on the quality of your stay.

So what did Walter say?

First of all, remember that over the last two years, we saw hotels cut operating hours for a variety of services to shrink labor costs - a hotel's biggest expense. Some properties cut hours at the VIP lounge since there were fewer VIPs around, while others reduced room-service hours.

In response to the analyst's question, Walter yesterday said that he could see cutting staff at Host hotels if - and that's a big if, given the company's relative optimism - corporate and consumer optimism faded and travel demand sank.

"If you start to see a meaningful falloff in occupancy, then you're going to see that you're going to go back and cut the hours that food and beverage outlets are open. You're going to end up with fewer housekeepers and you're going to end up with fewer managers than we have right now."

The cuts, however, couldn't be as deep as they were in 2008 and 2009, he said on the call. That's because Host has been "working hard with each of our operators" to ensure that staffing levels didn't balloon as times improved.

"Where we we thought cut fat last time, we haven't wanted that to return," he said.

Asked whether Host had added back employees in its hotels since the industry's darkest days in 2009, Walter said yes, but only in proportion to the occupancy growth seen at its hotels. On an estimated full-year basis, occupancy levels at its hotels will be 72% this year, up from about 66%, he said.

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