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Could revenue management solve hospitality’s labor shortage?

Copyright: AndreyPopov, Bigstock

After suffering the effects of COVID-19 for several long years, the tourism and hotel industries are now fully entering the recovery phase. According to a report from the UNWTO, international arrivals surged to 80% of pre-pandemic levels in the first quarter of 2023. Approximately 235 million tourists embarked on international travel during the first three months of the year, marking a two-fold increase year-on-year. The current issue is no longer a lack of tourists but rather a shortage of personnel to cater to the throngs of visitors.

Long hours, low wages, part-time or seasonal contracts, disgruntled customers. The litany of reasons behind the labor shortage in the hospitality industry is both well documented and historically persistent. And then came Covid. Those who didn’t lose their job during the shutdown (or quit during the Great Resignation) are still shunning hotels and restaurants. And despite revolutions in the back office (online reservations, etc.), robotics and AI are, by and large, still pipedreams for hospitality executives looking to shed customer-facing payroll. Such investments are too onerous and have yet to materialize as a near-term solution. So how can this supply and demand imbalance be resolved or at least attenuated?

Turning revenue management upside down

What if revenue management could be wielded to turn hospitality’s weaknesses (i.e., instability) into strengths (i.e., flexibility)? Indeed, some job seekers value flexibility more than stability. For example, stay-at-home mothers with young children may prefer short-term work in the morning or students may be available to work the weekend shift and earn some pocket money. The hotel industry has long used revenue management strategies to increase profits by capitalizing on the differences between supply and demand. Why not turn the equation around and make revenue management work for people?

The primary component of revenue management is the dynamic pricing approach, which capitalizes on short-term constraints related to room availability. When demand is high, the room rate rises – and vice versa. In housekeeping, where it is particularly difficult to attract and retain workers, the number of personnel needed fluctuates depending on demand for rooms. If the hotel is nearly empty, rooms don’t need to be cleaned and housekeeping staff won’t have much work to do. Also, the supply of housekeepers varies: fewer employees are inclined to work on weekends or holidays. This imbalance is often a headache for hotel managers piecing together the staff schedule.

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Adjusting wages: Unpopular shifts should pay more

However, there is potential for new technologies, such as artificial intelligence, to provide solutions to these challenges.Adjusting wages dynamically, just as we adjust room prices to control customer demand, could be a solution. When there is a shortage of housekeeping personnel, the hourly wage would increase to make the shift more attractive to potential workers. With a smart system, it should be possible to calculate the wage levels that job seekers would be willing to accept. Additionally, the system can assess whether hiring at those wage levels would be profitable for the hotel, taking into account expected revenue and all other associated costs.

Career development: A national system to make hospitality more attractive

A national database of hospitality workers could function as a type of talent management system, incentivizing employees’ career growth. Instead of offering uniform wages to all housekeepers, differentiation would be based on qualifications and performance evaluations. Moreover, individuals with extensive experience and positive evaluations from their employers could take on managerial roles (e.g., Director of Housekeeping) or become instructors providing basic training to others. This could help dispel the notion that hospitality only offers ‘dead-end jobs’. Hoteliers could conduct a search in the system, which would reflect the real-time supply of labor, when they need to fill an unpopular shift.

Help wanted

Of course, for this approach to be successfully implemented, there are several prerequisites. Even though housekeeping roles may not require extensive training or advanced skills, they do demand a basic level of knowledge and skills. Hotels typically provide basic training to employees before they start work, but having a flexible labor market where new individuals join as housekeepers every time could be cumbersome and costly for hotel operators.

While the amenity levels may vary from hotel to hotel, and there may be specific areas housekeepers need to pay special attention to, there are common tasks and procedures that apply universally. Therefore, when a hotel hires someone with this basic knowledge (as demonstrated by a skills certificate), it could lead to time and cost savings in terms of training. A nationwide program that administers basic training and grants various certifications may be a solution. It would potentially be more beneficial if all hotels participated in an information exchange program, such as a database with the names, qualifications, certifications, work experience, etc. of hospitality employees who could also indicate their job preferences, including location, working hours, and salary requirements.

Could ‘dynamic wages’ solve understaffing in the hospitality industry?

What content will be included in the basic training and certification process? Who will be in charge of ensuring the stability and security of the system and database? What will labor unions think? The idea of a system of this kind raises several questions. Although society is getting accustomed, albeit reluctantly, to dynamic pricing (e.g., from airfare to movie tickets), hoteliers would have to gauge workers’ “unfairness perception” of such a system. How much variation in their hourly wage are they willing to accept?

Yet, this nationwide tool could be even more ambitious. Indeed, it could calculate labor demand sensitivity by taking into account job market fluctuations and wage variations, thus providing optimized solutions. Such a system could facilitate the accumulation and analysis of industry-level workforce market data over the long term, offering information on what kind of technical training is needed.

While there are various factors to consider for implementation to be successful, hospitality must think outside the box if it is to tackle the labor shortage. Perhaps revenue management, although much maligned by customers and guests, could help ease hospitality’s chronic understaffing problem.

Authored by Dr Cindy Heo, Associate Professor of Revenue Management at EHL

Tags: career development, dynamic wages, labor shortage, Revenue Management

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EHL Hospitality Business School, founded in 1893 as Ecole Hôtelière de Lausanne, is renowned as a center of excellence for service-focused industries. Learn more at https://ehl.ch/

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