New York City hotel labor peace: But at what cost?

New York City hotel labor peace: But at what cost?

Sometimes even the best of intentions amaze me. It wasn’t too long ago (fall 2008) that the hospitality world came to a crashing halt. The stock market implosion, collateral debt obligations and the mortgage crisis lead to a near total collapse of our financial systems. Lehman Brothers failed. Other financial lending and mortgage institutions limped along on deathwatch. And our hotel industry? My, how we forget the number of jobs lost as the entire groups segment literally disappeared overnight. Corporations were even clamoring to pay penalties to get out of meeting contracts, rather than be seen as “wasteful” or “bad citizens, not doing their part to save the fragile economy,” ignoring for the most part what their decisions were doing to our own industry.

Fast-forward three-and-a-half years, which can usually be considered a very short timeframe in the world of fixed asset management. It seems as if New York City is suffering a strong case of amnesia, or perhaps at worst, Alzheimer’s! I don’t know about your own property’s bottom-line health. Surely it has improved since Q4 2008, but I suspect you are not basking in record RevPAR and GOP.

Yet, the members of the New York City Hotel Trades Council have just ratified one of the most one-sided union contracts in memory. The results of this agreement will be foreboding and far reaching. You might be thinking NIMBY (“not in my backyard”) if your property is not in the Big Apple. But remember, what starts in one location can rapidly spread across the country.

There is no doubt this contract is a hotel worker’s dream. There were no givebacks, just giveaways. These were not paltry increases; rather, in an environment of soft economic recovery, many on the hotel business side could consider this as “reverse-usury” with a one-sided result favoring the workers. 

Peter Ward, the head of the Hotel Trades Council, called the agreement “an excellent deal for New York City hotel workers” and “a spectacular accomplishment.” From his standpoint, in the short term, there is no doubt that his commentary is indeed accurate! Some of the highlights in the Contract Ratification Book include:

  • “The highest wage increase our Union has ever negotiated, totaling 29% over seven years,” while noting that in 2011, “the average first-year increase negotiated by (other) unions, nationwide, has been 1.3%.”
  • “Most unions … are being forced to negotiate reductions … in their members’ health coverage. However, under this proposed agreement” … we will “dramatically increase employer contributions to the health plan — an increase of 19.5%.”
  • “Another powerful and disturbing trend that currently plagues our country has been the attack” on the “right to a pension.” … “This proposed contract … will increase employers’ contributions to the pension plan by 16.67%.”
Sounds like he has delivered the TRIPLE CROWN of negotiation: wages, health and pensions, all increased at rates well above inflation. Wow, I want to be a member of that group too!

But wait, that’s not all. This negotiation had further value-added bonuses, too. There were many other rights in addition to the above won by the union, including the right to organize by card check neutrality, the wide expansion of the geographic range of the contract (to include New Jersey and Long Island), the inclusion of owners and affiliates in the agreement. I probably missed a few items along the way. Sorry, but this contract is an eye-popper.

I scratch my head, and if you own or operate a hotel (unionized or not), you had better start doing a lot more than scratching. How this was possible? I doubt that few hotels, even in New York City, have been able to restore profitability levels to those achieved in the recent past. Indeed, many properties are fighting to stave off bankruptcy, given the debts generated as a result of lower than expected RevPAR over the past few years. As I mentioned, New York City is not an isolated market. What starts in one city can spread very quickly.

So, I ask, how did the Hotel Association reach this accord, in particular, with limited press, and I understand, well ahead of the need for ratification? Who was involved in the detailed negotiations, and was this representation fairly and accurately presented to the hotel owners? Were representatives of member hotels involved, or was this a solo effort? How did a deal so one-sided get concluded in less than three weeks? All are interesting questions, and ones that desperately need to be answered.

The broader question is this: Can a hotel industry already hampered by lower occupancies and lower RevPAR manage to survive in an environment of rapidly increasing costs? Something has to give. Try this: put one hand in each pocket and squeeze them together. Painful? You bet.

On September 30, 1938, the U.K. Prime Minister Neville Chamberlain in his speech concerning the Munich Agreement spoke these words: “My good friends, this is the second time in our history that there has come back from Germany to Downing Street peace with honor. I believe it is peace for our time. We thank you from the bottom of our hearts. And now I recommend you to go home and sleep quietly in your beds.” You know what happened next!