Small businesses tend to thrive—or are given every opportunity to—when they have few intervening forces. In America, that can often come in the form of government regulations; Uncle Sam sticking his nose in: He wants you!
The Indian-American community has helped build and shape the modern U.S. hotel industry, first- and second-generation hoteliers, through hard work and determination, and the largesse of family or regional bank lending.
America has given them opportunity. In return, they’ve embraced the country and bestowed upon it the hotels and motels that have made it comfortable for millions of Americans to travel this fair land of ours.
All they ask is to allow them to flourish with as little government interference as possible. It’s also a sentiment echoed by the many lodging franchisors that members of AAHOA and others use to brand their hotels—from Days Inns and Red Roofs to Motel 6s and Best Westerns.
Queried during a panel session at the 2024 AAHOA Convention over what is the biggest challenge facing hoteliers today, the answer wasn’t inflation, it wasn’t interest rates, it was the government.
“Government should not be as involved in our business,” said Geoff Ballotti, president and CEO of Wyndham Hotels & Resorts, which recently staved off an acquisition attempt by Choice Hotels International, due, in part, to a government agency, the Federal Trade Commission, voicing serious concerns over a merger.
He continued: “Our Department of Labor should lower your labor costs, not see them go up.” Consider California, where on April 1, it was no April Fools’ Day joke for franchisees, as a new $20 minimum wage requirement took effect for fast-food workers. It’s $16 statewide. Higher labor costs hurt owner margins and customers: higher wages often mean passing the buck on to consumers. It also can contribute to further automation: checking into a hotel through a tablet or kiosk rather than a human.
“Why does AAHOA exist? Why are we here?” Ballotti asked. He implored the audience to step up and make their voices known: “Your voice is more impactful than any of ours in D.C.,” he said. “Get the interference out.”
Raj Trivedi, the former president of La Quinta and current managing principal of Tri Star Trivedi, was even more blunt: “They have no business in our business. Keep them away.”
Government can only shoulder so much of the blame. Market dynamics play a major role determining owner profit margins, under pressure from expenses stemming from a host of variables, including insurance costs, as Larry Cuculic, president and CEO of BWH Hotels, emphatically pointed out.
“We are all feeling the pain of it,” said Julie Arrowsmith, president and CEO of G6 Hospitality, which franchises the Motel 6 and Studio 6 brands. She advised hoteliers to partner with insurance brokers to help bring costs more in line and to leverage the brand for additional assistance.
“It’s a huge challenge,” Cuculic said of it, but far from the only one that is impacting margins, argued Trivedi, ticking off culprits like general supply costs, along with labor and the higher cost to finance new projects or renovations. “At the end of day, the brand response is to improve owner margins,” he implored.
Accepting the challenge, Ballotti was earnest in telling the audience to hold brands accountable. A brand’s value proposition, he noted, is to give hoteliers the necessary tools and guidance to succeed financially and improve the guest experience. “What you are paying us for is an owner-first proposition to get you the most money,” he said.
Value for the fees franchisees pay the brands is key, said Cuculic. “It’s about driving revenue and support for hoteliers,” he said.
Another hurdle hoteliers are contending with is the high cost of debt that has made it more difficult to both build new properties and buy and sell them. As the industry awaits the next Federal Deserve decision on interest rates—with many believing a rate cut imminent this summer—lending remains a pricey proposition. “It’s a big issue that impacts refinances, renovations, buying or selling” said Greg Juceam, president and CEO of Extended Stay America. Higher rates and higher loan-to-value ratios have stymied deal volume. “It is down because of that,” he said. “There is evidence the big banks will lend again and spreads will tighten, but regional banks still are not.”
Another expense that owners need to be cognizant of is technology, which continues to evolve at a brisk pace. Artificial intelligence is now ubiquitous discussion with John Murray, president and CEO of Sonesta Hotels, calling it an opportunity with a learning curve. “We are still learning about it and it can make employees more efficient,” he said.
Most hoteliers up to now have noted the awesome power of AI, harnessing it, and how it can be used not to replace human employees, but free them up to focus more on guest engagement. “AI is becoming more prevalent,” Trivedi said, adding that it can also be used to better get to know the guests in a more personal manner. “Let’s make it a priority to minimize guests to write a critical review.”
Beyond technology, getting back to the basics of hostelry and hosting are still the fundamentals that, in the end, leads to profitability. BWH’s Cuculic said that the word “appreciation” had been resonating with him of late, as it related to guests. “Hoteliers, if you show guests you appreciate them, you will gain loyalty,” he said.
“Go back to the fundamentals and create a value proposition,” Trivedi said. For example, what does an economy guest expect when he or she travels? Trivedi said it’s a clean and comfortable room. “It starts with quality and consistency.
Arrowsmith, whose brands operate explicitly in the economy segment, noted the huge demand for travel that necessitates a premium to be put on quality—no matter if it’s an economy or luxury product. “We cater to the economy traveler that wants quality, but not luxury,” she said. “They like that we are consistent and safe and we will message that.”