As demand quickly picks up for the travel industry, concern about a labor shortage is growing. The question now: Will higher labor costs weigh on the companies’ recovery?
When the pandemic forced hotels, casino operators, cruise companies and other travel companies to shut down or pare back operations in March 2020, it triggered a wave of furloughs and layoffs. Now, as domestic leisure travel continues to rebound, many of these companies have had to start adding staff.
Hotels and casino companies that also operate hotels have borne the brunt of this situation. Cruise companies remain unable to sail out of U.S. ports, though restrictions could ease by July.
Patrick Scholes, a lodging and cruise company analyst at Truist Securities, in a note Thursday called the labor shortage a serious challenge. “While it is difficult to precisely gauge the financial impact labor pressures could have, the concern is that higher wages could outweigh post-COVID operating efficiencies at hotels,” he wrote in a note Thursday.
Consider the situation at
MGM Resorts International
(ticker: MGM), where CEO
told analysts during the company’s first-quarter earnings call Wednesday that it was “caught off guard” by a surge in leisure customers last month.
First-quarter room occupancy for the company’s Las Vegas Strip properties was 46%, versus 38% in the fourth quarter. March occupancy was 62%. And April was looking even stronger, according to CFO
who said “our Las Vegas Strip occupancy through last weekend was approximately 73%.”
Hornbuckle said he expects the company to be able to add staff to compensate for the demand increase.
“It’s a national shortage,”
MGM’s chief operating officer, told analysts. “We are well aware of it. We have instituted some things on the hiring front to help alleviate some of that pressure.”
Sanders continued: “We’re hoping in the next 60 days that we catch up back in that staffing area. But in general, we are able to operate at levels we’re comfortable with. But, yes, there is a little bit of a burden right now.”
Shares of MGM Resorts have gained about 30% this year as of April 27. Hotel companies
Hilton Worldwide Holdings
(HLT) have appreciated 13% and 16%, respectively, ahead of the S&P 500’s gain of about 12%.
Still, the labor shortage remains a wild card for hotel and casino stocks that some observers don’t think will be easily resolved and could hurt customer perceptions.
Scholes points out that property-level managers handled hourly responsibilities like housekeeping or managing the front desk when occupancy was low during the pandemic.
“Now the issue is that many hourly employees who were let go in 2020 have permanently moved on from their pre-COVID industry roles in no small part due to better paying and more stable industries elsewhere,” Scholes said.
Meanwhile, the staffing situation could have a ripple effect for these companies, said Joan Eisenstodt, who runs a Washington, D.C.–based consultancy for the hospitality and meetings industry.
If service levels aren’t up to pre-pandemic levels, she said, customers might think, “Wait a minute, why am I going to travel?”
Write to Lawrence C. Strauss at [email protected]m