Global hotel room prices are skyrocketing, but the 5-star vacation crowd remains unfazed despite lackluster service due to worker shortages

Luxury travelers are not concerned by the inflation in hotel prices.

Oleg Breslavtsev/Getty Images

• Global hotel prices have increased by 184% from a year ago, per Travel Daily Media.
• This is due to a sudden surge in travel demand, worker shortages, and a dearth of of guestrooms.
• Hotels have introduced sign-on bonuses as high as $2,000 to overcome labor shortages.

When the Covid pandemic first hit in early 2020, more than 142 countries instituted complete or partial border closures, with 91% of the world's population restricted from travel in March 2020, according to the Pew Research Center.

But now, as travel has resumed faster than expected following an accelerated vaccination roll-out in high-income countries, hotels worldwide can't keep up with the pent-up demand amidst labor shortages, causing room prices to skyrocket.

The UK Buy Now Pay Later (BNPL) platform and partner travel agent Butter found that hotel room rates increased by 184% between October 2020 and October 2021, per Travel Daily Media. And yet demand for hotel stays in New York City rallied by 361%, causing a 28% price increase across the city. Meanwhile, in Europe, Rome and Lisbon experienced room price increases of 23% and 20%, respectively.

While price increases are partly due to the sudden surge in travel demand, the lack of supply in guestrooms and staffing add to the problem, experts told Insider.

Most hotels are unable to open at total capacity due to labour shortages.

Martin Harvey/Getty Images

Lim Hui Ting, a co-founder of ultra-luxury travel agency UniqLuxe, told Insider that many hotels are still unable to open at total capacity, with many operating at 60% to 70% occupancy. 

The reasons for reduced room capacity vary: While a few hotels used the downtime in travel to renovate, the majority cannot fully reopen due to a shortage of labor caused by hotels letting staff go to stay afloat during the height of the pandemic, Lim added.

In March, the US Bureau of Labour Statistics reported that the leisure and hospitality industry faced a quit rate of 5.7%. The high rate of resignation is primarily due to burnout among service staff, many of whom had to double-up shifts to cover colleagues who were let go, per The Economist. 

Nonetheless, the jump in prices hasn't fazed consumers with deep pockets. 

According to Lim, her clients have been very accepting of the new hotel rates, noting that people have put off travel for the past two years and are eager to pamper themselves. "Even if entry-level rooms are sold out, they are fine with booking the higher categories," Lim said.

However, as hotels enjoy increased revenue after a two-year lull, the staffing crunch may ultimately be a double-edged sword, as high-net-worth travelers still expect five-star service. Leaving them unsatisfied on their holidays will, in turn, cause them to become detractors.

 

That's what happened to 55-year-old Wendy Chong when she stayed at the 5-star Amara Sanctuary Resort Singapore. Chong told Channel News Asia that her room — for which she paid SG$2,000 ($1,440) for a three-night stay — was only ready two hours after the stipulated check-in time. Despite the delay, the concierge was unapologetic, prompting Chong to leave a bad review on Facebook.

A 40-year-old hotelier who works for a luxury group and asked to remain anonymous to protect his job told Insider: "It is expected for service levels to drop with so many guests and not enough staff to service them. But if guests are dissatisfied, they will not book again. Hotels will be forced to reduce prices in the long run." 

A labor crunch causes shifts in service and sky-high hiring bonuses

Marriott's chief global officer told CNBC "more and more of [Marriott's] guests have actually asked that [housekeeping doesn't] come in their room."

Nastasic/Getty Images

Many hotels have also changed up how much service they provide to guests during their stays, though in wildly differing ways. At Hilton hotels in the US, housekeeping will only be done on the fifth day of the stay — unless guests opt-in to additional housekeeping services — to compensate for the lack of housekeeping staff. Hotels are defending their stance of removing daily housekeeping by claiming guests are not comfortable with people entering their rooms after checked-in after the pandemic. Ray Bennett, chief global officer for Marriott, told CNBC that "more and more of [Marriott's] guests have actually asked that [housekeeping doesn't] come in their room."

Meanwhile, hotels across Europe and Asia Pacific have had housekeeping staff adhere to a more stringent post-Covid cleaning regimen, which requires increased sanitization of the rooms.

To overcome the labor crunch, hotels have introduced sign-on bonuses as high as $2,000 for housekeeping and kitchen positions to lure staff back. The bonuses are paid over several months to ensure employees stay. 

But such one-off incentives may not be appealing enough to solve the labor shortage in the long term. According to CBRE Hotels' March 2022 US Hotels State of the Union report, frontline hotel employees earn 12.8% less than retail workers. Hotels would need to start re-evaluating their wages if they wish to attract and retain employees back to an industry that no longer seems stable after the pandemic, per Skift. 

But as hotels struggle to hire and retain a workforce in a post-pandemic environment, those who can afford to seemingly have no qualms about splashing out more cash for top-tier service.

 "While I would be empathetic towards the plights of housekeepers, I would rather pay top dollar to ensure I find a hotel with better service," Beatrice, a 29-year-old financier who preferred not to disclose her last name, told Insider. 

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