Hoteliers Need Not Worry About Economic Woes

Rising inflation and labor costs may not be as big an issue to hoteliers as they worry it will be.

A new report by Cornell professor John Corgel released through the university’s Center for Hospitality Research, may help ease the minds of hoteliers in the U.S.

Many are worried about increasing labor costs and rising inflation possibly causing profits to decrease  minimum wage, for example, is expected to rise to $15 an hour in many cities and states, and new overtime laws were introduced last year that drastically increases the amount of employees eligible for overtime pay.

But according to Corgel, this doesn’t spell disaster for hotels. What it actually means, he says, is that increased cash flow and expenses will allow hotels to increase room rates accordingly and maintain a profitable business.

Corgel lays it out in his report: “If the inflation rate continues to move upward as predicted by Phillips Curve models (and encouraged by the Federal Reserve), rising labor costs and other expenses will exert downward pressure on U.S. business profits. Backward movement up the Phillips Curve (with greater inflation) coincides with an expanding economy. In that scenario, prices of goods and services also will rise in real terms if their supply cannot keep up with demand, and producers have the ability to raise prices (absent fixed-price contracts such as leases).”

In simpler terms, “the hotel business depends largely on leisure guests, and these people will have more money for traveling as their incomes rise,” he said in a release about the report. “Second, hotels alone among real estate categories can raise rates to overcome the higher expenses caused by increased wages.”

[Photo: Getty]