Odd Lots - The Labor Episode: How the Omni Hotel Chain Is Dealing With Hiring Right Now

Episode Date: July 12, 2021

One of the big stories in the economy right now is the high number of unfilled job openings in the leisure and hospitality sectors. There are numerous theories for why these businesses have had a hard time hiring. And there are a lot of questions regarding how long this will last or whether this will be a new, more permanent condition. To better understand what's going on, we spoke with Kurt Alexander, the CFO of Omni Hotels & Resorts, about what they're seeing and what they're doing to bring in employees.See omnystudio.com/listener for privacy information.

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Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg Television, Radio, and wherever you get your podcasts. Oh, and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. So Tracy, obviously one of our big themes so far for the podcast, and I guess for the economy overall, has been the sort of like shortages and bottlenecks that people have experienced across, across business, across supply chains in the wake of the crisis.

bottlenecks everywhere and in everything it feels like sometimes. And of course, one of those bottlenecks is in the labor market. Yeah, exactly right. Like this is, I would say, the one other sort of like big thing that we have yet to really talk about, which is that numerous businesses, largely in leisure and hospitality, but not just that area, have voiced, I don't know if frustration is the word, but have certainly found hiring to be much more difficult than they expected, especially coming out of a downturn, and even much more difficult than it was pre-crisis.

So the economists of all kinds of theories for why, but it's clearly a phenomenon of this environment that makes this moment distinct and is posing challenges to various managers, bosses, and companies. Yeah, so I'm obviously not in the state, so I've sort of been watching this issue from afar. It's not such a big thing in Hong Kong as far as I can tell. But I've seen some of the anecdotes about this, like, you know, signs on the front of fast food restaurants saying that they can't open today because they don't have enough employees or some of their employees didn't show up. I also know it's a very heated issue at the moment with, you know, it's sort of like a classic

labor versus capital kind of issue at this point with a lot of. of the companies blaming workers and saying they don't want to come back to work because they're afraid of getting COVID or because maybe they're getting unemployment benefits through the government. And so they don't feel compelled to go to work. And then the workers saying, well, if you really want us to come back, why don't you actually do something to encourage us and raise wages? I mean, that's the obvious thing for them to do. So yeah, it's an interesting one. And I'm very, very intrigued about this particular issue and how it's playing out over in the States. Yeah, exactly right. And we have seen pretty dramatic wage growth in the leisure and hospitality

sectors. Employers are jacking up wages to bring people back, but it seems like the effect has only been marginal so far. And, you know, we hear from a lot of economists. So they have their charts and they say, well, you know, here's the effective UI and here's the effective child care and so forth. But sometimes it's also really good to actually talk to someone in the hiring process and get away from all of the theory that economists like to talk about. In fact, I think we prefer it here. It's more interesting to talk to people who are involved in shipping or trading lumber or anything that someone with a lot of like charts and theories. We've definitely gone very granular this year. The other thing I was thinking, like it kind of gets into the overall topic of whether or not,

behavior has changed after the pandemic. Is this a fundamental shift in how people are approaching work? Like, going forward, are there just going to be fewer people who want to work in hospitality for whatever reason? Or is this actually a temporary bottleneck or supply shortage that is going to eventually work itself out? Yeah. And just to your point, there are like signs everywhere.

Like, not only does every place up that up has a sign, but like you go to, grocery store and it says in advance, like, sorry for the slow service in the line. We're having every place has a warning about that. It's really wild. Anyway, let's get into it because I'm very excited. We're going to be speaking with someone who's like right in the heart of all this going on. We're going to be speaking with Kurt Alexander. He is the CFO at Omni Hotels, which is a big hotel chain that has about 50 locations in North America, all very high end. And we're going to get into the nitty gritty of hiring and operations. at a hotel in this environment.

So, Kurt, thank you very much for joining us. Hey, good morning, Joe. Thanks for having me. Yeah, thank you so much for coming on. Before we get into the sort of like environment right now, you know, let's say like go back to say August, you know, of 2019 or February 2020, before COVID, what do you just sort of like describe a little bit about labor turnover and the sort of like, you know, the labor need.

and the general needs of a hotel chain like Omni. Yeah, absolutely. So pre-COVID, it was really a tough operating environment then. In COVID, really magnified and accentuated a lot of the things that were going on, which I think has been common across all sectors, every pocket of life that COVID has just kind of accentuated trends that were already in place. And so pre-COVID, we had about 22,000 employees work for us. unfortunately over the next kind of 60 days from February to April we got down to about 1,800 people so it was a pretty quick shift but but you know pre-COVID just to touch on some of

the trends and kind of things that we were seeing we were seeing mid single digit wage growth in the hourly workforce consistently turnover of about 30% a year again kind of in the hourly workforce ranks and a particular need for culinary talent and so So cooks, sous chefs, et cetera, even kind of waiters, waitresses and the like, but mainly back-a-house culinary. And it was really not even a function of wages. It was more a function of skills. And so we had a lot of conversations pre-COVID about how can we kind of build our own

workforce, so to speak. And we have a lot of destination resorts. And we thought about maybe even building a culinary school and working with the U.S. government on different immigration programs to, you know, get people to the states and train them and kind of, in effect, build our culinary talent. You know, food and beverage is something that we pride ourselves on Omni. And so we were really thinking through ways to solve that problem in unique ways and in COVID hit, right? And what we have seen is, again, culinary is at the top of our list. We just can't find anybody. So just before we get more into.

to the actual difficulty of finding the right people now. Maybe if we step back for one second. So I have to confess, the only thing I know about the hotel industry comes from that book, Hotel Babylon, which I guess is really old now. And then it was a TV show that was like on the BBC, I think, for a while. It was actually a really good TV show. But that definitely portrayed the hotel industry in a kind of like glamorous-ish light, depending on what job function. you were actually doing at a luxury hotel, maybe you could just give a bit more color on the types of jobs available at hotels, the types of people who typically might be interested in them.

Like, what is the proposition of going into the hotel and leisure industry as an employee? I think it's a really good question, Tracy, and one that probably varies based on the position. I think that at certain kind of higher-end management-level positions, it is very glamorous and interacting with presidents and movie stars and, you know, kind of living this billionaire lifestyle without being a billionaire. I think that some of the back of the house-type labor, you know, more entry-level, is just really hard work. And so a steward, for example, is a job we have at every hotel, and they clean all the dishes, and they clean all the all the equipment and make sure that it's ready to go. So very labor intensive, very manual.

Obviously, housekeeping, which I know we'll get into later, is a very, again, labor intensive, just hard job, right? I mean, a lot of our housekeepers are cleaning 12 to 15 rooms a day. And if it's kind of a stayover service, in other words, you're not checking out, but you're just, you're kind of in the middle of your stay. We'll come in and make the bed and give you, clean towels, et cetera, et cetera. And so in those cases, sometimes they're doing 20 or more rooms a day, right? So it's a really hard job and glamorous and kind of posh would not be adjectives to describe it. You know, I like the way you put that living the billionaire lifestyle temporary.

I never really thought about it or articulated that way. But now that I think about it, I guess that is exactly what's sort of fun about staying in a nice hotel is just like that brief. it's a very different life and I think the brief foray into the billionaire lifestyle is a way to put it. I don't know if I've ever spent a night at an Omni but I've been to the Omni in Austin. It is a very nice experience.

Last question before we move to the more temporary conditions in normal times as a, you know, and I guess as the CFO, you're in a good position to talk about this. Can you give us like the cost breakdown? Like how much of the hotel's costs are labor versus other things like property and so forth. Like what is, how much of the, how much is labor?

Yeah, a big piece. So in round numbers, in 2019, we did about $2 billion of revenue. And our labor cost was about $750 million. So, you know, it's kind of like you can do everything right. But if you get the labor part of the equation wrong, you're going to be wrong. And of that $750 million of salaries and wages, it's pretty consistently 80-20 between kind of the management wages and then the hourly workforce. And so rough math is we have $550, $600 million of hourly pre-COVID, right, in 2019. And you're right, from my seat, I sit there and say, goodness gracious, 10, 15, 20, 30 percent hourly wage.

increases on a $600 million number starts to get pretty, the numbers get pretty big, pretty quick, you know, but it's not even just the hourly. We're seeing the wage pressure everywhere. So let's talk about the labor shortage then. And one of the things I've been wondering is maybe you could break it down for us by factors driving it, because I was just thinking about your housekeeping example. And I imagine that cleaning probably became even more labor intensive over the past year or so, given concerns over COVID. So I'm curious how much of the labor shortage is driven by the need for more work versus how much is driven by an actual supply issue. I guess it's classic demand versus supply, right? Yeah, no, it's certainly going to be a supply issue,

Tracy. And interestingly, and we're not the only hotel company that has done this, but in large measure, we have found people don't want someone else in the United. And it's a lot of the room during COVID. And so it's allowed us and like said, many other hotel brands to really go in the opposite direction of, hey, we will provide housekeeping services if you want it, but otherwise, we are going to assume that you don't want it. And that has been a blessing in some ways because we have been so short-staffed. But in a lot of our hotels now, over the summer months. You know, we're running rates that are up 20, 30 percent versus 2019. And then you get into kind of the operational value proposition of what am I really getting for my, for my $500 a night?

And for us, we want to be able to differentiate ourselves and give you a great experience. You know, but it's truly a kind of a supply problem. And what we're seeing is as the demand for labor increases, there's just the supply is, is not there. I'm for. I'm for. Francine Lacqua, an award-winning journalist. And I've got a new podcast, leaders with Francine Lacqua from Bloomberg podcasts. I've interviewed everyone from Heads of State to fashion icons about the news of the moment. But I've always been curious who are these people as leaders. I don't think there's one right way to be a leader.

Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow leaders with Francine Lacqua wherever you get your podcasts. Can you just talk a little bit about the experience of going from 20 workforce of around 20 plus thousand to 1800? So we had the crisis. We had the acute shock when basically everything shut down. And we know that numerous services-based companies had to dramatically reduce their workforce.

And they received, some of them received PPP money. And then the people who got laid off were given expanded unemployment insurance. can you just talk a little bit about how that worked at Omni? Like what were the sort of like basics of how government aid and the decision-making work? And, you know, one thing I'm curious about is like, you know, if you could talk like, did you keep track of in contact with the workers who left or with the layoff so that, you know, thinking about reopening? Just like talk about like how that whole experience went down.

Yeah, I still have nightmares about it, I think. But, you know, it was really tough. And, you know, when it started, we had a lot of conversations around how do we just kind of keep what we have, right? In SARS and some of these other airborne illness shocks, it's been a 90-day short-term deal that's that bounces back pretty quickly. And, you know, at the time, you're sitting there, well, is this going to be a 90-day thing? And if so, we want to hold on as many of our workers as we can, or is this going to be a year-long thing? And I don't think anybody thought really in our world at least that it was going to still be going on here 18 months later. And so we're sitting there.

And we're operationally kind of pre-CAPX, pre-debt service. We were losing and kind of burning about a million dollars a day, just operationally as occupancy is dropping. And so then you kind of get into the question of, okay, well, we have all these, we have this operational cash burn. We have capital commitments that are kind of mid-flux. and we have debt service. And then it becomes a matter of what do we need to do to right size our cost structure, maybe not to the extreme, you know, but let's make some kind of prudent decisions and, again,

try to hold our core together. We try to take as thoughtful as thoughtful of an approach as we could, right? Obviously, it's kind of a crisis mode and everybody's going a thousand miles an hour. But we really tried to maintain the leadership ranks at all of our hotels. And after we kind of hit equilibrium, I guess, of saying, okay, we feel like we have right size the organization, then it's, okay, where do we need to add back? And what are right decisions? And kind of the magic word at the time, as you all will remember, was furlough, right? We're not we're not determining these people. This is just a temporary furlough. And so to answer your question, Joe, yeah, our hotels and our hotel teams were keeping in touch with all these employees and still are in many cases. You know, so this is a temporary furlough in nature, and we'd love to bring you back as soon as really the market conditions allow for it. And but even then, we made investments to bring back kind of engineers and, and housekeepers to kind of do what was right for the asset, which, and for the business fundamentally, you know, repair all the broken shades and blinds and make sure all the light bulbs are changed and clean to kind of do deep cleanings on all the rooms. and, you know, in anticipation of demand coming roaring back.

And sadly, in some markets, you know, we did those deep cleanings and the sheets of accumulated dust on them and we're going to have to do the deep cleaning again just because the market is so anemic. But it was a very, very difficult time and, you know, a lot of hard decisions, a lot of hard conversations. I do think that we treat our people better than most. It's always kind of what's the measuring stick, right? in terms of what we kind of paid them on their way out the door for their furloughs.

And I think that has helped us bring people back more quickly. And, you know, as a small, relatively small hotel chain, we say, you know, we can't out Marriott Marriott. So what can we do differently? And we always say we can know our people. You know, at Marriott, you're just a number at Omni. We can know you. We can help you chart a career path.

And I think that that culture and kind of that family orientation has helped us whether the labor storm, again, better than most, although we are still being dramatically impacted by it. So can I just ask, can you give us a sort of rough idea of how much of your workforce was furloughed during the worst of COVID? And then I'm just curious if you know, well, I'm wondering what the conversations were like. you know, when you're telling someone, we're not letting you go, we're furlowing you temporarily, and, you know, we hope this passes as quickly as possible, what the response generally is. And then I'm also wondering if you know what people went away and did for that period of time. Did workers try to get alternate jobs, or did they rely on, you know, the stimulus payments and the extra unemployment insurance? I think the first question was kind of what were the conversations like.

And, you know, people always talk about the fog of war. I honestly, I had several of those conversations. And people are just in shock. The person having the conversations in shock, the person kind of receiving the conversations in shock at the trough, I guess, or at the peak, whatever you want to say, we had about a 90% reduction in our workforce. So roughly 20,000, 22,000 down to 1800. We're about 10,000 right now.

And so, you know, it's coming back relatively quickly. In terms of what people did, it really varied. You know, again, we had conversations of, is it better to keep these people on payroll and, you know, pay them kind of a minimum wage or, you know, whatever their wage is? And ultimately, we decided that in every single state, they were better off receiving the enhanced unemployment. because at the time, I believe it was an extra, I think it was $600 a week, kind of from a federal

subsidy. And then you have the state on top of that. So, you know, right now, I think that with $300 a week in the states that have not kind of opted out, I think it works out, depending on the state and kind of what they fund, it works out to about $14 to $15 an hour. And so at the $600 a week, you know, it was a $20 plus dollar an hour job, in effect. And so I think a lot of people went on unemployment. And I know for myself and maybe for you all, but COVID's been a very introspective time of what am I doing, why am I doing it?

And I think a lot of people, when they're receiving kind of maybe in some cases more than they were making, working in some of these really hard jobs on enhanced unemployment, that a lot of that introspection takes place of, wow, maybe I don't have to do that job. you know, the anecdotes that I've heard and kind of just talking to people is that people enjoy work. There's a dignity in work. And I think we were created to work. And so people, for the most part, have gone out and gotten jobs. And the kind of the gig economy and the Instacarts of the world are allowing people to work when they want and make the same or better wages than they were making in our business. and we're competing with the Amazon's and Walmarts and targets the world for talent. And so whereas hospitality, we lost a lot of jobs.

A lot of the retail like Target, for example, they added jobs. I don't know if you all have been in a target recently, but there's somebody wiping down carts, sanitizing. That job didn't exist pre-COVID. And now all of a sudden that's a $15 an hour job. And so you can make $15 an hour cleaning, 15 rooms a day or you can make $15 an hour cleaning carts. And I think that it starts to become pretty evident as to why it is so hard for the

hospitality industry to bring people back to work. So let's talk about that further. We've been talking sort of big picture about tight labor markets or the difficulty of hiring or the constraints of tight labor. Can you put some numbers on that? Like what is say turnover or quits or. turnover look like churn these days? Is there a way to compare, say, like, all right, if you post a help wanted notice on, say, the website or somewhere else, like how many applications you would

have gotten a couple years ago for that versus now, like, can you just sort of like quantify, basically what we're talking about with the tight labor markets? Yeah, this is a pretty interesting kind of snapshot. And on February 1st, 2021, we had 200 open positions in the company. Right now we have 2,800 open positions. And in the intervening five months, we have hired over 5,000 people. Wow. So you can kind of, you know, you do the math and it's kind of hard to add up, right? And how many job openings would you have had, say, like, you know, July 2019, like in total normal time? The way I've been looking at it, Joe, is in 2019, we hired about 4,000 people over the course of the year. So to replace turnover, due to seasonality at some of our resorts, it's hard to kind of look at a snapshot in time.

But we hired about 4,000 people in 2019. And in six months of 21, we've hired 5,000. But quits and churn is way up. And at some level, I don't even know how to quantify it because in many cases, not in many cases, in some cases, we are hiring people and they show up for a day and then they don't show up again. obviously that's a quit, you know, but they kind of get into it and they're like, oh,

man, I do not like this job. And or, and we've had a lot of conversations around this, I don't like an eight hour shift. I like the three or four hour shift. And so we're having a lot of conversations around how can we kind of break that typical eight hour shift down? And so if you want to work from eight to 11,

we can utilize you. If you want to work from two to five, come on. You know, and so I think the breakdown of this convention, kind of work week is upon us. And Tracy, to your kind of intro question, how has behavior changed?

In my opinion, that is a secular shift that is here to stay. You know, you kind of put on top of that the gig economy and with Uber or Instacart, I can get paid the day after I work. And at Omni right now, we have 26 pay periods in a year. And so you're getting paid every other week. And, you know, so kind of this access to, your earnings more quickly and work when you want. And I think that is a secular shift that's here to stay.

And one that we as employers really need to be responsive to. Just one other quick, you know, during COVID, we started these things called virtual job fair. So what used to happen is we'd have a in-person job fair in the kind of the big meeting room at one of our hotels. we would we'd kind of reserve it for the day and flyers and Craigslist and local advertisements and obviously online and we're kind of marketing building up this event and then people come and they interview with interviewing for a housekeeping job if they're interviewing for a front desk job or whatever it is and they kind of meet the hiring manager and go through the interview process in person and we started virtual job fairs during COVID and so that's a Zoom call and you log in

and we do the same marketing, right, flyering, and Craigslist, et cetera, to kind of gen up interest in this. And sadly, in Austin, we had a job fair where we had 500-ish reservations of people saying they were going to come, and about 75 people showed up. So, you know, you sit there and in a typical kind of pre-COVID times, you'd have 500 people come and maybe hire 200. So 40% yield. But when you only have 75 people show up, right? I mean, it starts to become, again, that supply problem is more accentuated. So I just want to press you a little bit more on this point because it's really interesting and I think very important. So you mentioned that you as a company are looking at breaking up shifts. You're holding virtual job fares. Is there anything else you're doing to entice workers? I mean, the obvious one would be on waiting.

Are you paying more? And then secondly, what has been working for you so far? Where have you seen the most success in terms of getting people back? Yeah. What are we doing? We're trying everything. And I think it's kind of, it's been fun and it's kind of a real life science lab, right? For us to try things and what is working.

And we have been doing things like offering free nights to people. if they come work for us. And for our culinary, which I mentioned earlier is a real challenge. We've been buying a set of knives for some of the kind of the kitchen workers who join us. We are certainly paying more. We are offering trainings. And we've had conversations. We've not done anything in this direction yet.

But around student loans, you know, is there something we can do to help people with their student loans if they come work for us? And so we're trying a lot of different things. ultimately at the end of the day, wages are probably the number one factor, although I would tell you and our HR team would certainly tell you that people want more than just a paycheck. And so what is the employee value proposition that we can offer? And again, it gets back to career path and we can know you, help you develop, get you where you want to be, help you become, you know, kind of thrive as a person and kind of in a holistic manner.

Those are some of the things we're doing. I think that it's been very market dependent as to where it's been easier or harder to get labor. And so, for example, we have a hotel in Hilton Head, and it has been always a notoriously difficult labor market, largely because there's just not a lot of people that live in Hilton head full time. And so historically, that hotel has relied on J-1s and H-2Bs, which are work visa. programs here in the U.S. And one thing that I've not seen written about, but I think that it has really been happening

is a lot of the work visas have been kind of held up in the government just due to the vast quantity of them. And so there's kind of a backlog of these visa approvals. And so typically for the summer season in Hilton Head, they'll have, you know, a couple hundred J1H2B work visa employees show up. and these people come back every summer. And, you know, and so it's not, it's a very kind of normal thing. And this summer, those people have not been cleared through immigration to be able to come here and work.

And so, you know, I think that in markets like that, we could offer $50 an hour for some of our open positions. And there's just not even, there's not even people that will, that are able to take that job. Let me ask you a really simple question. You have 50 locations and spread out throughout. the U.S., I assume that some are in states that have already ended their enhanced unemployment and some that are continuing. How big of a, this has been a big source of debate, and I feel like you should have some insight into this.

How much has it moved the needle in terms of ease of hiring workers in the states where the expanded UI has already gone away? As you guys know, this is the classic debate for the last several months. Why aren't people working? and I will tell you this, in Texas is one of those states, Florida is one of those states that have kind of opted out. And when the news broke that Florida was opting out, our application kind of increased by about 500%. Well, the day that the news broke. In other words, the subsidy is still going for several weeks.

And so I think it is absolutely a factor that people are not going out looking for jobs because the marginal value of going to work for $15 an hour versus being on enhanced unemployment at $15 an hour. It's a really hard value proposition. That being said, I think that there are a lot of other dynamics that are causing people not to work. I do think that COVID, you know, in hospitality, you are on the front lines, interfacing with people that are coming in from around the country, around the world in some cases, and it is a risk-oriented job when it comes to COVID. You know, you read about child care and kind of difficulties with that. And I think that is becoming less of an issue, although during COVID it was a very real issue. We are seeing more traction,

Joe, in the states that have ended the enhanced unemployment. Kentucky, I think, was one of the states that rolled out a, we will actually pay you to go back to work. And I think that's a pretty creative way for the government to really incentivize a lot of this. And we've done well at our hotel in Kentucky, although it is still challenged even there. Right. And so I think fundamentally what I'm seen is that hospitality jobs are just hard jobs. And so I've read a stat. I think that there's like nine million people currently unemployed. And I'm scared how many of those people want or would be willing to work in a hospitality job. I will actually tip my cap to you, Joe, and to some of your colleagues at Bloomberg. You know, reading you all and your perspectives on this has informed my

decision-making on what we're doing with wages. I think if left to my own devices, I might say, well, let's just pay the temp company, the $25 an hour that they want, because maybe this is a temporary deal with enhanced unemployment and come labor day. The labor market is going to be awash with, a wash with people. But we've made the conscious decision that instead of paying the temp agency $25 an hour to kind of have the contract worker, we want to control and in effect to have the quality control of employing our

own labor. And in some cases, paying $18, $20, $22 an hour for somebody's entry-level jobs that may have been at 12, 14, $16 an hour pre-COVID. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow here to tell you about our new on-demand news report delivered right to your podcast feed.

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It's also part of like a joke that goes around, which is that, you know, workers in manual jobs are told that they're going to get replaced by robots all the time. And then suddenly there's a labor shortage and the companies want them back. So I guess I'm just curious on your take on the automation issue, is the experience of COVID and the labor shortage going to be something that pushes more companies to find different ways of automating jobs so as to avoid this in the future or has it sort of shown the importance of having human labor? Yeah. Wow. For us, we are a people business and we are always going to be people business. For us, it kind of, the human touch and when you check into a hotel and you're greeted by a real person smiling saying, welcome to the Omni, we think that's fundamentally a different experience than a kios. However, I think that what COVID is doing and what is happening with lower end wages and the 20

plus percent wage growth that we're seeing, it's going to make the business case for automation much more compelling. And so if you're paying somebody $12 an hour and you amortize the cost of a bot, for example, at $1.50 or $2 an hour, you know, that's an okay return when you factor in all the programming, development, everything else, and R&D, in effect, to make that work. But the value proposition gets a lot better when you're paying somebody $20 an hour. So I think that, yes, it's going to accelerate it, particularly in things like accounting. in the back of the kind of the back office, whether that's hospitality or auto dealerships

or you guys were talking about some things on odd lots that I don't even understand with defy and cryptocurrency and the like. But, you know, I think that what you're going to see across every industry is kind of more automation and streamlining in the back office and companies are going to be making different strategic decisions on a company. kind of guest facing as to how they want to position themselves. I'm so glad Tracy you asked this, because my head was going in the same direction.

Like, and you described it like hotels, many of these businesses are like, they're human businesses. And even, you know, for a long time, like there is not much productivity growth in a hotel,

like the same way you might get from, say, like manufacturing. But are Omni hotels in some sense more productive than they were like, how have you learned to make do? with resource constraints that you didn't have pre-crisis? Yeah, it is incredible how efficient we are right now.

And we had kind of a planning session about a month ago, and we really had to group these efficiencies into sustainable or unsustainable efficiencies. And in many cases, the efficiencies that we're seeing are unsustainable. But in some cases, they're not. And so, you know, productivity gains of, like I mentioned earlier, not cleaning someone's room, that's enormous productivity gains. And the question then becomes, well, what does the market start to demand in terms of services? And so we've had conversations around, okay, well, you know, a big word that you'll hear in the hotel industry is cost per occupied room. And it's really just all the direct costs that go into you staying in a room.

So obviously you have the cleaning, you know, the cost to clean the room. You have the linen and the cost of the laundry. You have the shampoo and soaps and everything that people love to take out of the rooms and they should, right, and kind of these guest supplies that we replenish when a room turns over. And cost-procified room during COVID, even with all the enhanced safety. So we were wrapping all of our remote controls and giving people sanitizing wipes and masks and everything like that. that only added about 50 cents to our cost per occupied room and just order of magnitude. On average, our cost preoccupied room is maybe 35 bucks, you know, kind of fully loaded with

utilities and everything. My point is that's not a lot. And we are starting to kind of roll back some of our COVID. We're not wrapping our remote controls and plastic anymore. So we're kind of getting away from that. And so our cost proxed by. a room's going to drop. And then if you're not cleaning it, you're saving a ton of money there. Now, again, back to my point on what do you really want? And so we're having conversations around,

okay, if it costs us $30, $35, on average to clean a room, you know, maybe we give our guests choice. And so would you, would you rather have a 50% off a golf round or two drinks at the bar and free appetizer or a spa credit, whatever it is? And, you know, and so, I think that what may happen there is our costs or in effect may return to pre-COVID levels, but hopefully our customer experience is dramatically improved because some people, quite frankly, don't care if their rooms ever clean. They don't even care if their beds made, and particularly the younger traveler. And so, you know, but they may be more inclined to say, yeah, if you buy me two drinks at the bar

and a free appetizer, I would love that. some of the operational efficiencies will be repurposed in other ways and hopefully other value-added ways. I think some of the efficiencies also, when you think about how we buy, will be maintained, hopefully. Now offsetting some of the commodity price increases that we've seen, et cetera, you know, but previously we would buy steak, for example, from 15 different vendors. And each chef and the local market loves that kind of their local beef. vendor and we've really kind of centralized a lot of our procurement and said, okay, let's, let's shrink the 15B vendors down at two or one. And so kind of our bargaining power with vendors has improved and I think our pricing's improved. Now, like I said, that's being

more than offset in some cases by commodity pricing, which hopefully is a short, it's kind of short term in nature. But that's kind of how I see the future of the hotel industry. And I do think that the Marriots and Hilton's of the world are going to make housekeeping optional. So if you want it, you can pay for it and kind of embracing the airlines' bag fees philosophy, particularly maybe not in the luxury or upper upscale, but kind of in the lower chain scales, I think that is going to happen, which maybe prepare yourselves and your listeners for that. But in Omni, I think we're trying to think about how we can more address. the needs of what the market wants rather than just me doing it with the big brands.

So that's really interesting. And can I just press you on that point? Because this is something that I wanted to ask you about. We've been talking a lot about labor supply, not so much necessarily on the demand side. But how do you see consumer behavior shifting post-COVID? So maybe people are more flexible when it comes to having their rooms cleaned. But is there anything else that you see changing in terms of the hotel industry? And then also, we have seen this big boom in travel as the economy recovers and COVID goes away to some extent. Do you see that? Like, how durable is that? Is that a relatively permanent shift in behavior? Everyone is so scarred from not being able to travel for a year that they're going to do that much, much more going

forward or is that a temporary phenomenon of people just making up for the last 12 months or so? One of Joe's friends is a guy named Connorson and Connor has been talking about this theme that he predicts of kind of a convergence of business and leisure travel. And so in other words, I've got a business trip to Chicago for work. I'm going to stay the weekend and fly my family in. And so kind of the blurring of the lines between business and leisure. And that is absolutely, a trend that we are seeing and we expect to see more so. And I think that when you talk about kind of changes in consumer preferences and how do people travel, I think that is something that we will continue to see. Fortunately for us, the midweek business traveler, kind of the road

warrior who's on the road 250 nights a year, that's not a target market for us. And so I don't know that that will ever be back to those levels. You know, maybe with blending in some some leisure traveler, or kind of the leisure travel on the weekends, maybe it gets close to it. But I think the marginal trip maybe gets done on Zoom. A big piece of our business is group and corporate group. And so if Bloomberg's having an all-hands meeting in California, maybe they'll host it at an Omni. And people are flying in from all over the country to attend this event. I think that a big change that we have seen, which will, I believe, persist probably forever.

is a hybrid meeting or a hybrid event. You know, Tracy, whereas maybe you previously would have flown into New York for an event, you know, from Hong Kong. Maybe you'll do that once a year and three times a year you'll dial in via Zoom or Microsoft Teams or something like that. You know, it presents unique AV challenges for us as to, okay, you have a speaker on the main stage. How is it a good experience for the online attendee? but I think that is a change in kind of consumer behavior going forward.

In terms of boom and travel, I think that the lack of international options is creating a little bit of a bubble, particularly in the resorts right now. And in many of our resorts, which is about a third of our portfolio, we are seeing average rates of $500, $600 a night, which were previously $350, $400. a night. Big average rate, big average rates. And I think in the true luxury kind of Ritz-Carlton said, it's not uncommon to see over $1,000 a night. So I think that's a little bit of a bubble that will, that will pass when the world, quote-unquote, opens up and people can go back to London without quarantined for five days. But I do think that kind of this embrace of, you know, you've seen it with second homes and, like I said, with a lot of our resorts of maybe rural or not urban destinations, I think is certainly here for a mid-term, who knows longer term, but where people

just say, I want to get out of a city, I want to go to the Hamptons, or I want to go to the beach in South Carolina, or, you know, I think that that, kind of the, I mentioned earlier, the introspection that people have had during COVID, I think it has resulted in a lot of people saying, I want to enjoy my life and I want to have fun and travel and kind of be in relaxing settings and not just kind of grind it out in an urban setting all the time. And so I think that maybe the rates right now are a little bit of a bubble, which is because there's so much demand. And literally, we were laughing one of our hotels. We're trying to limit occupancy at a number of our hotels just so we can try to provide a good experience for people. And so what we did originally

is we raised the rate to like $999 a night. Just, hey, if somebody wants to pay it great, you know, but otherwise we're kind of good with the number of rooms we have sold right now. And it was the week before the weekend and that we did this. And literally that day, we sold like 15 rooms at $1,000 a night. And so we're kind of shaking our heads looking at each other, saying there's really almost no price too high at some of these resort destinations. destinations, and it's almost comical pricing, right? Because there's no way, I hate to say it, that

we can really deliver a great experience if you're paying $1,000 a night and we're running 90% occupancy, or at least an expectation, an experience that meets your expectation if you're paying $1,000 a night. And so I think that, I do think that some of that pricing is a bubble that we'll see recede next year, but I don't think it's going to go back to 2019 pricing. So maybe being up, maybe you're up 10 to 15% instead of being up 30%. versus 19. You know, I think this is almost, you know, I think we've touched on almost all the ground. We've been talking for a while.

Last thing, you know, I just want to like revisit this question, like the new nature of travel. I heard the word bleasure once, which is like the ugliest word I've ever heard. But, you know, you mentioned like business and leisure travel combining. I hope bleasure never becomes like a word people use, but I've heard it. Pleasure, blah. I agree. It's terrible. But, you know, just thinking about like, so what is it?

like, what can you do, you know, you're like cognizant of this phenomenon? Like, we're maybe like someone like, you know, they don't travel as much for work. And but when they do, they want to like bring their family or make it more of an event. How does that, how do you, how do you take advantage of that? Or how does sort of like the services that the hotel offers or the promotions change in light of this changing behavior? Yeah. So it all gets down to, we call it kind of local programming. if it's getting a local band to play on the weekend

or if it's if it's kind of a family-oriented resort having some sort of family game night or, you know, obstacle course or, you know, we've had conversations with, I don't know if you all have heard of dude perfect, you know, but it's kind of a YouTube phenomenon. You should check it out. But it's all guys who literally try to do fun stunts. and it's throwing basketball as a length of the court and seeing that they can make it, et cetera.

And so it's interactive, engaging, programming on site at our hotels. And what can you do at an omni that maybe you couldn't do elsewhere? And can we do a golf clinic? Can we do, you know, have some speaker come in on mental health or wellness? And at a macro level, if every hotel try to do something like that, that, you know, it kind of becomes like if you're an actor right now and Netflix is calling you, an Amazon's calling you, and Apple TV is calling you. It's kind of, you know, you can name your price. I think it'll be interesting to see it kind of opens up a new sector of the gig economy

for folks to do local programming and or local experiences. And if you want a tour of the bourbon distillery or we want to be able to offer those options to people, you know, if they choose to embrace the leisure. We can't, we got to stop using that word. We're going to like manifest it into it. I regret ever having even mentioned that. Hey, one interesting thing that y'all may enjoy and Tracy, I enjoyed your trying to ship a teddy bear from Hong Kong episode, but it's just kind of supply chain disruption.

And when we renovate a hotel, we get a lot of our dressers and kind of bedside tables from from Asia, hair dryers, mattresses, you name it. When the ports are backed up in LA, you know, it becomes a operational challenge for us. And so it's more just kind of, again, interesting anecdotes for you all. We could not get hair dryers in our company through our existing vendor about a month ago. And so, you know, we're trying to find different vendors and make sure the spec is commercial grade. And so it's just, interesting kind of the ramifications of kind of all these shipping things that I've enjoyed listening to on odd lots. Can I just ask, this is something that I always wondered about the hotel

industry, but I mean, I'm assuming everything is standardized in the room. So you must buy in massive bulk from a single supplier. So I guess in many ways your supply chain is even more concentrated and more susceptible to issues than somewhere else. I don't know if I'm phrasing that right, but I'm just imagining, you know, if you have a hairdryer in every room, it's going to be the same hair dryer. And if there's an issue with that supplier, then that's a big problem for you. Or do you have like a stockpile of hair dryers in the basement somewhere that you keep just in case? It's an issue. Now, fortunately, kind of steady state, right? We have about 20,000 hotel rooms in company. So 20,000 hair dryers. And those are not breaking, we're not buying 20,000 a month or a year or anything

like that. You know, it's more kind of a replacement cycle. However, we just, in the middle of COVID, we had two hotels under construction, kind of brand new hotels, one in Oklahoma City and one in Boston. And the one in Oklahoma City, 600 rooms. One in Boston's about 1,100 rooms. You know, it's not as maybe acute of a problem as if we're trying to order 20,000 hair dryers, but even, you know, the steady state, if 5% of our hair dryers are breaking, you know, we're buying 1,000 over the course of a year. And so you have kind of the replacement, plus the new build purchasing. And yeah, you know, it's challenging. And a lot of our suppliers are saying, you know, it's a challenge to get goods from Asia, but it's almost a

bigger challenge to get it distributed via trucks, you know, with the driver shortage that's in the States. So that's almost a bigger issue is getting it to, and some of our resorts are in remote destinations, right? And Hot Springs, Virginia or Mount Washington up in New Hampshire, and, you know, and so those remote destinations become become a challenge. Well, Kurt, that was fantastic. I always love getting to speak to people that are right there. in the operational side, and I learned a lot talking to you. So thank you for coming on, odd lot. Yeah, well, it's been a blast, and thanks again for having me. Absolutely. Take care, Kurt.

Thanks, Kurt. That was really good. Yeah, I think actually these are like my favorite episodes. Actually, I like all our episodes equally. They're like our children. But I do think those where you just get like really in the weeds, like, you know, it's like the detail about the hair dryers or the locations of some hotels being harder to get all those things. I just find like super interesting and like understanding this economy right now, it's kind of like a puzzle. And each new episode like this sort of fills in a few more details.

Yeah. Well, I find them there's sort of like crash courses in individual industries or niches of the economy. And you're sort of learning more about the natural or the usual state of the business by contrasting it with everything that's going wrong at the moment. So I certainly learned a lot from that. I thought some of Kurt's thoughts on things that are permanent shifts in either labor supply or consumer behavior. That was really interesting.

Like the idea that going forward we might all be paying for daily housekeeping service or the idea that hotels are seriously looking at ways to break up the eight hour work shift. That's really fascinating. And a big change. That is super interesting. Like this idea that's like, well, maybe someone just does like a three-hour shift or something like that. And the way he talked about it, it does sound like it's good. Some of it's like really is going to be permanent or thinking like, you know, it's like his point. It's like, well, you can like maybe hire workers from a temp agency and you pay them $25 an hour or something like that.

But that is only like a bridge solution. Like, okay, or it's not a bridge solution. It's a solution predicated on the assumption that we return to something. resembling pre-crisis normal. But if you don't think that the pre-crisis normal is going to come back, then like a temp solution is not the answer. And so like thinking about things like, what can you do on student debt or what can you think about getting people onto a better career track faster?

All of that becomes like, oh, this could be like a, you know, fundamental change in how the labor relations work. Yeah. And I mean, when you do hear stuff like that, like helping out on student debt, smaller shifts, wage increases, it does make you think that maybe the power is shifting slightly in favor of labor. So, I mean, that would be an absolutely massive change for America, probably one that it's still reasonable to be very skeptical of, but like there are definitely glimmers of it in that conversation. Yeah, totally. And then of course, you combine that with consumption changes,

you know, business and leisure. You know, I think like, I forget it was like one of our episodes, I don't know, maybe it was like the one about like the black death or something. It's like things are going to change. And I don't think we like, we can only guess. Like right now, I think we're still just in the guessing phase. But, you know, I think like there's a reasonable chance that like the sort of like ripple effects of this will be feeling it years from now in ways that maybe we don't realize it first. And then we're like, oh, this really turned into a fundamental change in how society works. Yeah. I mean, you're getting glimpses of it, like I said. And there's probably a ton of money to be made if you can guess right, like guess correctly what is and what isn't a permanent change.

Like, people are going to make fortunes off of getting that right. All right. Shall we leave it there? Yeah, leave it there. Okay. This has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway.

And I'm Joe Wisenthal. You can follow me on Twitter at The Stallwart. Follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast on Twitter. Francesca Levy at Francesca today, and check out all of our podcasts at Bloomberg, onto the handle at podcasts. Thanks for listening. This is Tom Keen, inviting you to join us for the Bloomberg Surveillance Podcast.

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