The hotel budgeting season for 2023 has begun in earnest and a very important question is whether hoteliers will budget adequately for technology in their 2023 budgets.

Traditionally, the hospitality industry has been suffering from systemic underinvestment in technology. Normally, hoteliers spend on technology 2.5% of net room revenue.

As per STR, IT spending in U.S. hospitality during the pandemic shrank significantly compared to 2019, dropping to as low as 50% in 2020 and rebounding slightly to 70% in 2021 of the pre-pandemic level. Even worse is the drop in payroll (wages and benefits) to hotel IT personnel throughout the pandemic, ending the year at 46% of the 2019 level.

Technology spending in Europe and APAC during the last two years is estimated to be even worse.

This troubling decline in hospitality technology and IT personnel spending is in sharp contrast to the accelerated adoption of digital technology in the general economy. The pandemic accelerated digital transformation by 10 years (McKinsey & Company) and today's travel consumers have become more digitally and tech-savvy than ever. Many of today's travelers' service expectations are around self-service, around do-it-yourself, from online planning and booking, to preferences for contactless check-in, mobile keys, voice assistants and communication with hotel staff via messaging i.e. these are all technology solutions and applications.

The technology underspend has clearly increased hoteliers' dependency on the OTAs: unlike hoteliers, the OTAs spent billions on technology during the pandemic. It's no wonder that over the last 6 years the OTAs have increased their market share by nearly 50% at the expense of the hotel direct channel.

By investing heavily in technology applications to engage the traveler at all possible touchpoints of the digital customer journey, the OTAs have monopolized the guest relationships and left hoteliers to do…the housekeeping and dirty laundry.

The question is, will hoteliers learn from their mistakes in the past, and finally start investing adequately in technology in 2023
I believe there are two macro-economic factors forcing the hospitality industry to accelerate the adoption of technology and to increase their technology investments: the labor shortages in hospitality and the emergence of new tech-savvy travel consumer.

According to the U.S. Bureau of Labor Statistics, the number of unfilled positions in the U.S. reached nearly 11 million last month, 1.53 million of which were in hospitality and leisure. Labor shortages are not a hospitality-native problem. Professional services, retail, transportation, manufacturing, construction, and other industries are equally affected. The labor shortages in Europe and Asia Pacific are even more pronounced in many major tourist markets.

What are the solutions?

Changing the business model, hiring more gig workers to do the job, outsourcing, and streamlining operations are some of the immediate temporary measures.

In my view there are two ways for dealing with the acute labor shortages and unsustainable labor cost:

• Pay up: Continue to offer sign-up bonuses, higher wages, and interview cash payments, making profitability even more elusive, or
• Invest in technology to solve the current labor shortages through technology innovations, automation, mobility, robotization and next generation technology applications. The goal here is to do more with fewer employees by using technology solutions.

Accelerated Investments in technology are also necessitated by the exceedingly tech-savvy guests and their exceedingly high technology expectations. Gone are the days when hotels offered "a home away from home" with comparable technology amenities.

Unfortunately, many hotels nowadays offer "a subpar home away from home" experience as far as technology is concerned.

So, will hoteliers finally start investing adequately in technology in 2023?

I believe there are some very positive signs that hoteliers are finally waking up to the benefits provided by technology investments.

The recent "2022 Hotelier Technology Sentiment Report" by Stayntouch and NYU Tisch Center of Hospitality clearly shows that hoteliers are on their way to embrace technology in unprecedented ways.

This very timely survey clearly shows that hoteliers have learned their lesson and have realized that the only way out of the current labor crisis is by investing in technology to solve the current labor shortages through innovations, automation, mobile technology, AI, robotization and next gen technology applications.

Key findings of the report include:

• 81.7 percent of all respondents reported implementing at least one technology during the pandemic, and/or planning to implement new technology during 2022.
• Adoption of contactless technology, including self-service check-in, in-room technology, mobile keys, and digital payments increased by 66 percent during the pandemic and are projected to increase further during 2022.
• Hotels continue to adopt more automation to improve efficiency, particularly as staff sizes remain small.
• Nearly 75 percent of respondents believe that contactless technology will become a long-term trend.

Hoteliers' objective in 2023 and beyond is crystal clear: do more with fewer employees by using technology and reduce staffing needs by a significant percentage compared to pre-pandemic levels.

Will technology ever replace humans in hospitality? Over time, next gen technology will undoubtedly replace or augment collaboratively all mundane, repetitive, and dangerous jobs in hospitality like housekeepers, porters and baggage handlers, concierges, security guards, line cooks, bar tenders, waiters, etc.

But technology will not be replacing anytime soon highly qualified hospitality jobs like seasoned and highly skilled hotel managers, revenue managers, digital marketers, IT managers, CRM experts, sales managers, etc.

Using AI, automation, robotization, IoT and other next gen technologies the hotel can keep a "human facade" but automate all of the back-end operations, enable smart guest communications, and automate and personalize every touch point with the customer. Yes, and add a few humans with a warm smile into the mix.

So how much human labor would a hotel need in the future? Five-ten years from now, hoteliers won't need half the people they needed in 2019, and the savings from payroll will mean the automation and next gen technology will pay for itself.

Max Starkov
Hospitality & Online Travel Tech Consultant & Strategist

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