In April 2020, the U.S. jobless rate reached a record high. While it's since come down significantly, it's much higher than it was before the pandemic began. In spite of that, many industries are still grappling with their share of labor shortages. That extends to airlines. In fact, American Airlines (NASDAQ: AAL) has been canceling hundreds of flights over the past few weeks and will continue to do so through mid-July as travel demand increases and staffing issues abound.
But canceled flights aren't just bad news for the airline industry itself. They could also spell trouble for hotels, which are desperate to recover from the misery they experienced last year.
Hotels need a revenue surge
2020 was hotels' worst year on record, with occupancy rates reaching all-time lows. This summer, things are looking up for hotels as vaccinations and eased pandemic-related restrictions are making it easier for people to travel again.
Of course, business travel may still take a long time to pick up. After all, a lot of companies are still having their staff work remotely, so it makes sense that work-related trips will lag behind.
But right now, leisure travel is booming. Families are tired of being cooped up at home, and many are experiencing less financial insecurity than they were at this time last year, so they're in a much better position to pick up and go places.
But that won't do hotels any good if travelers can't reach their destinations. And if American and other airlines don't take steps to address worker shortages, it could spell very bad news for real estate investors with hospitality REITs (real estate investment trusts) in their portfolios.
Of course, hotels can sympathize with airlines' plight right about now, as they, too, are experiencing their own share of labor shortages. In fact, it's an issue that's plaguing the whole hospitality industry. Low pay is prompting a lot of workers to seek jobs outside the industry, especially at a time when working a public-facing job could mean added risk and exposure to COVID-19.
Compounding the issue is the fact that many workers across the board don't want to get a job right now because they're collecting extra money in unemployment benefits. Workers on unemployment are still seeing their weekly checks boosted by $300 in 24 states, and that increase is set to remain in effect until early September. Once it expires, we could see an uptick in job applications, but for now, labor shortages are a real problem across the board.
Of course, air travel isn't the only option for reaching hotels. But soaring gas prices have made the idea of taking a road trip far less appealing. Furthermore, the cost of renting a car on a daily basis has increased 86% compared to July 2020, and it's up 140% from July 2019, making it a costly alternative to taking a flight.
As such, if airlines can't get their act together, it'll put hotels in a really bad spot -- and hinder their recovery at a time when they just can't afford any setbacks.