An Analysis of Operating Costs and Technology in Hospitality

This report provides a comprehensive analysis of operating costs within the contemporary hospitality sector, focusing on the Australian market. It examines the significant impact of various cost factors including energy, labor, insurance, and brand standards on the profitability of hotels and related businesses. The discussion delves into the rising energy costs stemming from heating, cooking, and lighting, while also addressing the complexities of high insurance premiums and labor expenses, including payroll and employee benefits. Furthermore, the report explores the influence of brand standards on operational expenses, emphasizing the need for cost management strategies. It also highlights the role of technology in mitigating these costs, such as energy conservation programs and automation, offering insights into how the hospitality sector can improve efficiency and maintain competitiveness in the current economic landscape. The report also explores the negative and positive impacts of cost-cutting measures, such as service cuts or price hikes, on customer satisfaction and business viability. Finally, it emphasizes the importance of technology in reducing operating costs, providing specific examples of how automation and green technologies can be implemented to improve efficiency and reduce expenses.

Running head: CONTEMPORARY HOSPITALITY ISSUE
Contemporary Hospitality Issues
Name of the Student:
Name of the University:
Author’s Note:

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Introduction
The hospitality sector of the Australia has been growing rapidly with the recent recovery
of the economy. In this situation, it is crucial for the hotels to manage the operation cost in a
proper way (Cetin et al., 2017). However, due to wasteful practice and high expenses, the profit
margin of the hospitality sectors decreases. This is a big concern for the hospitality sectors in the
recent years. The hospitality sectors face many unavoidable operation costs such as labor cost,
insurance cost, higher energy cost and the brand standards. In order to minimize the operating
cost, it is the prime duty of the hospitality sectors to track and manage the cost. This study deals
with the operating cost in the hospitality industry and its effect on the business. However, the
function of the technology to reduce such cost will be addressed in this section.
Discussion
Energy cost is a major operating cost in the hospitality sectors. However, energy
consumption is increasing in the hospitality sectors due to inappropriate management of the
energy saving process. However, a huge proportion of the profitability spends in managing high-
energy cost in the hospitality sectors. Heating, cooking, lighting, hot water production, air
conditioning, and ventilation are the major causes of high-energy cost in the hospitality sectors
(Bokhoree, Balnac & Mohee, 2017). However, during the winter season, the heating cost is too
high in the hotels, which affects the profitability of such business sectors. High insurance is
another big factor that increases the operation cost in the hospitality sectors. However, in order to
protect the property, the hospitality sectors establish insurance policy. This insurance policy
includes property insurance, staff insurance, and income insurance. However, often the staff

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claims for their health insurance if the safety is affected during their work. In the recent years,
the insurance cost is too high that enhances the operation cost.
Labor cost is a big factor in the rising operation cost in the hospitality industry. As per
the statistical data, the labor cost in Australian hospitality sectors is increased from 32.3% to
34.8% in the year 2009 (Dev, Hamilton & Rust, 2017). However, such rising labor cost affects
the service of as well as the profitability. Often the hospitality needs to hire expertise from the
different countries to enhance their service that is another cause of the rising labor cost. The
organization needs to provide payroll related expenses, which is considered as the employee
benefit. This cost includes paid time off, retirement plan and mill. Thus, it is difficult for the
hotel managers to control such labor cost. Brand standard is another factor of the rising
operation cost in the hotels. In order to compete with the other organizations the hospitality
industries invest for the brand standard. The hospitality industries try to maintain the luxury
standard and to locate their hotels in a crowded city, which increases their operation cost. In
order to provide the luxury service such as food, beverage, banqueting, concierge service and
parking the hospitality sectors invest more (King & Perry, 2017). As a result, they face the high
cost of the brand standard.
Electricity is considered as the major utility expense as it comprises 60% of the total
expenditure in hospitality sectors (Hospitalitynet.org, 2017). Providing service and water is the
largest utility cost includes 23.8%. The service of the hospitality sectors and water supply is
associated with the consumption of the fuel and steam. The fuel consumes 10.6% and steam
consumes 2.3% of the energy in a hotel industry. For this reason, energy management is
necessary and it can be done by taking the energy conservation programs. Different energy
conservation programs like avoiding the overheating corridors and the bedrooms. This will be

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helpful to reduce the operation cost. On the other hand, the hospitality sectors must have good
control over the heating process. The hotels need to ensure that the leaking taps are repaired in a
proper way and the pipeworks are insulated properly. It is crucial for the hotel to avoid operating
the cooling and heating system in a simultaneous process. Installation of the day light sensor also
enables the hotels to conserve energy. Moreover, creating awareness among the staffs enables
the hospitality sectors to reduce the high-energy cost (Lee, Oh & Hsu, 2017).
High insurance cost leads the hotels towards the bankruptcy or closure of the industry.
The hospitality industries need to accomplish unemployment insurance, medical insurance,
disability insurance and business insurance. Apart from this worker compensation is associated
with the medical insurance that the hotels need to cover (Hua & Yang, 2017). Food-borne illness
liability is another insurance that often affects the economy of the hospitality industries. Cyber
liability occurs if the breach of information occurs during the management of data. Labor cost is
the big part of the hospitality industries that lead the organization to face high operation cost. In
the recent years, the labor cost is increasing rapidly, which affects the profit margin of the
business. Apart from the labor cost maintenance of the brand standard, also affect the business
profitability (Dev, Hamilton, R., & Rust, 2017).
High energy cost, insurance cost, labor cost and brand standards have both negative and
positive impact on the hospitality industries. However, high consumption of energy in the
hospitality sectors facilitates the high operation cost. In the recent years, the energy cost has been
increasing in the hospitality sectors, which leads to the industry and the business practice to face
negative effect. Electricity and the water supply include the major utility cost in the hospitality
industry. It has been found that the gas and fuel cause the major utility expenses. In the year
2014, the gas and fuel expenditure is increased up to 5.2% (Hospitalitynet.org, 2017). The high

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cost of the energy leads the hospitality industry to cut back on the services that affect their
business practice. On the other hand, they have to increase the service charge, which may be
helpful to manage their profitability. However, often the high price of the service leaves the
negative impact on the business as customer number begins to decrease due to the high cost of
the service. The hotels are considered as the energetic black hole if the energy consumption is
not managed properly. However, due to the food safety issue the hospitality industries are not
able to cut back the service quality, which is another reason for the price rise (Xu & Chi, 2017).
Such high price of the energy often leads the business to face huge loss and the hospitality
industry compels to close their service.
Hospitality sectors often face issues in their operation cost due to high insurance cost.
However, for the well-organized hospitality industries, they need to maintain the Healthcare Act.
For this reason, the hospitality sectors have to provide staff compensation during any health
injury in their work (Tan, 2017). As a result, the employees can claim money for their health
injury at any time, which often leads the organization to face difficulties. Hence, the cost of
claims is too high for the organization if major injuries occur with the employees. The
organization may face legal issues if they are unable to provide the insurance cost. Food borne
illness liability is another insurance policy that gives benefits to the customers. However, if the
staffs serve contaminated food to the guest they become sick as a result, the organization has to
ensure the liability cost that is a big loss for the organization. Premises pollution liability occurs
if the guests become sick due airborne pollutants cost (Nicholas & Steyn, 2017). This increases
the operation cost and affects the brand image of the hospitality sectors. Business insurance is
beneficial for the hospitality sectors as it protects the business from any kind of external financial
loss, expensive loss and disaster. Cyber liability the hospitality sectors may face legal obstacle

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due to the breach of guest’s personal information that often occurs due to the inappropriate data
management system (Trustedchoice.com, 2017). Adoption of cyber liability protection resists the
hospitality sector to give a penalty for the breach of information. The above insurance policies
need to be maintained by the hospitality sectors, which hits their profit margin.
The high cost of the labor facilitates the high operation cost in the business. However, in
the competitive labor pool, there is the shortage of the skilled labor (Chrisman, Devaraj & Patel,
2017). As a result, the labor cost is rising in the business industry. In the context of hospitality
industries, they have to provide more salary to the employees in order to retain them. In the
recent years, there is a huge competition in the hospitality sectors. An ongoing competition
regarding hiring the skilled employees leads the organization to provide high scale salary to
reduce the employee turnover. High labor cost harms the profit margin of the business and as it is
associated with the increasing of the operation cost. Labor union is another factor of high labor
cost as the strike is very common to increase the salary in a business industry.
On the other hand, the hospitality sectors have to provide the fringe benefit to the
employees excluding their salary (Bloomfield et al., 2017). As for example, medication cost, car
service is included in the fringe benefit. These are provided by the organization to make the
employees more flexible in their work. These extra charges create difficulties for the
organization as if the organization fails to keep these then they face high turnover. On the other
hand, to keep these policies the hospitality sectors may face excessive loss in their business.
Apart from this, often the hospitality sectors have to provide visa cost to hire skilled employees
from the different countries cost (Nicholas & Steyn, 2017). However, this may be helpful for the
industry to enhance their productivity and improve the service. On the other hand, this includes

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an additional cost in the operating cost as the immigrants claim a high salary for their work and
visa.
Brand standard contributes a good proportion of the operation cost. In order to increase
the service of the hotel industry, the hospitality sectors invest more in their service (Bridgman,
2017). Therefore, an increased amenity is another reason for the rising operation cost in the
hospitality sectors. In order to gain the competitive advantages in the global market, the
hospitality sectors try to provide high-quality service, which includes high investment. This
enhances the operation cost, however; it improves the brand image of the organization. Due to
the increased level of competition in the global market, the hospitality sectors try to make their
business unique, which requires more investment in the business. However, the industry faces a
negative impact on the high operation cost due to maintain the quality of their service. In order to
improve the brand image the organization needs to face the increased level of operation cost.
This will enable the hospitality sectors to satisfy their customers (Bhowmick & Prasad, 2017).
However, often to maintain the quality service the hospitality sectors lead to close their business
due to a huge loss. They need to increase their service cost, which may decrease the number of
customers. As a result, the entire profitability is decreased.
Technology plays an important role in reducing the operation cost in the business.
However, automation process reduces the operation cost by replacing the manual handling
process (Whitaker, Ekman & Thompson, 2017). Investment of green technology is helpful for
the hospitality sectors to reduce the energy cost. They can use renewable energy sources to
reduce the use of natural gas. Therefore, use of CFL and LED light are the gifts of new
technology that is effective to reduce the energy consumption and high energy cost in the
hospitality sectors (Nicholas & Steyn, 2017). On the other hand, using automation process the

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labor cost can be reduced in the hospitality sectors. Use of modern technology such as
technologically advanced equipment the work can be done within less time and by using fewer
workforces.
Conclusion
The above piece of work reveals the different reasons of increasing operation cost in the
business. However, labor cost, high insurance cost, business standard cost and the high cost of
energy are the major reasons of the rising operation cost. However, the high cost of the energy is
a big barrier of the hospitality industries as it hits the profit margin. On the other hand, the
hospitality industry needs to hire the skilled employee from the foreign country this is another
factor of high operation cost in the business. On the other hand, by using modern technology like
automation process such operation cost especially the energy and labor cost can be reduced.

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