A rapid recovery in travel has understaffed some leisure and accommodation companies like MGM Resorts after downsizing earlier in the pandemic.

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As the demand for the travel industry picks up rapidly, concerns about labor shortages are growing. Now the question is: will higher labor costs hurt corporate recovery?

When the pandemic forced hotels, casino operators, cruise lines, and other travel companies to shut down or shut down in March 2020, it sparked a wave of vacations and layoffs. Now that domestic vacation travel continues to recover, many of these companies have had to hire new employees.

Hotels and casino companies that also operate hotels have borne the brunt of this situation. Cruise companies still cannot sail out of US ports. However, the restrictions could ease by July.

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Patrick Scholes, an analyst for lodging and cruise companies at Truist Securities, described the labor shortage as a serious challenge on Thursday. “While it is difficult to accurately gauge the financial impact of work pressure, there is concern that higher wages may outweigh operational efficiency in hotels after COVID,” he wrote in a note on Thursday.

Consider the situation at

MGM Resorts International

(Ticker: MGM), where CEO Bill Hornbuckle told analysts in the company’s first quarter Call for prizes Wednesday that it was “surprised” by a surge in leisure customers last month.

Room occupancy for the company’s Las Vegas Strip properties was 46% in the first quarter, compared to 38% in the fourth quarter. The March occupancy was 62%. And April looked even stronger, according to CFO Jonathan Halkyard, who said, “Our occupancy on the Las Vegas Strip last weekend was roughly 73%.”

Hornbuckle said he expected the company could hire staff to offset the surge in demand.

“It’s a national flaw,” Corey Sanders, MGM’s chief operating officer, told analysts. “We are very aware of this. We have taken some steps on the hiring front to ease that pressure. “

Sanders continued, “We hope to be able to catch up in this HR area again in the next 60 days. But in general we are able to work at a level that we are comfortable with. But yes, at the moment there is a little burden. “

MGM Resorts shares were up around 30% this year as of April 27th. Hotel company

Marriott International

(MAR) and

Hilton Worldwide Holdings

(HLT) gained 13% and 16%, respectively, before the S&P 500 gained about 12%.

Still, the labor shortage remains a wild card for hotel and casino stocks that some watchers do not believe is easy to solve and could hurt customer perceptions.

Scholes points out that property-level managers performed hourly duties like housekeeping or managing the front desk when occupancy was low during the pandemic.

“Now the problem is that many hourly employees laid off in 2020 have permanently deviated from their pre-COVID industry positions, not least because of better paid and more stable industries elsewhere,” said Scholes.

In the meantime, the workforce situation could affect these companies, said Joan Eisenstodt, who runs a Washington, DC-based consultancy serving the hospitality and meeting industries.

If the service levels don’t match pre-pandemic levels, customers might think, “Wait a minute, why am I traveling?”

Write to Lawrence C. Strauss at lawrence.strauss@barrons.com

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