Home Hotel industry CEO of a large hotel: “Stop giving things away for free”

CEO of a large hotel: “Stop giving things away for free”

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The CEO of one of the largest hotel investment companies in the United States wants the hotel industry to essentially transform into Spirit Airlines and start unbundling.

More à la carte prices for hotels?

This week at the Skift Global Forum, Tyler Morse, CEO of MCR Hotels, made some remarkable comments on the future of the hospitality industry. MCR Hotels’ portfolio includes 125 hotels in 34 states, with a total of over 20,000 rooms. The company is the fourth largest owner of hotels in the United States.

While you probably don’t know the company, you may have stayed at some of MCR’s properties – many are managed by Hilton and Marriott, while others are independent (like the TWA Hotel JFK).

TWA Hotel JFK is owned by MCR Hotels

Essentially, Morse wants the hospitality industry to take inspiration from the (super low cost) airline industry and create more of an a la carte pricing model. Many of these concepts have been tested at TWA Hotel JFK, including billing for pool use, early check-in, late check-out, and premium Wi-Fi.

TWA Hotel charges for use of swimming pool

As he describes:

“I keep trying to push the boundaries here and say, as a hotel company, to stop giving things away for free. Being hospitable doesn’t mean giving people things for free. Business travelers never use the pool, so why should they inherently have to pay an indirect cost to use the pool. It allows us to charge everyone a lower rate and then people can buy whatever they want. So everyone gets a lower rate.

Morse acknowledges that it may take some time for customers to get used to this new pricing model, but if it is adopted widely, customers will have little choice. He also considers the revenue potential to be huge, given that with some very low cost carriers, ancillary revenue is greater than ticket revenue. He also sees it as a win-win:

“As the hotel industry moves in this direction, the customer gets what they want. Everyone gets a lower price and the industry becomes more profitable. “

Morse believes executives of major hotel groups are largely opposed to changes like this because they don’t have quite the same incentives:

“[The major hotel company CEOs] everyone is saying it lip service, but remember: they are there to give things away for free. It adds value to the brand. We, the owners, are in the business of not giving things away for free because it’s our bottom line. it does not hurt [Marriott CEO] Tony [Capuano] Where [Hilton CEO] Chris [Nassetta] give things away for free. It hurts our P&L.

Typically, large hotel groups (Hilton, Hyatt, Marriott, etc.) receive a percentage of revenue as part of their management fees, rather than a percentage of profits. They are therefore not as invested in hotel margins as individual owners.

CEOs of large hotel groups don’t totally agree with à la carte prices

The problem of unbundling hotel stays

I find the Morse perspective to be so far from the base. At the most basic level:

  • Hotels do not give anything “for free”, but rather it is included in the cost of a hotel stay; it’s like saying that airlines give caviar “for free” in first class
  • It is claimed that the rates will be lowered so that customers only pay for what they use, but we know that this is rarely the case; hotels will not significantly reduce their rates, but will instead try to increase their margins through additional fees
  • Has the TWA hotel lowered rates since charging for things like pool access? And if guests really only pay for what they use and rates are reduced, how do hotel margins improve?
Unbundling is unlikely to result in a substantial drop in room rates

I also do not buy the comparison with airlines:

  • Hotels are part of the hospitality industry and airlines are part of the transportation industry – people usually book plane tickets because they are trying to get somewhere and there is no other alternative, while people book hotels because they are looking for an enjoyable experience, and they do. have alternatives (Airbnbs, staying with friends and family, etc.)
  • It is highly unlikely that the hospitality industry as a whole will adapt to these changes; the hotel industry includes everything from Motel 6 to Four Seasons, and you don’t have as much variety when it comes to airlines (it’s not like flying Delta Economy Class would typically cost you 10 times more than fly in Spirit Airlines economy class, when all is said and done)

Finally, where do hotels stop at what to charge? At some point, you undermine the most advantageous proposition of hotel selection. Not everyone uses the hotel gym, not everyone parked when there is free parking, not everyone eating the free breakfast, etc.

Not everyone has breakfast so maybe you charge for that too?

Does the pricing of à la carte hotels have some merit?

I’m trying to be balanced here, so I’m going to ask: are there any situations where better monetization services make sense? For example, I always thought that hotel check-in and check-out times were managed quite inefficiently:

  • Hotels usually allow you to check in early if there is a room available, without charging you extra
  • However, this is usually on a first come, first served basis, which does not seem fair or ideal; for example, if there are two rooms available before the official check-in time on a given day, should it really go to the people who showed up earlier (maybe 8 a.m.), rather than ‘people who have arrived at 12 noon but are ready to pay a premium for a few extra hours in a room?
  • I have always thought that hotels could better monetize late checkouts; for example, suppose you have an 11pm flight and the hotel has empty rooms, wouldn’t it make sense to sell the late checkout at a reasonable price, rather than charging a full extra night?

Of course, some hotels do a good job with this, but I would say it is the exception rather than the norm. I think there are ways to make hotels more efficient and incur incidental costs, but that shouldn’t go so far as to turn into Spirit Airlines, in my opinion.

Maybe Spirit Airlines should open hotels?

Speaking of the orientation of the hospitality industry relative to the airline industry, I find it curious that in some ways airlines are becoming more hospitable while hotels are becoming less so. Airlines have largely eliminated change fees during the pandemic, some airlines have eliminated standby fees, etc. The airline industry has become less punitive. Yet, it seems that there has only been a negative change after a negative change in the hospitality industry.

At the end of the line

The CEO of one of the country’s largest hotel investment companies wants hotels to stop giving things away “for free” and instead unbundle prices. The logic is in my opinion deeply flawed, especially when it comes to drawing inspiration from the very low cost airlines.

The hospitality industry is a whole different beast from the airline industry, and I don’t think consumers would like that. I also suspect that the rates would not be drastically lowered if unbundling were to occur, but rather it would serve to increase homeowner margins.

Recently, CEOs of hotel investment companies have been saying some controversial things. Just recently, another prominent CEO said he wanted customers to tip more, rather than raise wages.

What do you think of the unbundling of hotel stays?


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