Hotels Want You To Pay More To Make Up For Their Losses Over The Past Two Years

A reader explains why hotel guests are unreasonable, and we should be more sympathetic to hotels that are cutting services, containing costs, as they try to ‘make up’ money they lost during the pandemic. Here’s why that’s exactly backwards.

My hotel is a self managed single luxury hilton property. During covid my hotel alone (again, owner only owns one hotel) lost $10 million.

We’ve had a little bit of help but do you really think 2 years has remade $10 million? Plus with costs increasing and labor increasing, certain changes have to be made. And im sure other owners etc are going through the same thing.

Hence [Hilton CEO] Nassetta’s way of giving franchisees some relief. Of course guests aren’t happy about it, but im realizing more and more guests are getting harder and harder to please. And their expectations are that things are the same as pre covid. And they just aren’t.

Why should a hotel owner be entitled to make up for all of their losses, without providing service to customers in order to do so?

Hotels lost money because they had made bets on fixed costs, and the product they were offering wasn’t as useful to customers during the pandemic who weren’t traveling (for good reason). Capital was mis-allocated for a period of time. Yet the predicted commercial mortgage apocalypse didn’t come.

Hotel REITs and trusts made big money before the pandemic. Then they lost money. And now they’re largely making money again. Customers shouldn’t feel guilty about those losses. Some hotel ownership groups wanted you too – and even asked guests for donations.

The way that hotels are going to earn profits going forward is by delivering value to customers.

  • They have to compete with Airbnb, so they need to differentiate their product and offer services that Airbnbs do not.

  • They have to compete with each other, so have to do a better job meeting customer needs than other hotels in their neighborhood.

A hotel can make money as the low cost provider of rooms, so they can offer the cheapest rates and earn a return. Or they can offer services and experiences that guests are willing to pay a premium for.

Hotels aren’t entitled to make money. They have to earn it by delivering a product consumers want to buy.

Individual hotels can make money from guests who expect services, based on the hotel brand, while not delivering those services. That works for awhile, and makes sense for an individual hotel owner. But it degrades the brand itself as guests start to realize the hotel brand doesn’t signal the services, quality, cleanliness or experiences that they used to think it did.

That’s why chains have brand standards. Individual properties have an incentive to underinvest, profiting from the brand without incurring the costs. While the chain benefits from hotels that deliver, burnishing the brand reputation, and leading customers to continue to trust and frequent the brand.

Hotel chains have been relaxing their brand standards, allowing hotel owners to defect from the service levels guests have learned over time to expect. That’s good for owners in the short term. It’s good for hotel chains in the short term because it helps them compete for franchise revenue (since owners might otherwise defect to another chain which allowed them to skimp, in a race to the bottom). But it comes at a cost to the hotel brand, which means that the Hiltons and Marriotts of the world are positioning themselves to earn less over time.

Hilton and Marriott have brands, they have loyalty programs, and they have hotel management businesses which some of their owners use. They deliver customers to hotels through the brand (customers know what to expect at a Hilton) and through the loyalty program (they’re invested in Honors or Bonvoy). But when the brand doesn’t mean what it used to it’s no longer as sticky, no longer delivers customers, and hotel owners will no longer benefit as much or be willing to pay as much to fly the chain’s flag.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. And this of course after the greedy bastards got payouts from the government. So corrupt,

  2. I will wager that this hotel “lost” $10 million in revenue that was below projections, but did NOT incur an operating loss of $10 million.

    Travelers may be entitled, but they don’t hold a candle to the entitlement of the travel industry.

    The guy running Hilton should read “Be My Guest”, but I’m sure he would decide it’s satire and laugh it off.

  3. Gary – it is a business. They can price their product as they feel appropriate and cut benefits. As long as people stay it isn’t an issue. No one “owes” travelers (even elite members) anything (and I am elite in almost all the programs).

    If you don’t like a specific hotel or chain stay somewhere else. All the bitching and moaning won’t change anything so accept that and move along

  4. @AC – Sure, but that is not a rebuttal to anything Gary said, and if anything it serves to illustrate the utility of his market-based approach to the issue.

  5. I didn’t get hhonors points due to booking through a ‘group rate’ i.e. conference registration for the first time ever. I will be rethinking what hotels and hotel chains I use in the future. It’s very near sited of them when you still have a choice.

  6. I have no sympathy for any hotel owner, or any business owner, that enjoys the profits in the good times, then complains and wants hand outs when the bad times arrive. There are guaranteed to be bad times in any business and any economy. Basically, the handouts mean funding business owners that aren’t very good and haven’t planned for those bad times. Conversely, the good business owners that do plan, can get through the bad times and don’t need handouts are effectively get penalized for being good as they watch the bad business owners essentially profit from being bad.

  7. I am a very frequent business traveler and as far as I’m concerned in this post pandemic era, hotel loyalty is a thing of the past. Treat me like garbage: no breakfast, no in room coffee, no housekeeping…..no thanks.
    I now stay exclusively at Airbnb unless I have a very tight time limit, which is rare.
    I’d rather have an entire house or apartment to myself, food delivered from any local restaurant that is actually edible, guaranteed parking that I’m not gauged $50/day for, or my biggest irritant-resort fees.

    So hotel managers, I’ll take my $$$ someplace else.

  8. This Hilton owner is seriously deluded. Lends new meaning to the term ‘entitled’. “Your guests” are not the slightest bit interested in helping you recover from the previous two years of virus hysteria. Cutting services now will only result in fewer bookings in the future. Charge me more, give me less … in what realm would that apply as a formula for success? Does he really not grasp the fact that ‘everyone’ has suffered during this ridiculous lockdown? He might want to read some reviews on TripAdvisor to see how hotel users view this kind of self-absorbed gouging. It only takes a few negative posts about something as dumb as this to make travellers avoid his hotel completely.

  9. Did this owner insure against the possibility of business disruption? Such policies are available, often quite inexpensively, but he no doubt choose to run the risk such a thing wouldn’t happen. Poor planning on his part does not require me to make up for his error.

  10. Marriott and Hilton are already my brands of last choice. Loyalty is meaningless from corporate down to the franchise, so I’ve taken my business elsewhere. Good luck making more money racing towards the bottom. Maybe they can charge for AC by the hour? Charge an extra $40 for room keys too?

  11. Ofcourse they are but they’re not the only ones. Everyone is jumping on board which also adds to inflation.

  12. What an opportunity to differentiate a brand when most are racing to the bottom!

  13. IHG seems to have found the niche for disaffected Hilton and Marriott travelers I have seen many new and refurbished properties now and lower rates and better service. Loyalty means nothing anymore to the big chain hotels

  14. Allen is a POS that took a bailout, has pretend losses, and wants to charge more money for less service.

  15. Put simply, the best way to make up for past losses is to offer a service that allows one to receive a revenue premium in the future. Reducing cost is a zero-bounded strategy.

  16. This is why I switched to Hyatt…. Hyatt gets it (largely), whereas the other chains don’t. Hence, as a business traveler that spends $10-15k a year in company hotel charges, I go out of my way to stay at Hyatts.

  17. At a recent hotel industry conference, the CEOs of the major chains boasted that 2022 revenues are on pace to be 25 percent higher than 2019 revenues. With these numbers, daily housekeeping? With these numbers, elite breakfast? With these numbers, elite room upgrade? Dream on. With these numbers, the major chains don’t have to do jack poop for loyalty program members.

  18. Good point David! When the rich have $10 less in income they think they “lost” $10. Not the same as being $10 in the red…..

  19. Hotel owners got huge PPP “loans” that were forgiven and then immediately laid off their lowest wage workers. Now they want customers to pay more for fewer services. I guess this is the hotel version of shrinkflation. Good luck with that.

  20. It’s just so odd. Imagine this in any other industry and it comes very close to violating the spirit, if not the text, of state gouging laws. Gas station owners lost lots of money when everyone stopped commuting and traveling during covid; now, they would like to charge extra to make up for lost profit. This whole idea that somehow customers should suffer higher prices/worse service to make up for “lost profit” is an idea that works only in the context of regulated utilities (where profits are capped), and is still a terrible policy.

  21. Love how the money there’s a downturn all of these entrepreneurs and self-styled capitalists start sounding an awful lot like socialists. You’re not committed to the game if you only want to play when you’re winning.

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