Tyler Cowen refers to the story I noted on Saturday about the Hilton New York eliminating room service, calling it part of ‘the great unbundling’, concluding

I believe that the argument for the continuation of room service has to involve some mix of drugs and sex.

But that isn’t quite correct.

The argument for room service isn’t “drugs and sex” although late night partiers will order room service (top end hotels make money on this, delivering not just snacks that wind up uneaten but heavily marked up champagne).

Most hotels don’t make money on room service. Some do — top end resorts often do. Hilton’s first ‘full service’ hotel to end room service was the Hilton Hawaiian Village, a mid-scale resort. Room service was a money loser for them.

Rather, the argument for room service is the same as the argument for in-flight wifi. Airlines do not make money offering wireless internet. And yet they all feel the need to. US Airways finally got onboard last year when their data anaysis suggested that customers were booking away from them because it wasn’t an option. .

Business travelers who pay the highest rates in major cities are the ones most likely to consume room service. That’s because they are (1) generally expensing it, and (2) working late on their own [socially easier to eat in your own room than a restaurant for many] and/or arriving late/leaving early in many locations where it’s simply not convenient to take advantage of other myriad options.

It’s a misnomer to call this the “great unbundling” because room service was already largely unbundled (you pay for it separately). Hilton New York is in a somewhat unique position in being able to get rid of it, their costs were so high — they are eliminating 55 positions. Mid-tier hotels in high wage cities find are the ones most likely to find this an appealing option.

And yet there are certain bundling elements that are difficult to untangle. Other hotels will find that offering room service is something they have to do at a certain price point in order not to lose business

It’s also worth noting that the trend generally has been LESS room service rather than NO room service. Breakfast is a bigger deal for room service than lunch or for overnight service at city hotels.

Many hotels stop offering 24 hour room service, and those that continue to offer it tend to have very limited menus (usually mostly cold items that take less preparation time and limited skills).

There are usually better options outside of a hotel to eat, and room service is usually not as good as most hotel restaurants even. Hotels more often than not cater to a lowest common denominator palate in order to be as broadly pleasing as possible. There’s been a trend away from this as hotels co-operate with branded chefs to offer more unique and higher end culinary experiences (at a significant price point). So you can sometimes eat very well at a hotel if you’re willing to pay a premium to do so. And room service is sometimes designed to piggy back on this.

But that’s not the upper mid-market that the Hilton New York caters to. And others like it may follow suit. But I would expect to see hotels continue to offer breakfast more than other meals, some late night options to business travelers on expense accounts, and where there’s enough sex and drugs there will continue to be a need to satisfy munchies and sell overpriced champagne.