Major Marriott & Hilton Owner Wants To Make Lodging Like Ultra Low Cost Airlines

The TWA Hotel charges $50 per person for guests to use the pool Friday through Sunday, half that during the week (business travelers don’t use the pool), and children are $20 apiece.

The hotel charges a facility fee that doesn’t actually include use of the facilities, which is more egregious than the Motif Seattle which charged a fee use to use the bathroom vanity, but then at least let you use it.

The owner of the TWA hotel is MCR Hotels, the fourth largest hotel ownership group in the country spanning 125 properties in 34 states including Marriotts, Hiltons and even The New Yorker which they temporarily lost ownership of by denying a guest a lease for his religious non-profit (yes, New York real estate law is byzantine).

MCR’s CEO thinks every hotel should follow the TWA pricing model, charging “guests for add-on services just like airlines do.” He thinks anything bundled with the room rate means ‘giving it away for free’.

“I keep kind of trying to push the envelope here and say, as a hospitality business, stop giving things away for free…Being hospitable does not mean giving people things for free.”

This means charging for things like,

  • Early check-in (maybe $10)
  • Late check-out ($20)
  • Use of the pool ($50)
  • Functional wifi (standard wifi may be thought of as a utility, though some hotels have tried to charge for the utilities too)

The hotel executive claims this means lower rates but we know that’s not true.

“Business travelers never use the pool, so why should they pay inherently an indirect cost to use the pool,” Morse said. “It allows us to charge a lower rate to everybody, and then people can buy up for what they want. So, everybody gets a lower rate.”

Hotels aren’t going to charge lower rates to customers on business because they aren’t going to use the pool. They charge what the market will bear – based on supply of rooms and demand for those rooms on a given night.

Demand from some customers may be lower because the hotel doesn’t include use of the pool, but for most they will assume it does – because of course the hotel room rate includes the pool! – and they’ll just be surprised by all of the add-ons. This makes comparison shopping more difficult and extracts extra charges from guests that have already committed. Just like with a European low cost carrier.

In the U.S. of course what this pioneer of future plummeting guest satisfaction fails to realize is that airlines are incentivized to unbundle by the tax code. Domestic U.S. airfares are subject to a 7.5% federal excise tax, while airline ancillary fees are not. So unbundling represents as much as a $50 million or more tax arbitrage play by the big carriers. While hotel taxes differ from jurisdiction to jurisdiction, properties are unlikely to benefit in similar fashion.

Once a hotel builds or invests in an amenity, there’s usually low marginal cost to make it available. As a result, bundling can lead to higher room rates (since different guests value different amenities differently). Cable companies bundle precisely because it leads to higher package prices and revenue than unbundling where customers pick and choose the exact channels they want.

Sure there would be a “rocky transition period for guests to get used to such unbundling of services in the hotel sector, but it could become an industry norm similar to how airlines implemented similar measures.” Except unlike the airline sector where there’s tremendous consolidation and barriers to entry, making hotels less-customer friendly only pushes them to Airbnb. Following the lead of “Allegiant, Spirit, VivaAerobus, and Wizz Air” just doesn’t make sense outside of the most cost-conscious properties.

So what’s standing in the way? To hear this CEO tell it, the chains themselves:

[The major hotel company CEOs] all pay lip service to it but remember: They’re in the business of giving things away for free. That adds brand value,” Morse said. “We owners are in the business of not giving things away for free because it’s our bottom line. It doesn’t hurt [Marriott CEO] Tony [Capuano] or [Hilton CEO] Chris [Nassetta] to give things away for free. It hurts our P&L.”

If that were true though then this ownership group is just writing bad contracts. If all they’re doing is renting the brand, the chain doesn’t want the brand diluted. But in a managed scenario incentives become better aligned insisting on profitability metrics (and penalties from the chain for not hitting those).

Of course the head of another large hotel ownership group thinks people just need to tip more so they can lower wages rather than charging for everything a la carte.

Somehow the idea of generating more revenue by delivering a product guests want to buy, and offering a better value proposition than competing alternatives like homesharing, doesn’t enter the lexicon.

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. THANK YOU GARY !! I could really use that “Flights for 50p” video on a Friday morning. Awesome ! Who are they and what was the occasion?

  2. Over the past 40 years, I’ve seen hotels add amenities such as coffee makers, microwaves, refrigerators, bottled water, check-in snacks, internet, free breakfast, club levels with drinks and snacks, etc. Most of these were added to attract customers. Take them away, the reverse will occur. But what they could do is have a few “basic economy” rooms similar to the airlines, which are sold at discounted rates. For hotels that choose to focus on selling rooms based on the lowest price, the economy rooms will attract budget travelers willing to skip the amenities. However, nickel and dimeing the typical business traveler will probably turn them away. Personally, I’d only fly Spirit or Allegiant if they were the only airline available on a route. It would be the same for any hotel that played the same game. (Last week, British Air was charging for coffee in Business Class between BSL and LHR; seems like they are heading in the same direction).

  3. Unbundling things that people may or may not choose to use and may or may not choose to pay for is not objectionable in principle, and people who don’t like it can choose to stay somewhere else or fly with another airline.

    What is really unethical, and should be criminal, is quoting a price, then adding in later “fees” that are not avoidable. If I read you right, this “facility fee” falls in the latter category and is a sufficient reason to avoid the property totally.

  4. What always goes unsaid here is that the hotel industry is not only trying to squeeze the customer, but also squeeze intermediaries like OTAs and other sources of bookings out of commissions. Anytime they can lower the base room cost and move those fees to be payable at the property like “resort” or “destination” fees or as ancillary add-ons as illustrated in the post above, that’s more money in their pocket since they don’t have to pay out a percentage of that cost as a commission to the referring party.

    As an aside, the airline industry did the same thing by unbundling all their services and charging fuel surcharges (YQ) which are non-commissionable since they are not part of the base fare.

    Not saying anyone should get out their violin for the OTAs but it illustrates another motivation for doing this on behalf of the hotel owners.

  5. @Gary: “Demand from some customers may be lower because the hotel doesn’t include use of the pool, but for most they will assume it does – because of course the hotel room rate includes the pool! – and they’ll just be surprised by all of the add-ons. This makes comparison shopping more difficult and extracts extra charges from guests that have already committed. Just like with a European low cost carrier.”

    No. This was true when the concept of unbundling was new (just after deregulation). Now everybody in Europe knows about the unbundling and buys accordingly.

    Facility/resort fees are different as they are mandatory. They are designed to make OTAs less effective and travellers suffer as a result.

  6. For business travel, the problem with unbundling is that some of the unbundled items may not be reimbursable. An employer may balk at a separate charge for the pool, or more commonly the gym. And this means the employee will start booking away from that hotel to one where the gym is included, even if the base rate is a bit higher.

  7. This isn’t as new or as shocking as Gary wants it to be.

    Plenty of high-end Marriott/Hilton/etc group hotels in Asia already charge extra for pool and health club / gym amenities (sometimes waived for top-tier elites). It’s a common and accepted practice.

    Multi-tiered internet with for-charge premium is already widespread

    Hilton (via this stupid meal credit benefit) is the process of conditioning their elites to the idea that breakfast is something you pay for, not something that is included as an elite benefit.

    Etc…etc…

  8. I stayed at the TWA hotel in August of 2019 a few months after they opened. The average nightly rate was about $400 per night when I stayed there for a runway view room. In looking to return this year, I opted not to stay there after seeing all the nickel and dimming the hotel has now instituted. On top of which the room rate was around the same of what I paid in 2019, so they haven’t lowered prices at all. The $50 per person to sit at the roof top bar near the pool area was too excessive for me. Not to mention the “COVID surcharge” all the restaurants on property are charging. I’m sure I’m not the only one that decided not to stay there after looking at all the new fees.

  9. Yeah I would get laughed out of the company Ford even trying to expense $50 for the pool.

    Interesting to see the recent TWA hotel reviews on the travel aggregator sites are rather dire. Partly it’s the pool charges themselves, but many are just for bad service. It seems to me that this would be a likely result to applying the unbundled mindset to a hotel just to increase revenue. You end up destroying the entire service delivery of the hotel with that mindset of extracting every dime from customers.

    In contrast say SW is really good at delivering the core product and service, but they didn’t go into their model with the goal of fleecing customers.

    In short I think.most hotels aren’t managed well enough and would be doing it for the wrong reasons to pull the unbundled model off effectively.

  10. Cable companies bundle channels because the content providers will not sell channels to cable provider ala carte. If they did, then most obscure channels would die pretty quickly. Cable providers aren’t given these choices, and are all planning for the day that the triple becomes internet only service. They have to adapt.

    Hotels follow a different model. Build it, and hope people will come.

    I’m fine with purchasing ala carte.
    If I get a lower rate and have to pay for my toiletries. Great. Less waste too.
    If I have on reservation to specify how many extra towels without having to call housekeeping Bravo! Charge me a couple of bucks extra.

    If hotels charge for breakfast, then they should expect that they’re competing with the local place down the street. It may help me to avoid going back to the hotel for dinner, and buy my $12 glass of chardonnay elsewhere at night.

    Most business travelers don’t use the pool, because they’re useless in most cases…
    They resemble oversized hot tubs.
    They’re small, 3-4 feet deep at best and useless for lap swimming.

    It’s all about setting expectations…

  11. I stayed at TWA when BA misconnected me. Not impressed.

    Perhaps these hotels can give up the flag and brand themselves as Spirit Hotels? Hourly rates?

  12. Screw this guy. I’ll go take a selfie at his TWA motel and then stay a Four Points in LIC and get my BONVOY on!

  13. There goes my desire to stay at the TWA hotel. This guy is a nasty piece of work and @Gary’s last sentence is spot on.

  14. In June 2021 we stayed at a Holiday Inn Express on Tropicana Blvd two blocks off the Las Vegas Strip. $120 a night. Breakfast and a FREE Tesla Destination Charger were included. And NO resort fee. It was worth the 10 minute walk to the MGM Grand and the 15 minute walk to New York New York. Just pick the right hotel chain and you don’t have to put us with all this nickel and diming crap.

  15. As I said on the FT thread started about this very topic about a month ago:

    “Unfortunately, he and his company can probably get away with it since the major hotel brand owners/operators are giving the property owners a lot of leeway nowadays to do what they can to squeeze money out of customers in ways that weren’t so common ten years ago. Think about hotel’s resort/city/destination surcharge fees — as is the case with The New Yorker hotel. Think about the restrictions on guest pool use at the TWA hotel at JFK. Those both happen to be properties under his portfolio. Then there are all those Marriott and Hilton brand properties MCR has too — and you can guess what his position is with regard to elite status breakfast benefit delivery at them.”

    “They can always try to go the youth hostel or Swedish campground approach: towels and sheets not included except for a surcharge; showers for a surcharge per every X minutes of use; no housekeeping provided, or surcharge for housekeeping if guest doesn’t do it or doesn’t do it ‘properly’ for next guest; and so on.” I only say that half in jest.

    A lot of hotel owners want to try to “recoup” what money they feel like they lost during the pandemic, but that’s just an excuse for what they wanted to do before but are having an easier time with getting away with already and will try to do more of in the years ahead.

  16. swag,

    You should see why in the Scandinavia region there are the Clarion Collection hotels providing breakfast and a light supper meal to all guests without any surcharge for the meals. There’s a story there in why that model worked there. Some of those Clarion Collection properties in Scandinavia have gotten creative over the years by disappearing drinks — even making water hard to get at times when it comes to the included evening meals in order to sell beverages — but the included two meal services are what make those properties sell and part of the regional brand standard. Amazingly, I’ve not seen many of those properties changing brands, but perhaps that will change if they think they can get away with it without losing their particular customer base.

  17. @Gary – Just want you know I laughed at this:

    “…this pioneer of future plummeting guest satisfaction fails to realize…”

    Don’t ever stop, sir!

  18. @Brian Karnofsky – British Airways do not charge for coffee in business class on any route – if that was really happening on your flight in Club Europe, then contact BA Customer Relations for resolution

    @Gary – Do you know what kind of brand licence MCR have to operate the TWA Hotel using the TWA brand? AA still own the TW brand don’t they? (..and it’d be nice if the hotel allowed AAdvantage and maybe TrueBlue members to earn for stays – but that’d mean giving something away for free…)

  19. Such a great concept … too bad that hotel management can’t figure it out. Offer the amenities for a fee, keep the room rate low. Uh, how do you do that, they ask.

  20. No, no, no. I don’t fly unbundled pricing airlines and I won’t stay in similarly modeled priced hotels. It’s never actually a lower price in the end. It’s all smoke and mirrors. Ugh. Ugh. Ugh. I really despise that world caters MORE to shareholders than to customers now.

  21. We were at a intercontinental in Tokyo that tried to charge $50 pp for access,to the pool. We got a pass for free. But the whole experience led to a 100% negative review of the hotel, showing how the life guards were doing nothing and the entire place was to set up,to promote a champagne line.

  22. What a stupid, Uriah Heep type idea. I am a biz traveller for 20 years. I would avoid such a hotel like the plague

  23. Everytime some company pulls this, I hear the voice of Alun Armstrong in Les Miserablé as M. Thenardeiu singing “… charge them for the lice, extra for the mice, two percent for looking in the mirror twice!”
    Credit to Boublil, Kretzmer, and Natel for the lyrics and to Schönberg for his great musical composition.
    The song itself is called “Master of the House” and it perfectly describes the mind set of these businesses.

  24. I would not stay at a hotel that unbundled. My expense reports are difficult enough to allocate, without having to put in all the ancillary charges and worry that my company wouldn’t cover it. When you travel for business, the last thing you want to have to worry about is if something is included in the price. With the 1hr a day you have to actually relax, you don’t want to spend it at customer service to see if there’s a fee or to sign up for it.
    As for family travel, when I’m on vacation, I don’t want to have to worry about extra fees in my hotel rate. I want to pay and then just relax.

  25. Contrary to what the author says, hotels are very likely to benefit from unbundling. Whether anyone wants to admit it or not, the days of getting everything for a low price are over. Travelers are not afraid to pay for their particular experiences and pay they shall. To say that because airlines have to pay a 7.5% excise tax is a reason for unbundling for airlines but insufficient justification for hotels means the author has never owned/operated a hotel before. Even in states with 0% sales tax, hotels still pay upwards of 11 to 12% in “lodging tax.” This does not apply to the meeting room space used for an hour, the pool time or the soda you took out of the refrigerator…it is purely on the “lodging” component. When you separate out all the other items, the hotel can still charge the same amount and keep the otherwise 11 to 12% for themselves.

    Marriott and Hilton are all about giving everything away for free…why? No skin off their nose…they skim everything from owners off of the top line….but if hotels start unbundling, there are some items which Marriott and Hilton are not privileged to skimming…so they definitely don’t want hotels to start doing that…and the CEO of this company is correct. Nasuetta and Capuano don’t want to unbundle things…they want to give everything away for free…owners do not.

  26. @CH: You can’t say that for every market. Here in Vegas, the meeting room and the pool would absolutely be covered by the Stadium TIF and the lodging tax and all 3 would be subject to the LVCVA TIF (the coke would have it included in the sales tax).

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