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.