Hotels adopting the airline industry's à la carte pricing model is a hot-button issue, but MCR Hotels CEO Tyler Morse is onto something by adopting it at venues like the TWA Hotel. The model can be the financial life raft hotel owners need after more than a year of decimated business.
MCR Chairman and CEO Tyler Morse spoke with Skift CEO Rafat Ali at Skift Global Forum 2021. The two discussed the theme “Speculating Hospitality’s Biggest Opportunities in the Decade Ahead.”
You can watch a full video of their discussion as well as read a transcript of it, below.
Rafat Ali: Welcome, Tyler. This is … Well, this is your hotel. So I guess you should say welcome, not me. Welcome.
Tyler Morse: Yeah. Welcome Rafat. Great to see you.
Ali: Good to see you, too. So this is going to be the trash talking session, right? This is going to be … We’re going to just trash talk everybody in the industry.
Morse: No one is safe.
Ali: Good news is most of the speakers are gone and they’re done with, so we can say whatever we want to about them. But I do want to thank again Tyler and his team and everybody here at the TWA hotel, which I’m sure each of you echo just an incredible job with the hotel, the hospitality, everything has just been fantastic. So thank you again for your team.
Morse: Thank you Rafat. Thank you to our team. They did a terrific job.
Ali: And so MCR, which is the parent company that developed this hotel. You’ve been very, very active in this pandemic.
Morse: We have.
Ali: Just like every week — like maybe once a week or twice a week — we opened the Daily Lodging Report, which we own now. And we see MCR has bought this hotel, MCR has bought that hotel. So was that an opportunistic or a strategic sense of the market?
Morse: Thank you for that Rafat. We’ve bought 41 hotels in the last 18 months. And more (are) coming — we bought two yesterday and I think we have…
Ali: How did you buy? Like oh, here take a credit card.
Morse: It’s like going to a convenience store, like a 7/11 and getting a Slurpee. No, we work very hard. We have a terrific team run by Russ Shattan who’s here in the audience. And we’ve got about 15 people out there taking people to steak dinners, looking for attractive transactions. Broadly speaking, the travel train is moving quickly in the positive direction, right? So we’re investing behind a growing business.
And I was just looking this up the other day. In 2003, 20 percent of the United States population had a passport. In 2019, it was 42 percent. And it’s going up at stratospheric rates. People love traveling. Traveling is like breathing and we’re investing behind that. Right? And with more people traveling (and) the middle class growing around the planet earth, that’s more people staying in hotels. It’s more people flying on airplanes. They might be the low cost carriers. They might be the full service carriers and just drive-to destinations. We obviously saw a boom in that during Covid.
There (are) tailwinds behind the sector. So we love traveling, and I’ve traveled to 95 countries. I think I was telling you the other day, I’ve (flown) 4 million miles. And most of that is my butt in coach, flying all over the place. When I was growing up, if I had a spare 48 hours, I’d go somewhere. Right? So it’s fun too.
Ali: Yeah. So these hotels that you’re buying — and obviously the portfolio of 125 hotels or I guess 127 now — they’re a mix of brands and then unbranded or indie hotels.
Ali: And as you’re thinking about buying hotels, which way are you leaning at this point?
Morse: We’re happy with branded hotels and we’re happy with independent hotels. It depends on the market conditions and the location of the property and the project, the quality of the project and the property. So here at JFK, there is latent demand.
Ali: You never considered a brand for this.
Morse: Uh-uh (negative).
Ali: I guess TWA was a brand.
Morse: Well, TWA … yeah, that’s right. We have this amazing global brand that’s existed for 75 years that is known worldwide as the brand of this hotel. In the hotel business, it’s all about central res distribution, central reservation system distribution. The highest return on invested capital in the hotel industry is Residence Inn by Marriott by a country mile.
Ali: Is that because of business travel? Or…
Morse: Because Residence Inn generates about 65 percent through central res delivery. The second is Hampton Inn by Hilton. Those two are in a Pantheon all by themselves.
Ali: This is across the industry.
Morse: Then there’s a big gap. And then there’s lots of brands that provide 30 and 40 percent central res distribution, but you pay for those, right? We’re all buying guests. And you’re either buying them from Booking.com, Expedia, Marriott, Hilton, Hyatt, Accor, right? You got to have people in the building and travel agents, right? Travel agent commissions are 10 percent, Expedia commissions could be 20 percent, (and) booking are 15. Marriott has a franchise fee, and a marketing fee and a Bonvoy fee. Right? So, it’s a question of what is the most economic way to fill your building?
Ali: Do you see paying Google anytime? Have you paid for advertising?
Morse: We don’t. What’s that?
Ali: You pay Google in advertising I suppose.
Morse: We don’t. We’ve never spent one cent on (search engine optimization) or (search engine marketing). And I love what Brian (Chesky, Airbnb CEO) said the other day, about the $800 million of wasted money. It doesn’t do anything.
Ali: According to the (Booking CEO), (the chief marketing officer) should be fired but yeah, other than that.
Morse: Yeah the (chief financial officer) should say-
Ali: The (chief marketing officer), the (chief marketing officer). He…
Morse: The (chief marketing officer)? He changed it?
Ali: Correct. Yes he said (chief marketing officer).
Morse: No, but we don’t pay anything. It’s a race to the bottom. As an independent hotel, first of all, I can’t compete with Expedia and Booking.
Morse: Right. They’re going to outspend us all day long. But second of all, our hotels are full anyway. So why should I waste money on SEO and SEM?
Ali: Hotels all across — 125 of them — I’m sure there’s some that you figure out how to attract through marketing, right?
Morse: I mean, Manhattan has its own demand. So set aside Covid…
Morse: Manhattan runs 85 percent occupancy year in and year out. It did in 1989. It did in 1999, 2002, and 2017. So why bother spending money on advertising in a market that has latent demand? And we own hotels in Brownsville, Texas, and Yuma, Arizona, and they’re flagged. And those flags deliver a lot of value and we’re happy to pay the vig or the commish, right? Because they deliver the goods.
Ali: Which is the best brand? Which is the worst?
Morse: Residence Inn provides the most demand, 65 percent. Hampton is second. Some brands don’t provide a lot of customers at all.
Morse: There’s a proliferation of brands.
Ali: Well, let’s talk about proliferation of brands.
Ali: Which is …. Accor owns whatever 39 and Marriott has…
Morse: Accor has 39. Marriott has 30. Hilton has 27. Hyatt, I think probably has 25 or 39 now.
Ali: They bought a bunch of stuff, right?
Morse: But you have to define what a brand is. Accor bought the Faena hotel. I love the property, (but) there’s only two of them though. There’s one in Buenos Aires, and there’s one in Miami. Is that a brand?
Morse: In my world, brands are tied — Pepsi, TWA. Globally known where you have an image behind this thing that is held by consumers everywhere. The booze companies spend about 45 percent of revenue on marketing. The finance companies (and) the credit card companies spend about 50 percent. Consumer products are around 35 percent for Tide and stuff like that. The hotel business … spends two and a half percent on marketing. That doesn’t even hold a candle to finance, or alcohol, or the beer companies, or consumer products. So you have to say what’s a brand. You know, if a brand is only known to 19 people, that’s not really a brand.
Ali: And so does the brand proliferation or bloat hurt an owner?
Morse: Brand bloat?
Ali: Yeah. In general, like just having a number of so many options and from an owner perspective, you are an owner.
Morse: Sure. Well, let’s be honest. It’s not really the 39 brands. As an owner, what you’re investing in is the loyalty program. It’s Bonvoy, it’s Hilton honors. It’s a Corps program. That’s it. People want the points. People are obsessed with the points because you get something for free. Right? So I keep kind of trying to push the envelope here and say, as a hospitality business, stop giving things away for free, right? Being hospitable does not mean giving people things for free.
Ali: Mm-hmm. So, you were doing this high profile experiment or at least experiment.
Morse: A la carte pricing.
Ali: A la carte pricing, which is basically airlines which have unbundled the fare. They used to put all of the things together in ticket.
Morse: They gave stuff away for free.
Ali: Correct. And so, you are probably the first outside of the resort fee world to experiment at this hotel and the indie hotels. You can’t do it as part of the brands yet, but so explain what that is and why.
Morse: The idea is to separate the price elasticity of demand and charge appropriately for it. And people will buy the services that they want. If you want early check-in, that might be 10 bucks. If you want early checkout, that might be 20 bucks. If you want to use the fabulous pool…
Ali: Late check in.
Morse: Did I say the late checkout? If you want to use our fabulous pool, which has demand coming out its ears on weekends and (in the summer), we’re going to apply a charge for that. But what that does … business travelers never use the pool. Why should they pay inherently an indirect cost to use the pool? So 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. And if you want to use the pool, or the fitness, or Wi-Fi, or parking, or super duper high speed internet, some people have a need to play games, the gaming, and they need massive amounts of bandwidth.
And some people just want to check their email and maybe send a PowerPoint presentation, right? Those should be charged at different levels. Just like the person that is traveling without a bag shouldn’t pay the bag fee. Right?
Morse: And if you want to take three massive suitcases — and you’re throwing the kitchen sink in there — then you get charged appropriately for that. So airlines figured that out. Right now, one third of all airfare revenue is other.
Morse: Is ancillary. And actually four carriers … I texted you about this. It just came out a couple weeks ago that four air carriers, 55 percent of their revenue is ancillary. (It) is other (and) not the seat revenue. To the extent that hotel business moves that direction, the customer gets what they want. Everybody gets a lower price point, and the industry becomes more profitable.
Ali: Can you convince (Hilton CEO Christopher) Nassetta or Marriott to go this way?
Morse: Yes. And they all pay lip service to it. But remember, they’re in the business of giving things away for free because that adds brand value. We owners are in the business of not giving things away for free because it’s our bottom line. Right?
Morse: It doesn’t hurt Tony or Chris to give things away for free. It hurts our (profit and loss). So we have a terrific partnership. We own 60 Marriott hotels. We own 55 Hilton hotels. Right? But we have to work together on this. The topic du jour these days is housekeeping. Right? And whether you charge for housekeeping.
Ali: Yeah, I asked him that question. I guess.
Morse: Chris said yesterday he is charging for housekeeping and that’s OK, right? And you heard him say it. His own wife doesn’t like people coming into the room in the middle of the stay. So why should he pay for that? If he wants his room cleaned at one point, it can be a $10 fee or a $5 fee. But it allows things to be more micro competitive. We live in a micro economy these days. You buy a movie for three bucks. You buy a subscription service for seven bucks. These are all small dollar amounts from the app store and…
Ali: And payments are now so much more seamless (than what was) possible versus 10 years ago.
Morse: Three clicks, six bucks. And you’re done, right.
Ali: Speaking of payments and tech, you bought a company.
Ali: StayNTouch. I think the CEO’s here somewhere. And with an idea that you would own tech for your own hotels — this is not the indie hotels that you own, not the branded hotels. Do you think this is the way for owners to go?
Morse: I do. And I’ll tell you. So, we bought StayNTouch — it’s a PMS company, property management systems — , because we were a happy customer. We chose StayNTouch as our PMS system for this hotel at TWA. And across the MCR enterprise we use every PMS out there: Opera, N4, FSPMS, OnCue, Fosse, LMS, you name it.
And StayNTouch is the best by a country mile. It’s an amazing product. And we had the opportunity to buy it last year under a complex Sisyphus action where Donald Trump and his infinite wisdom decided that it was a threat to national security for the Chinese to own this property management system. That’s a real head scratcher.
But it was opportunistic. How often do you have the chance to partner with and acquire the best product in the space? So we rolled it out at all of our other MCR hotels. I’m now getting hugs from guest service agents (and) our front desk staff that say, “Thank God for putting this product in.” And they’d love it because it’s easy to use. It’s a modern architecture. And we’re doing another software acquisition next week. And we’re looking at two more software companies.Ali: Oh, just announce it here.
Morse: Well, I’m not quite ready to announce it here yet.
Ali: Oh, you haven’t signed the deal yet. But just make sure we get the exclusive, Tom (Skift Editor-in-chief Tow Lowry).
Ali: Okay. Go ahead. And so you’re buying another company with an idea that … What’s the idea behind it?
Morse: It’s a different product that we use in hotels. So the backstory of this is when I built TWA, we’re as a company, real estate developers. We bought separately 65 different software packages and then had to stitch them all together. Right? It’s a nightmare. And I don’t know that much about software. And then they say these bits don’t talk to these bites. And these bites don’t talk to these bits. And you end up with this whole spaghetti. And as a hotel owner and real estate developer, I don’t want to be a part. I don’t want to see how the soup is made. I just want nice warm soup that I can serve to weary travelers.
Morse: And 65 different software systems all talking to each other at different rates is a mess. So I’m approaching this from an owner’s perspective and saying, “What do other hotel owners want with software?”
“They want ease of use. They want a terrific user interface. They want to be able to hire people and train them in 48 hours, 24 hours. Our entire acquisitions team has used StayNTouch and they were able to run a call center on an hour’s notice here in this building. You know, there’s a dirty little secret in the hotel business that when general managers and front desk people are looking to hire people, they only hire people with either Opera experience, Marriott experience or Hilton experience.
Well, you expand your labor pool in a very difficult labor market right now by 80 percent by having an easy-to-use product and an easy-to-train product, right? That’s game changing, right, in an industry that has high turnover.
Morse: Naturally. It makes sense for the industry to go that direction. But we all have to deal with the (global distribution system), which is basically built on a stone tablet.
Morse: You know, Moses is sitting there and he’s trying to push things different directions, right? But there’s a lot of legacy technology in the entire travel space that that one has to contend with. And the systems all have to connect together. I mean, I was telling somebody on your team, Rafat, the other day that the thing I love the most about Skift is not finding out what the big air carriers are doing and that kind of thing. But it’s what’s going on in technology and how these systems are coming together. (And) the next generation technology that’s going to power the travel industry.
Ali: Tom’s going to point to me to say, plug this new newsletter that we’ve launched last week called the Travel Tech Briefing that Sean O’Neill — who I think many of you know is our senior travel tech editor — launched only for Skift Pro subscribers, which I know you are. So, if you want to sign up for the newsletter, you have to sign up for Skift Pro. Thank you for that. Go ahead.
Morse: Right? But it’s very confusing space. And then Glenn (Fogel, Booking Holdings CEO) talked about it a little bit, but the payments side of the world. I was just kind of messing around the other day. And if you go on Expedia and Booking, there’s about six different ways that you can pay for each of those products. You can pay with PayPal. You assume people are going to be paying with Bitcoin. In Ecuador, for sure, you’re going to be paying with Bitcoin any moment now, right? We all need the ability to pay with different methodologies: Google Pay, Apple Pay, WeChat Pay, Alipay, all these things.
Right? And a lot of the legacy technology does not allow for that, but that’s what the customer needs and wants. And so, in able to execute the micro strategy — a la carte program — you need the ability to take a payment with two clicks, just like you do on Uber. Right? Two clicks. I pay seven bucks, right? There’s a lot of infrastructure needed to make that.
Ali: So you’re saying the new company you’re buying is in the payments (business)?
Morse: I didn’t say that. Did I? Did you?
Ali: Almost. Well, we could talk for hours and we have over the last few days. And thank you for all your friendship and thank you for hosting us here. And I’m sure we’ll chat more at length next year when you’ll have how many more hotels?
Morse: Well, we’ll see, we’ll see it’s up to Russ. But thank you everybody for being here. It’s terrific to have an in-person event. And human beings are going to revert to the mean. They always do it. They always have in the past. And they always have in the future, people like drinking together. They like socializing together, seeing their family and friends. And this is just the beginning. Covid is over. It’s past us. And I keep telling our team, the mob has spoken. And the mob is the public, and the public is getting back out there. If you’ve been in Times Square in the last couple of weeks, it’s wall to wall people. So the airline barriers have been broken down across the pond and we’re back at it again. It’s great to see everybody.
Ali: With that optimistic note. Thank you.
Morse: Thanks, Rafat. You too.
Photo credit: Skift founder Rafat Ali interviewed MCR CEO Tyler Morse at Skift Global Forum 2021 at his TWA Hotel at JFK Airport.