BALTIMORE — Being a successful owner and operator of hotels is simple, said Tyler Morse, chairman and CEO of MCR Development.
Founded 15 years ago, MCR is the fourth-largest hotel owner-operator in the U.S. — with a $4 billion portfolio of about 150 hotels and 22,000 guest rooms in 37 states and 100 cities — and employs 5,000 people.
His advice to Asian American Hotel Owners Association members at the organization's annual trade show and conference: "Increase your rates; do it with confidence. ... Stop wasting money. ... Focus on profits. ... 'Fancy' hotels are not better hotels. ... Buy smart technology."
Rising inflation in the U.S. is not a bad thing for the hotel industry, he said.
"We're an inflation-protected business. We raise rates every day. And that's why this is a great business. Generally speaking, we run 25% to 40% [profit] margins. We can raise rates and pay commensurate wages and still be better off. ... Inflation is our friend," Morse said, adding that average daily rate across New York City is $275.
A big part of protecting profit margins is spending wisely, and hoteliers who pay online travel agencies for bookings and invest in search-engine marketing, buy or develop only high-end hotels, and hire intellectuals to run the business are not necessarily doing that, he said.
"You should never hire somebody who went to Harvard Business School or some fancy pants thing like that to tell you how to run your hotels. ... This is a very simple business," Morse said. "There are no ivory towers in hotels. We sell two things — sleep and a shower. This is the second-oldest business on the planet Earth. And we have been selling sleep and a shower for 2,000 years. So don't get swooned by all the complexities of the business."
Room rates are where all of the profits are, he said.
"Here's a nice fancy hotel, a Ritz-Carlton, and here is our TownePlace Suites in Midland, Texas. Do you know which one makes more money? The TownePlace Suites in Midland, Texas. Everybody likes to talk about revenue. ... Revenue is nice, but profits are better," he said.
Morse noted that Blackstone and Starwood Capital recently acquired 111 extended-stay hotels under the WoodSpring Suites brand.
"The institutional, smart money is buying hotels in the economy space, in the one-star space," he said. "They paid a billion and a half. We sold 18 hotels for $410 million a couple of years ago. And the point that I'm making here is simple is better. Fancy hotels are not better. They're not a better return on investment."
As the marketplace for booking travel and hotels expands with tech giants Google and Amazon, and next ride-sharing app Uber, getting into the game, hotel owners and operators are likely to face rising costs to bring in guests.
Online travel agencies such as Booking.com already are taking on average 15% to 25% off of the top of hotel bookings, meaning that for a guest paying $100 a night for a room, the hotel might get as little as $75, said Cindy Estis Green, co-founder and CEO of hospitality analytics firm Kalibri Labs.
"Uber just announced last week that now they have this new app that's going to add [booking options for] flights, trains and hotels, so everyone wants to get into this game to be the one-stop shop for travel," Estis Green said during the opening session of the conference. "What it means is you're going to have to pay to get customers through this channel."
"Revenue capture, which is how much we keep of what the guests pay, has actually declined because hotels in the U.S. market are paying 15% to 25% of what the guests pay to acquire their customers. These large tech companies are trying to get as much of that as possible. They're not going to reduce that amount. They're going to increase it," she said.
"When we look at a $100 booking, for example, the difference between how much you keep through brand.com or your website could be $5. You look at a travel agent booking that comes to the call center, we're down to $77. You look at the OTAs and you're down to $70, and even with the opaque OTA, [that revenue capture] could be down to $54. When you look at that gap, the question is, what can you do to keep as much as possible?"
Morse's advice: "You're paying too much, so don't do it."
"Take your hotels off of the OTAs," he said. "We have. Our TWA Hotel [at New York's JFK Airport] is not on the OTAs whatsoever. The only way to book it is by going to TWAhotel.com. We don't even have a call center.
"And here's the revelation ... when you buy an airline ticket, you pay in full. That's what we do with the TWA Hotel. If you want to stay with us, you pay; and if you want to change the reservation, we charge you a $10 modification or cancellation fee."
Spending on OTAs often falls under search-engine marketing, which Morse considers "a total waste of money and a fraud perpetrated on society."
Morse cited as an example Airbnb CEO Brian Chesky, who according to the story was approached by the company's board of directors at the height of the COVID-19 pandemic in March 2020 and told to cut spending on search-engine marketing from $900 million per year to zero overnight.
"This was to conserve cash. It was a situation that came out of necessity. But what they found was their volume did not change by more than 5%. They had 95% of their existing business," he said. "You don't need to spend the money. The consultants, they just want to line their own pockets with 15% — or the vigorish, as they say. So stop wasting the money."
Meanwhile, hotel owners shouldn't be shy about investing in smart technology that makes their business more efficient, Morse said.
MCR invested in a property management system that he said is "the best out there."
"You could go to 10 years of technical college and still not be able to use some of the PMS programs that our industry uses. So we saw a PMS that we liked and we bought it," he said. "My favorite part ... see this button on the right, the green one that says 'check in.' You know what it does? It checks somebody in. Try finding that button in any other PMS that you use."