MCR Hotels CEO on their new a la carte pricing

Tyler Morse, MCR Hotels Chairman & CEO, joins Yahoo Finance to discuss MCR Hotels experimenting with a la carte pricing for services and amenities and outlook for on the travel industry.

Video Transcript

- And as you saw those re-opening stocks, including the airlines, the hotels, the cruise lines have been trying to bounce back after that sharp sell-off we saw earlier this week as the rising COVID-19 cases due to the Delta variant start to put a damper on the travel industry, which was bouncing back quite nicely just about a month or so ago. But here's a proposition for you. What if, during your next hotel stay, you had to pay for things like early or late checkout or perhaps the pool or access to the gym, but in return, you would get a reduced room rate?

Well, one of the largest US hotel owners, MCR Hotels, is among those experimenting with this a la carte pricing. Joining me now is the chairman and CEO of MCR, Tyler Morse. Tyler, good to see you. Before we delve in, just want to let people understand the scope of the company. You've got more than hotels in 33 states, including the TWA Hotel and The New Yorker. I'm curious how many of those hotels are trying out this a la carte pricing, and what are you hearing from your clientele?

TYLER MORSE: So we're testing it out at our independent hotels, that is, the nonbranded hotels. So far, customer feedback has been great. They like the lower rates, and people who want early check-in an early checkout are OK paying for it. They're fairly modest numbers.

And really, this is how the airline industry started when they started charging for bags. It took them about five to seven years to lay in a lot of those ancillary fees. Customers were not very happy on day one, and then they kind of got used to it because it allows businesses-- in our case, hotels-- to charge lower room rates, which everybody is appreciative of. By unbundling the product, you segment the different demand characteristics, because people don't want to pay for services that they're not getting.

- Makes sense on paper, but give us a feel for what these fees are like. You know, how much might you pay for an early check-in or, you know, for the ability to use the pool? And how would that impact your room rate?

TYLER MORSE: Yeah, so a check-- an early check-in might be $15 to $20. A late checkout might be $15 to $20. We have a free pool access in the mornings, but if you want to go at the high-demand period, it could cost $25.

You know, it's not that dissimilar from charging and paying for Wi-Fi. If you want access to super, super fast Wi-Fi, you pay a bit of a premium for that. If you just want the slow boat in terms of Wi-Fi, that might be free or at a lower price. But by going to an a la carte menu, it allows people to customize their experience and get exactly the product that they want when they want it.

- But I'm wondering if there's any concern here that you might be putting yourself at a disadvantage because you're sharing the market with some of the large hotel chains who are going to be slow to adopt something like this. I mean, even the new CEO of Marriott has gone on the record as saying, you know, we're not run into to try this a la carte pricing, and you're also competing with the Airbnbs and the Vrbos of the world. So is there a concern that folks will just find other options elsewhere if they're not willing to pay for these extras?

TYLER MORSE: Sure. I mean, I think consumers always have choice. They can always stay at different hotels, and that's why you got to have the nightly room rate be lower and then maybe some of the add-on charges people don't want to have.

Business travelers end up paying for the pool whether they like it or not, even though they very rarely go swimming. They pay for the free breakfasts even though they may not eat the free breakfast. They may just grab a cup of coffee and hit the road. But consumers always have choice in the matter, and I think the more hotels that put forth the a la carte pricing plan, the more customers will get used to it.

There's a lot of technology backbone necessary to even execute this model, but by unbundling the product-- you know, hotels historically have just kept-- they just keep throwing things in for free, more free stuff, more free stuff in order to compete with other hotels. We're saying, let's go the other direction. Lower the room rate, and then charge people for what they want. And I think all the big brands will catch hold of this because it's better for hotel owners, and it's better for guests.

It's really the micro economy, I call it. You know, when you buy a movie on Apple TV, you pay $3.99. You buy a song on iTunes, iT costs $0.99. These are small modest dollars for a breakfast sandwich or a cup of coffee or a little Wi-Fi or a pool fee. These are not big dollars, and so customers price sensitivity to those dollars is pretty lower.

- You've touched on, I think, a key thing there, and that is technology, being able to have the right tech in place to offer sort of this a la carte pricing in a meaningful way that won't be disruptive to the customer. Do you have that kind of infrastructure in place, and do you think that technology is going to be an impediment to the industry overall adopting it?

TYLER MORSE: It will slow the industry down. We do own the software necessary to execute this. Last year, we bought a property management system called StayNTouch, and it is an unbelievable system. And it allows for you to charge in increments like this. It thinks of the world as 24 units of inventory per day as opposed to one unit of inventory per day.

So it breaks down the product into micro pricing, which is obviously where the world is going. You see it on the Uber app. You see it on the Apple TV app. You see it with what Disney+ is doing.

And instead of charging people these huge numbers, when you break it down into smaller incremental pieces, customers like it because they get what they want, but it does take a big technology backbone to execute this. The hotel business is very behind in a lot of its technology, so by acquiring this software system, which we did last year-- and we're buying a couple of other software systems to bolt on to this-- it allows hotels to be more flexible.

And some hotels will have greater pricing power for the a la carte pricing than others will, so you have to go product by product, market by market. In New York City, there's a high demand for this, and it's relatively easier to execute. If you are in Dubuque, Iowa, it may not be as palatable from an a la carte pricing standpoint.

- Right, I got you. Got to ask you, though, before we let you go, what has demand been like at your hotels now that we're seeing the Delta-- the Delta variant spread throughout the country? And you mentioned the business traveler earlier. I'm wondering if you're starting to see that depressed segment come back a little bit.

TYLER MORSE: So demand has been very good. Our TWA Hotel is performing very strong. So is the Highline hotel, but we're running about 80% occupancy across our system of 20,000 rooms right now.

What a lot of people don't see is that there are 156 million employed Americans. Only 20% of them work in a traditional office building. Most people are out there working every day, and you can't do your job via Zoom. If you're a plumber or a bus driver or a hotel housekeeper, you know, you got to be on site to do the job.

So 80% of the economy is running quite normally, but the media reports that people are working from home, et cetera. But that is a small component of the population, and our hotels have, generally speaking, been very full. We have seen a 10% decrease due to the Delta variant in the last two weeks or so, so we'll see how we do in the fall. But we are seeing some softness in forward bookings because of Delta, but my takeaway is that 90% of people are plowing through traveling anyway and frankly are tired of being on Zoom and want to get out of their basement.

- Yeah, a lot of pent-up demand out there for sure. Tyler Morse, CEO of MCR Hotels, thanks so much for being with us.

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