Hilton's Blunder: Penny Wise and Pound Foolish

Once in my hotel operating career, I was the Resident Manager of the Americana Hotel of New York, now the Sheraton New York Times Square Hotel. At 1,842 rooms and 51 floors, it is one of the world's tallest hotels.

Our biggest competitor was the New York Hilton Hotel on the next block. It has 47 floors and offers 2,147 rooms, making it the largest in New York City.

We worked very hard under the direction of owner Bob Tisch and General Manager Tom Troy to beat the Hilton each night in occupancy and average daily rate. And mostly we did. If I were in that same job today, my task would be much easier since Hilton discontinued room service.

As every hotel person knows, room service is a money-loser for hotels. It is offered as one of the perks of staying in a full-service hotel. Room service appeals to guests for many reasons: after a busy day, you can eat your meal 1) without having to get dressed for dinner 2) avoid a lonely dinner in a busy restaurant 3) enjoy the current room service trends which is producing better food better prepared 4) sample a sophisticated in-room dining venue of dishes prepared by top Executive chefs 5) enjoy more comfort food items that are appearing on room service menus.

Good hotel people understand the concept of a loss leader to attract and satisfy guests.

In my book, Great American Hoteliers: Pioneers of the Hotel Industry, AuthorHouse 2009, I write about Henry Morrison Flagler's definition of the loss leader theory of hotel management:

Flagler's operational policy was a forerunner of the "loss leader" theory of hotel management. He believed that a fine hotel or restaurant was bound to lose a certain amount of money before it established itself as a place of bona-fide quality. In the 1890's as the Ponce de León Hotel continued to operate at high occupancies, a new hotel manager decided to economize. He wired Flagler for permission to discharge the costly French chef and an equally costly dance band. Flagler wired back, "Hire another cook and two more of the best orchestras."

If Hilton's decision to eliminate room service at the New York Hilton Midtown Hotel results in a reduction in occupancy and average daily rate, how much revenue will be lost in the lucrative rooms division?