Hilton Hotels' Efficiency Tradeoff

Last Wednesday I traveled from my home in Brainerd, Minnesota down to MSP airport, where I hopped on a flight to DFW. After arriving in Dallas, I had a nice evening dinner with my aunt, after which I headed to my reserved room at a Hilton hotel in downtown Fort Worth. It was pretty late, I was very tired, but I had some work to do before my speaking slots the following day at the Texas Municipal League conference. This is all very par for the course for me.

Hey @HiltonHotels, when airlines overbook it's not the last customer who gets stiffed. There is a process where they ask for volunteers. If I can't count on you for a room I pre-pay for, I'm not staying at your hotel. If I don't show, you lose nothing, so what are you doing?

— Charles Marohn (@clmarohn) October 11, 2018

After dropping my car and hauling my bags in, I was told by the front desk that they did not have any rooms. I said, “No problem, I have a pre-paid reservation.” They told me I wasn’t understanding: they didn’t have a room. I replied—in my nicest Minnesota way—that, no, I thought they were confused, because I clearly had a room, and gave them my confirmation number.

They then handed me a piece of paper and told me to give it to the front desk at a hotel on the far outskirts of Fort Worth—ended up being a 35-minute drive due to construction—where they would give me a room.

Needless to say, we had a little conversation at that point. I was informed that Hilton overbooks their rooms “like an airline” and, unfortunately, every room was full. It didn’t matter that the Municipal League had already paid. It didn’t matter that I was a Hilton Honors member. It didn’t matter that they had reserved me a suite and I had confirmed my arrival. No room was available.

I’ll spare you the travel-diva whining—the other hotel was a dive, as well as being pretty remote—so I can skip to the next morning when I arrived back at the hotel for the conference. I spoke with a manager who (kinda) apologized but informed me, in no uncertain terms, that they operated “like an airline” and the sad, unfortunate reality of that operation is that sometimes people got bounced.

I found the statement “like an airline” to be a fascinating one. What the manager was alluding to is an ethic of efficiency—making sure that every room or every seat is full, that every resource is used to its maximum potential—that is present not just in private business but also in the ways many local governments conceive of their mission. I have argued before, and will explain again here, why governments should not treat efficiency as a core objective—and neither should Hilton.

Like an Airline

The statement “like an airline” is telling not only because two separate people used it—which suggested that is the internal language they use—but also because it is absurd. Getting bumped from a hotel is nothing “like an airline” overbooking.

The obvious difference is that, with an airline, there is a whole group of people boarding simultaneously. If they are overbooked, they offer that group— everyone simultaneously—the opportunity to give up their seat in exchange for some kind of compensation.

This is very different than the Hilton, where, apparently, the last people in—whether they confirm or not—are at risk of being bumped. Imagine showing up at the plane with a tight layover but rushing through the terminal to make the flight on time, only to be turned back because they gave your seat to someone else. Now imagine being tired, needing desperately to get on that flight and having the airline book you on a red-eye to a nearby airport. That is the equivalent, so not really “like an airline” at all.

The other reason that the airline comparison is absurd is that airlines run flights all the time, people miss their flights for perfectly good reasons, and the airlines must accommodate them when they do. This creates the need for a certain amount of slack and corresponding tension in the system. Overbooking makes sense given how airlines operate.

If I don’t make it Wednesday night to the room I’ve already paid for, it’s not like Hilton gives me a room on Thursday. I rented the room for that night and that night only. If I don’t show, I lose out. I don’t get my money back. And Hilton doesn’t lose anything in that scenario and they actually save the cost of cleaning the room the next day.

So, not at all like an airline.

Spare Parts

Last year I was involved in the Delta meltdown that stranded thousands of people around the world. I wrote about it (Lessons from the Delta Implosion) because there was an important lesson—one of the same lessons we can learn from this Hilton Hotels policy of overbooking—about the tradeoffs of efficiency. One of my favorite Nassim Taleb short videos explains this perfectly. To quote that prior article:

As Nassim Taleb, the Patron Saint of Strong Towns Thinking, has taught us, the operational opposite of efficiency is not inefficiency, it’s redundancy. It’s spare parts. It’s slack in the system. For example, the human body is not very efficient. We have two kidneys when we only need one. We have more brain power and lung capacity than we routinely use. If economists – or Delta efficiency experts – designed the human body, they’d get rid of all that redundancy. It keeps us from operating at peak efficiency.

As we all understand, however, that redundancy also keeps us alive. When we look at natural systems – systems that are complex as opposed to merely complicated like Delta airlines – what we find is that redundancy is a critical survival strategy. The ability to take reserve capacity and utilize it for adaptation during times of stress is essential.

The operation of Delta airlines was all about improving efficiency, although they learned a hard lesson last year and (it’s my understanding) have been investing in more redundant systems. Spare parts. Hilton does not run “like an airline” and so they are never going to have cascading failures in the same way Delta could. Still, their quest for efficiency compromises their ability to deliver a basic level of service to their customers.

Whatever marginal price reduction I receive for the gains they have from overbooking is completely offset by one experience of being stranded. I would gladly have paid more to be guaranteed a room. In fact, I thought I had.

Lessons for Cities

In my piece on Delta airlines, I said, “The private sector is the place for efficiency. The public sector is not.” I still believe that. I’m not looking for the mediator of centralized government to come in on my behalf and put the smack down on Hilton because they value the efficiency of their operation more than the experience of their customers. I’m just not going to stay at Hilton hotels anymore. I would encourage others not to as well.

There is a lesson for local governments here: don’t make efficiency one of your core values.

Years ago, when I was working on a book, I wrote an entire chapter about how, for cities, winning is merely the absence of losing. For a game that never ends, the goal must shift from scoring the most points to merely surviving the longest. The book was never published, largely because this particular chapter seemed absurd to everyone who read it. You mean we don’t try and win? Nobody is going to go for that!

Yet, that is precisely what needs to happen. Imagine a football game that went on forever. At some point, the strategy for winning that game becomes irrelevant; success would come down to merely being able to field a team. Efficiency would be a detriment while redundancy—spare parts—would be essential.

Local governments should prudently act to improve what they do, but they should never seek added efficiency at the expense of their own stability. Hilton will someday go bankrupt; their leadership is going to continue to push the efficiency mantra so tight that they will squeeze all the slack out of their system, making them fatally vulnerable to a shock of some type. That’s the ultimate fate of every efficient system, whether that failure happens tomorrow or in some distant future.

Cities can’t operate that way. If we don’t want them to fail, we must stop demanding that they do.

Top Photo © Albert Bridge (cc-by-sa/2.0)

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