Can This New York Hotel Beat Airbnb?

Veteran hotelier Ian Schrager positions Public as industry’s answer to the upstart

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NEW YORK—Stroll into Public, a full-service, 367-room hotel that opened this summer on Manhattan’s Lower East Side, and it quickly becomes apparent that certain features are nowhere to be found.

Sure, there is a coffee shop and market on the ground floor, complete with fresh fruit, local gourmet hot dogs and poke bowls. But in the lobby, an escalator ride up from the market, there is no front desk, no concierge, no luggage attendant.

Guests check in via a series of self-service tablets along a wall, where they can find their reservations, create their own room keys and proceed up an elevator to their rooms. If questions arise, they are answered by a handful of roving, jack-of-all-trades staffers known as public advisers.

These cost-cutting efficiencies are all part of an attempt by Ian Schrager, the veteran hotelier and night-life impresario who owns Public, to fight back against Airbnb Inc. on behalf of the hotel industry, which he believes hasn’t properly assessed the challenge posed by the tech upstart.

An escalator connects the hotel’s lobby with a coffee shop and market on the ground floor.

“Airbnb is a mortal threat to the U.S. hotel industry,” said Mr. Schrager, 71 years old, known for creating nightclubs such as Studio 54 in the 1970s and later the first wave of boutique hotels including the Royalton and Paramount. “The only way you can compete with a strong idea is by having another strong idea.”

A study last year from Morgan Stanley projected that 25% of leisure travelers and 23% of business travelers will have used Airbnb by the end of 2017, up from 12% for both groups of travelers in 2015. The report found Airbnb was a common substitute for hotels: 49% of Airbnb users said they had substituted Airbnb for a traditional hotel stay in the past year.

With Public, Mr. Schrager said he aims to better compete with Airbnb on nightly rates and offer superior amenities such as bars and other places to socialize. While cutting staff costs for hotel operations, Mr. Schrager’s new concept fuses a sprawling bar and restaurant operation onto the property, deriving revenue and profits from amenities that are meant to attract a much larger crowd than just the hotel’s guests.

Public has five bars: Two on the second floor, one on the rooftop with 360-degree views of Manhattan, one in a lower level music venue and one connected to Public Kitchen, the hotel’s ground-floor “world food” restaurant by JeanGeorges Vongerichten.

Mr. Schrager said the hotel is reaping 35% to 45% of its revenue from the food and beverage business, compared with a national average of about 24%, according a survey by STR Inc., a data company that tracks the industry. He said he is aiming for profit margins of 45% at the bars and 25% at the restaurant—about 20% higher than what is typical at similarly priced hotels.

It has been difficult historically for hoteliers to get strong returns from food and beverage. That is why some of the industry’s most profitable hotels are limited-service brands such as Courtyard by Marriott, which offer less in the way of bars or restaurants and rely on competitive room rates to drive occupancy and profits.

Mr. Schrager said he wants to replicate that cost efficiency, “but not by stripping everything out. You add in an exciting food and beverage concept, and it’s a real profit center,” he said.

The hotel’s rates officially start at $150 and increase during high-demand times, such as fashion week. In early August, rates started at $250, with some last-minute online rates as low as $180—well below the rates of upscale, fullservice Manhattan hotels, which typically range higher than $500.

To keep rates competitive, Public has eliminated traditional room service and dedicated lobby staff, amenities Mr. Schrager believes provide insufficient benefit for their costs. He brought up the example of checkout at a traditional full-service hotel, where a bellhop brings a guest’s bags to the lobby and hands them to a front-desk attendant, who then brings them out to a parking employee.

“Three people, three trips. It’s ridiculous,” he said. “That’s what we cut out.”

The hotel has no staff dedicated to answering phones. Calls from room telephones redirect to a call center in Las Vegas. Guests can send a Facebook message to the hotel, generating an automated response from a chatbot that can address questions about cleaning, hotel amenities or requests for repairs.

When a Wall Street Journal reporter stayed at the hotel in August, the Facebook chatbot still had a few kinks. For simple service requests like “cleaning” it worked perfectly. For requests that fell under the category of “something else,” however, results were mixed.

Asked if the hotel offered laundry service for guests, the chatbot said a member of the team would take over for “live assistance.” Ten minutes later a staff member arrived at the door, but he didn’t know the answer, either. He offered to find out but didn’t return before it was time to leave.

Mr. Schrager acknowledged that perfecting the technology has been one of the biggest challenges.

Bjorn Hanson, a clinical professor at New York University’s hospitality program, said Mr. Schrager’s concept flips the traditional role of food and beverage in hotels. Rather than being a less-profitable service that a hotel must provide as an amenity to guests, Public’s food-and-beverage offerings are meant to be a centerpiece that can ultimately drive more room occupancy, he said.

“Incremental profitability is what he’s really trying to strive for,” said Mr. Hanson, who hasn’t stayed at the hotel but is familiar with the business model. “It’s the idea of beverage leading to food leading to rooms.”

Mr. Schrager has five more Public hotels planned over the next three years—another in Manhattan, along with Brooklyn, Miami, Las Vegas and Europe.

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