GMH Bonus: AI Could Threaten Expedia and Booking.com

0:16Brandreth Canaley: Hi, everyone. This is Brandi from Good Morning Hospitality. I'm here with Roman, CEO of Casa. We're here talking about all things travel at Skiff Global Forum. How has the conference been for you so far? It's been great. Lots of good energy. Skip does a great job bringing together innovators, a combination of the modern and the ancient. And so it's been good energy for sure. Yeah. It's fun. I'm usually very much in the vacation rental circuit. So I'm like, well, there's so many people I don't know here, which is fantastic. It's a big tent. It's a big hospitality world. I was like, oh, and sometimes I'm like one of the bigger fish and here I'm like, you are just a small little minnow.

0:52Brandreth Canaley: Yeah. It's humbling. It's a good reminder that we have a very dynamic industry. Yeah, absolutely. Now, so I think this is particularly fun because you and I, in my former life as CEO of Romy, we were friendly competitors. And you are kind of one of the last ones of our class still out there being successful. So what have you guys done in the last couple of years that has led to that success and durability? Yeah. So, you know, the last seven years, maybe 10 years, have not been for the faint of heart for anyone in hospitality. No, it was kind of a beat down. It was a huge beatdown. I mean, one thing after another.

1:25COVID is a hundred year flood plus interest rates changing. Very different dynamic in terms of funding from the Opco and technology world into this world in 2018, 2019 versus today. So I have great respect for the entrepreneurs who have been building in this sector, who have weaved and bopped.

1:46Brandreth Canaley: You're constantly blocking things. What crazy thing is going to come at me next? Yeah. And so what we have focused on is a few things. One, what are we? We are a hotel and apartment hotel brand and manager. So one of the things we did differently is we had a broader mandate in terms of property types. We operate boutique hotels in addition to apartment style properties that are full building or partial building. And a couple of years ago, you kind of dipped your toes into homes and that's done. Yeah. We focused much more. We did homes in a very specific way where they operated very similarly to apartment hotels or hotels.

2:24Sure. So they were in one market, renovated to the same standard. What we never did is, and they were owned by an institution.

2:30Brandreth Canaley: So now all the little owners, like, yeah, you're not doing the traditional route. Exactly. So these were complex, you know, one neighborhood. The renovation for each home brought them to a very similar standard. So almost was like a horizontal hotel, which is what made us comfortable to do it. Across apartment hotels and hotels, what's similar is, yeah, there's a density of units in the building. They're owned by one owner, not individual owners. And so we operate very similarly to a hotel manager in those contexts. Yeah. And it's totally like coming from the kind of urban multifamily world and now being on the vacation rental side with all these owners.

3:12Brandreth Canaley: I mean, both groups have challenges, but I will say dealing with like one owner at a time is definitely a little bit easier. Totally. And it also rhymes more with my background. I was at KPR as an investor and across real estate asset classes. And so I really speak that institutional owner language and local developer language. It is a different language when it's this local homeowner. Yeah, it's a totally different vocabulary and like reason for having that asset. No doubt. No doubt. Yeah. they're often non-economic owners. Sometimes they buy for consumption. Sometimes it's pride. But in the hotel and apartment hotel world, more often than not, they really care about the bottom line.

3:51And that's the language we speak.

3:52Brandreth Canaley: Yeah. That's awesome. So a lot of the conversation in the last year has been around AI. We made it a couple minutes in. There it is. We have a bit on the show that you have to take a shot every time someone says AI. Okay. We'd be, I think, passed out. Yeah, exactly. So how are you guys bringing that technology into CASA? Yeah, you know, in a lot of ways, we were built for this moment. So we could have said we were AI native before AI was so dominant. You were doing it first. Well, we have our head of technology, has a machine learning background from Stanford and has built multiple hotel companies.

4:26Our head of product was a senior product manager at Airbnb and has, you know, focused on machine learning to drive more bookings on Airbnb. And so we had that ethos. We built our own systems. We built our own PMS.

4:37Brandreth Canaley: Man, and that's brave because the build or buy, I mean, the tech, build your own tech has been something I have personally tried to stay away from. So I give you credit. That's a journey to go on. I think it's been very helpful in helping us be durable throughout different moments and demonstrate real differentiation where we can show not only do we drive better REF PAR index or review scores or margin, but here's why. And the technology is part of the answer. AI has accelerated our development of the technology. where our engineering team is, you know, something like three times more productive than it was a year ago.

5:13And the pace is only accelerating. And then we're deploying AI across every element of the business, whether it's automating financial reconciliation or we have an AI agent answering by the end of the year, one in two guest questions at a higher review score and a 98 % cheaper cost. Or then if it were not answered by AI or if it's on revenue management or marketing or distribution. every element and even training. We built our own training system that looks at our data to see where we are training well, where teams need additional training opportunities. And then there's a almost Duolingo-like scoreboard that our ops teams have visible to them.

5:55And there's a little friendly competition that it creates. And training is really, really important in a hotel management company. So having that be first party maybe is counterintuitive. but is something, one of the many ways that AI has accelerated and helped us improve results for owners.

6:12Brandreth Canaley: Yeah. And I think that's part of the, I mean, that training component is huge because, you know, your frontline staff, like one sentence they say to someone can like change the trajectory. So making sure people have that kind of that education all the way through, I think is super important and making data-driven decisions. I think everybody wants to do that, but especially in really heavily operations-based business, like it can fall by the wayside because you're dealing with like the fires that are happening. Yeah. So give you guys a lot of credit for like building that system where you can track everything and see where you need help and where people are succeeding.

6:45One of the key things is a voice of customer system that we have that takes signal from any interaction with a guest, whether a guest emails us, calls us and that call is transcribed, texts us, leaves us a review, Any interaction that is with us and the guest is in digital form. And the algorithm looks at root causes, categorizes those root causes, and allows us to, you know, whether it's at the GM can see a unit in their building, a property level view, a floor level view. I can see a portfolio and network wide view. then we're prioritizing the highest impact issues to solve so that we drive more improvements at the highest leverage improvements to the performance of the overall platform to guests and owners.

7:30Brandreth Canaley: Yeah, I love that. And I think all those things, when you go to talk to new owners or prospective owners, you have such a wealth of data to show like, this is why we're the operator of choice. Yes. And of course, data, you can't talk about AI without data. You have to have good data, good data. You have to have it centrally, you know, accessible. You want to make sure it's clean. Everything coming, data coming from each system means the same thing. Occupancy from one system means the same thing from another. Rooms out of order are counted the same way. And so there's a lot of emphasis on that.

7:58And frankly, good data is what is necessary to do the AI customer service component. So there's a digital twin that we build of any property that the AI then, you know, if you ask how to change the thermostat in a room, AI cannot magically know what thermostat is in the room unless it's structured and in our database accurately. And so that was a condition precedent to then enabling a lot of downstream opportunities that we've been doing.

8:25Brandreth Canaley: So being here for the last couple of hours, is there anything, any trends or any information that you've learned today or that kind of stuck out to you? I think there's more questions than answers right now. Oh, good. Okay. What are some of those questions? Questions are what will happen with the distribution world. Oh, I love that. Okay. What is your take? This has been really hot. I've been arguing this now all summer. So is AI going to empower the OTAs, empower the direct booking movement? What is your take? This is anyone's guess. Booking.com has 100 billion reasons to not lose. Expedia has a lot to not - That's my argument.

9:01Now, my bet is that in the near term, it will help the OTAs. And the reason why is they'll use AI to tune their systems. So improve their matching algorithm. make their business more efficient, drive higher EBITDA margin. This is not too dissimilar to AI helped, the internet helped borders books or old school brick and mortar businesses get better, improve their marketing and distribution. And then of course, new entrants came and really hurt them. I would suspect that pattern will continue here where the reason Expedia and booking can charge such a big toll, 15, 18 % of booking is the incremental booking to a hotel owner for a perishable inventory is very valuable.

9:46And the matching problem of fragmented demand with fragmented supply is hard to solve without Expedia. Google certainly gives them a run for their money. AI will make that matching problem less scarce or easier to solve, would be my bet. And it will also perhaps remove them from the customer. If an agent is booking for you, you're not going on Expedia booking.

10:08Brandreth Canaley: The agent's finding that direct site. It's agnostic to whatever. Yeah, and the agent knows, oh, direct is a little bit more attractive and it's a little bit harder for a human to go to the direct, but the agent will always find that direct route. And so I would be surprised if in the long run, there aren't forces that hurt the OTAs, how they'll respond because they have a hundred billion reasons to respond will be a question. And I'm sure this is keeping their leadership teams up and right. And they're, they're well-led companies. So we'll see. Yeah. And that's kind of, it's, those are really interesting points that I had to kind of a different take that like right now might be the moment where the direct, like the property manager could make some inroads and have their direct site be more present if they're savvy enough to figure out like the AI tools.

10:52Brandreth Canaley: But that because the OTAs have, you know, billions of reasons why they need to, you know, dominate the space that then eventually they might come and like squash them. So I don't know. I, my opinion, like you just gave some really great arguments that I like agree with. So I'm very, I'm very open to hearing how it all plays out. I don't think they're going to be like, oh, I guess our market share is getting taken and we'll just take that lying down. So either way, I think there's going to be some sort of a fight. But there will be, whenever there's a sea change in modality of how consumers behave and what they use to access a product, there's downstream really deep implications that are very hard for incumbents to react to.

11:29And that's historically been shown. So Borders also had a lot of reasons to defend their turfs and same with Barnes and Noble and Blockbuster. if that's, I don't remember. And so all of these stories, these are very well-run companies, good management teams, but technology can really change and pull the rug under them very quickly. So we will see, but it will be, so I have more questions than answers, but I think it'll be very, very interesting. I would bet that it will be challenging over the next five, 10 years for the OTAs, but in the near term, it'll be helpful.

12:03Brandreth Canaley: Yeah. Great. Well, thank you so much. We're going to part on one question and that is where would you like your next vacation destination to be? My next vacation destination will be in Hawaii. So what we'll like, I'm going to a wedding in Hawaii and my wife and I are taking a few extra days. It's an 11 hour flight from here. So yeah, you got to make it worth it. Okay. Amazing. Yeah. Work on your tan. Yeah, that's right. I'll do my best. All right. Well, thank you so much for joining me. This was great. And I hope you enjoy the rest of the show. Thank you.

12:36Bye.