Hotels racking up the big bucks by piling on fees

By Harvey Chipkin, Travel Weekly, 1/9/2007

Hotel add-on fees are big business, and the business is getting bigger every year.

Thanks to tacking on a variety of fees, ranging from a nominal "a la carte" cost for minibar restocking to resort amenities that can add up to $20 per person, per day, the hotel industry raked in a record $1.6 billion in additional revenue in 2006.

That was 7% more than such fees generated in 2005, itself a record year for fee revenue, according to Bjorn Hanson, a principal with PricewaterhouseCoopers.

As recently as 2002, Hanson said, the hotel industry generated only $550 million in fees and surcharges, meaning that revenue from added fees has roughly tripled in four years.

While some observers believe the industry is simply taking advantage of strong demand to milk additional revenue from captive customers, hoteliers contend that fees and surcharges are legitimate ways to cover costs or to rationalize market-by-market conditions.

The bottom line, they said, is that fees are here to stay. And Hanson said that he believed travelers were getting something for their money.

"After spending more than $5 billion in the last year on capital improvements like better beds, flat-screen televisions and Internet access, hotels are looking for ways to recover that investment even if fees are not always connected to those improvements," he said.

While fees and surcharges have been around for years, consumer attitudes toward them have changed, said Hanson.

"There is increasing acceptance by travelers of these charges, especially business travelers," he said. "That's a result of better disclosure of some charges as well as better training of staff who are able to counter objections by guests who are upset when seeing unexpected charges on their bills."

As a result of improved training and disclosure as well as customer acceptance, the charges are more likely to stick, Hanson said.

"In the past, hotels were quick to remove charges if a guest complained," he said, adding that today, hotels are less likely to remove charges.

'Ridiculous'

But with the cyclical nature of lodging, not everyone believes that charging fees is a good strategy. Among them is Vijay Dandapani, a hotel operator who heads up Apple Core Hotels, which operates five economy hotels in New York. He calls the fees "ridiculous."

"Eventually, there will be a consumer backlash to this," he predicted. "People who go to a clothing store don't want to be charged for the carpeting on the floor."

Still, Hanson said that with a lessening of guest resistance to resort fees, probably the highest of all the add-ons, "they will be increasing in 2007."

At the same time, some resorts are shifting to entirely different fee models. For example, the Greenbrier in West Virginia is moving from a per-person resort fee of about $20 per person per night to a per-room fee of $25 per day. That includes the tip for the room attendant, wireless Internet access, the hotel's afternoon tea and concert, historical tours, nightly movies, fitness center use, hiking and biking trails, swimming, culinary demonstrations, unlimited local phone calls and on-property shuttle service.

A spokeswoman for the resort said the change was the result of a switch from rates that include two daily meals to room-only rates, eliminating the inclusion in the fee of tips for wait staff.

Robert Mandelbaum, director of research information services for PKF Hospitality Research, described two categories of fees: one where hotels charge for a specific service like delivering faxes, and the other a mandatory charge such as the resort amenity fee paid by all guests.

Both of these, said Mandelbaum, are a way to raise revenue without increasing prices. "Hotels are aware of the strong demand currently, and they are making hay of it," he said.

Ethically, said Mandelbaum, hotels should disclose any fees up front so guests can make decisions based on the total charges.

"But things have gotten complicated because there are now so many intermediaries over which a hotel might not have control," he said.

Disclosure has been addressed by a number of chains, including Marriott and Hilton, which now require that mandatory charges be noted when a reservation is made, while optional charges must be disclosed before a guest chooses to use a service.

Keith Overton, vice president of Tradewinds Island Resort on St. Pete Beach in Florida, which charges a $25-per-night resort fee, said his hotel was "perfect on disclosure."

"We pay a company to test our reservations calls to ensure we are disclosing these fees verbally," Overton said. "Then guests sign a statement at check-in that they are aware of the fee. Finally we have a brochure explaining it all."

Tradewinds Island's resort amenity fee is a response to customer input, said Overton.

"In the past," he recalled, "we charged for virtually everything, except for things like newspapers and coffee. We were getting an inordinate number of complaints that we were nickel-and-diming."

So, why won't hotels just tack on the costs of these services to the room rate?

"The market simply wouldn't bear that," Overton said. "The Internet now has so many sites where consumers can compare prices, and it would be impossible to explain on a site why they might be paying $25 higher at one resort than at another."

At Ritz-Carlton, according to Brian Gullbrants, vice president of operations, fees are specific to the property, with no corporate-driven fee structure.

"We do our best to include those costs within the room rate but have to find a balance within that," he said.

As a result of continuous research, some charges have been eliminated. For instance, bottled water and fitness center access are never charged for, said Gullbrants.

"We are not driving fees to increase revenues," Gullbrants insisted. "We would rather slightly increase the rate than create a fee, but sometimes a fee makes more sense."

Still, some industry insiders predicted that while hotels might see short-term gains from fees, they will lose in the long run. "Every guest you lose because they think a rate is too high you will gain five who are grateful that they weren't nickel-and-dimed," said David Brudney, a veteran consultant.

Apple Core Hotels' Dandapani noted that, paradoxically, the higher the rate, the more likely the property was to charge fees.

For example, the five midprice brands under the InterContinental Hotels Group umbrella -- Hotel Indigo, Holiday Inn, Holiday Inn Express, Staybridge Suites and Candlewood Suites -- typically offer complimentary Internet access. Meanwhile, the two high-end brands, InterContinental and Crowne Plaza, sometimes charge for it on a market-by-market basis.

"We could never get away with this at the price level of our hotels," Dandapani said. "What's the point of having all these loyalty programs when you annoy people with these fees? Hoteliers should look at this over a span of time and realize that eventually some of this will come back and bite them."

According to a study by the American Hotel & Lodging Association, 76% of all hotels offered free outgoing local phone calls; only 22% of luxury hotels did so.

At one midmarket brand, Hilton Garden Inn, senior vice president Adrien Kurre said, "The only thing we charge for is breakfast because we think the business traveler is smart enough to know there's no such thing as a free breakfast."

Kurre also pointed out that some fees had gone away as the industry evolved.

"We used to realize significant revenue from telephone calls and from movie revenue. Now with cell phones and guests downloading movies onto their iPods, that's no longer the case," Kurre said. "I don't see anything coming along to replace those previous sources of revenue, so we have to try our best to bundle things together in an appropriate rate."