Asset managers and owners recognize that amenity and resort fees are a viable source of revenue. Now the trend is expanding into urban luxury and full-service hotels, but experts urge hoteliers to take a careful approach.
REPORT FROM THE U.S.—Surcharge fees collected by U.S. hotels are on the rise each year at resorts. But now the industry is seeing these “resort fees” creep into other segments, namely urban luxury and full-service hotels, too.
According to the recent U.S. Lodging Fees and Surcharges Forecast from Bjorn Hanson, clinical professor at the Tisch Center for Hospitality and Tourism at the New York University School of Professional Studies, fees are expected to increase to another record level of $2.93 billion in 2018, surpassing the $2.7-billion total in 2017.
Examples of these fees include services and amenities such as early check-in, cancellation fees, minibar restocking fees, charging for unattended surface parking, holding checked luggage and more, Hanson noted in his study, and 2018 has been the year these new “urban resort fees” have been introduced.
Hoteliers say the key to charging these fees across different markets, such as in urban locations, lies in developing a fee that will create value for the guest.
Why charge amenity fees?
Hanson said there are a few reasons why urban luxury and full-service hotels are turning amenity fees into normal practice. For one, he said, occupancy is at a high and average daily rates are increasing at only a “slight premium over inflation.”
“We’re in an environment where profits for the industry on a per-room basis will barely increase in 2018. It will barely keep up with inflation,” he said. “So owners and managers are looking for ways to gain other sources of revenue.”
Many times that begins with a resort fee, he said, since it’s becoming an accepted practice and travelers are used to some kind of fee or surcharge. Many hotel management companies would like to raise room rates, he said, but it’s difficult in the “environment of the internet” where on online travel agencies even a $2 difference in room rates could significantly move market share.
“Now if the resort fee were added to the room rate, it would be subject to municipal occupancy tax,” he said. “So in New York City for example, if the rate were to go up, there’s an occupancy tax in addition to the sales tax charge on transient hotel rooms … consumers are actually saving a little bit of money in taxes by these being charged separately than them being included in the room rate.”
Romy Bhojwani, EVP of asset management at HotelAVE, said his company likes to implement amenity fees at hotels in markets where they can because it’s a great source of revenue with a “very high profit margin attached to them.” He said profitability of amenity fees is anywhere from 80% to 90%, depending on what the resort fee included.
He said HotelAVE is thoughtful about the approach to adding surcharges.
“It’s not just about trying to get additional revenue without really thinking about how the consumer might react to it and what’s really included in it,” he said. “We go through a very analytical exercise in terms of just surveying the market; we develop a fee in a way that there is value associate with it.”
It’s about getting creative, like adding yoga classes, a specialty cocktail or a welcome drink for guests instead of just offering the standard Wi-Fi and bottled water in the guestroom, he said.
He said his company has recently implemented fees in urban markets, and not just in the luxury segment but in upper-upscale and upscale, too, and he’s seeing roughly the same capture ratio.
“It’s starting to get into upper-upscale and upscale hotels, typically in very high transient markets like New York, San Francisco or Washington, D.C.,” he said.
Cory Chambers, chief revenue officer at Hospitality Ventures Management Group, said when a hotel implements a surcharge or amenity fee, there needs to be value-added services and benefits for the guests that are above and beyond what would typically be expected. His example was hotels that provide bikes for guests to use.
“That’s our filter for when we do or don’t charge a fee,” he said. “For example, parking charges are a universally accepted incremental expense at certain hotels and resorts. We have a handful of resorts where we do charge a resort fee and (parking) is included in that fee. It’s more or less a shift or bundling of other value-added services.”
Chambers said HVMG will not introduce a surcharge at properties in their portfolio that are “typical suburban corporate hotels,” because there’s very little that traveler type is wanting above and beyond the typical amenity. It depends on the hotel type, unless there truly is something value-added, he said.
Brands lacking consistency
Sources said there’s been little consistency among which properties are charging and which are not.
Bhojwani said the push to charge fees largely comes from the owner or asset management group. It’s just a matter of time until the brands gain consistency, he said.
Hanson said the inconsistency is seen more at urban hotels than at resorts, but it’s getting there.
“I don’t think it’s currently an attempt to hide the fee or be misleading; it’s just trying to figure out where on the (hotel’s) website it fits compared to where it more easily fits on a resort website,” he said.
Chambers said the brands differ around what should or shouldn’t be charged, but what he does see consistency in is the push for value-added amenities benefiting a majority of guests.
Bhojwani cautioned that he still encourages guests to book direct, where fees are more clearly outlined than on a third-party reservation site.
He said transparency is just as important as the value of the service added, and he views it across three principals.
“One is communication: How are you communicating the resort or amenity fee to the guest? At what point in the booking process are you communicating it? And … then how transparent are you about the actual dollar amount and what’s included in it? Then the third piece is how are you showcasing the value associated with the fee,” he said.
Chambers said not only is transparency important during the search phase but also upon arrival. He said it’s important to make sure front-desk associates explain to guests the resort fee includes things like a health club, beach service, nightlife and valet parking.
Hanson said he anticipates that 2019 might be the year when these fees spread to secondary and tertiary cities, and 2020 will be the year when the industry might see these fees introduced in limited- and select-service hotels.
He added that 2019 will also reach a new record level in total surcharges collected by hotels in the U.S.
“The 2018 number is actually lower than maybe it should be because so many hotels implemented these fees during the year … so we don’t have a full year of the industry following this practice (of urban resort fees),” he said.
Chambers said he feels “the jury is still out on hotel fees in an urban environment. I do think that we’re not quite there yet for it to be accepted. … I do think in an urban environment, your room rate will continue to dominate.”
He’s certain, though, that major brands will continue to provide guidance for how to apply incremental revenue streams outside of the room rate.