U.S. hotels are likely to collect US$1.8 billion in resorts fees and other surcharges by year-end 2011. But at what cost?
GLOBAL REPORT—When is a room rate not the rate guests pay? When an increasing number of hotels in the United States roll up additional charges into the ambiguously defined “resort fee.”
The practice is becoming more common throughout the U.S., especially in major destinations like Hawaii and Las Vegas, where guests are charged mandatory fees of up to US$25 a night.
It is by no means a new phenomenon. Hotels have been adding resort fees to guest ledgers for 15 years or so, said Joe McInerney, president and CEO of the American Hotel & Lodging Association.
But the prevalence of these fees is new.
Hotels are likely to pocket a record US$1.8 billion this year thanks to these extra fees, which are up 80% from 2001, according to a new study by Bjorn Hanson, dean of New York University’s Preston Robert Tisch Center for Hospitality, Tourism and Sports Management.
The huge increase is attributable not just to the number of hotels now adding resort fees, but also to what is included in those fees. Charges for housekeeping, bag storage and the use of a gym or pool are becoming more commonplace, as are other services once assumed to be an integral part of a room rate.
Profitability and backlash
From an operational perspective, resort fees and the individual services charges which they comprise are a sure-fire way to boost revenues and profit.
“Fees and surcharges are especially profitable,” Hanson said. “Most have incremental profitability of 80 to 90% or more, so they represent significant contributors to industry profits."
Hotels also don't pay travel agents a commission on resort fees, he added.
And resort fees help bridge the gap toward profitability at a time when hoteliers are facing increasing pressures from a cost-conscious traveling public.
“More hotels are doing it rather than raising rates or instead of charging several small, individual charges,” McInerney said.
Indeed, resort fees can provide great value as long as they include services guests would normally pay a lot extra for, such as Internet and valet parking, he added.
“Many guests consider it a service rather than being 'nickeled and dimed,’” McInerney said.
But not all guests feel that way. A cursory glance at comments on review sites such as TripAdvisor reveal a wealth of angry travelers who feel duped for being charged a resort fee on top of the room rate.
Consumer advocate Christopher Elliott takes a more critical stance: “(Hotels) want guests to think they are getting a deal on a room and then adding surcharges to increase their profits. That's lying, and it should be illegal.
“(It is) fundamentally dishonest to quote one price and then add a mandatory surcharge to the final bill,” he added.
McInerney advised hoteliers to be as upfront as possible by letting guests know all charges in advance and, more importantly, whether they can opt out.
Tune Hotels Westminster
The sooner this is done in the booking process, the better.
Some hotel websites only disclose extra fees once a guest has reached a certain point in the booking process. And if a room is booked through a third-party reservation agency, guests might not even know they are liable for extra compulsory fees.
Adding further confusion to the issue is what brands and at which locations have resort fees.
A chain might charge upwards of US$20 a night for Brand A and Brand B, while a nearby property with Brand C charges not a cent extra.
Selangor, Malaysia-based Tune Hotels is taking the opposite approach through a demand-based pricing platform that boasts near-total transparency. Guests can book rooms starting from a few dollars a night. The kicker: Many things from air conditioning to additional towels cost extra.
The process is paying off with customers. Tune has opened 10 hotels since the brand launch in 2007. The company aims for 100 properties globally by 2015, according to Mark Lankester, CEO of Tune Hotels.
Guests are made fully aware of this from the start, with the policies even part of Tune’s advertising.
“We’re totally transparent on our website about extras, and we don’t try to nickel and dime customers,” Lankester said.
For consumer advocate Elliott, that transparency and flexibility is key.
“If the air conditioner in the room is optional,” he said, “then there's a difference.”