Another record year for hotel fees, surcharges
28 AUGUST 2015 8:04 AM
The latest fees analysis of the U.S. hotel industry shows 2014 is a record year with 2015 easily surpassing it.
REPORT FROM THE U.S.—Hotels in the United States collected $2.35 billion in fees and surcharges in 2014, an amount overshadowed only by the $2.47 billion in fees forecasted to be collected by the end of 2015, according to a recent analysis.
Bjorn Hanson, a clinical professor at New York University’s School of Professional Studies Tisch Center for Hospitality and Tourism, has researched the U.S. hotel industry’s fees and surcharges since 1997. In his most recent findings, Hanson reported that the amount of fees and surcharges collected has grown each year since they became a common practice in the late 1990s. The only exceptions are the brief periods after 2001 and 2008, but the numbers returned their upward trend within a year or two.
“The increase for 2015 reflects a combination of approximately 3% more occupied rooms than in 2014, more charging of fees and surcharges and higher amounts charged, for a total increase of approximately 5%,” he wrote.
The types of fees
The fees and surcharges in the analysis include resort or amenity fees, early departure fees, reservation cancelation fees, Internet fees, telephone call surcharges, minibar restocking fees, automatic gratuities and surcharges, and more. Every year Hanson continues his research, someone who critiques his work or writes a report on his findings says there won’t be any new fees because everything has already been thought of, he said. Every year, however, he finds something new to him.
One of the new fees he noted in his research is the early check-in fee. Early check-in fees exist mostly in resort locations, he said. While business travelers tend to check out early, he said, resort guests tend to like to stay as long as possible. They also try to start their stay as soon as possible, which can create a challenge for management’s noon check-out and 3 p.m. check-in process.
One way to deal with the supply and demand between noon and 3 p.m. is to charge an early arrival fee, he said. This isn’t a perfect solution, he said, as that could leave families who don’t want to pay the fee waiting in the lobby with their luggage.
All these fees and surcharges are highly profitable, his report notes, with many having incremental profitability of 80% to 90%, or even more in some cases.
As an example, Hanson said, guests already pay the menu prices for roomservice, but if the hotel added a service fee, that doesn’t mean the hotel is hiring extra staff or buying more trays. The same is true for the early check-in fee, he said, because while it might add to management time or complexity to schedule cleaning more rooms sooner, the rooms and housekeeping staff are already there.
According to the 2015 HOST Almanac from STR Analytics, sister company to Hotel News Now, the rentals and other income category, under which these fees fall, saw a greater increase than rooms revenue, the category against which all the other categories are compared, said Joseph Rael, senior project manager of STR Analytics. The revenue for the rentals and other income category increased 12.8% from 2013 to 2014, according to HOST data.
One fee that STR Analytics reviewed, cancellation fees, saw a large increase last year, he said.
“Our theory on that is the operators are being stricter in charging them,” he said. “Now that occupancy is so high, there’s a greater opportunity cost for that room going unsold.”
Over the years, guests have become more accustomed to expect these extra fees, Hanson said, which in part explains why they’ve grown over time. In the years where fees either declined or stayed the same year to year, he said, that wasn’t just because demand lessened, it was also because hoteliers were concerned about doing things that would offend the fewer travelers looking to book a room.
“They were not taking chances in times of weak demand,” he said.
He said that customers today, in addition to being used to fees, find comparison shopping a lot easier, especially since fees and surcharges are more transparent now.
“Two dollars difference in rate creates a difference in market share,” he said. “They’ll say I’ll deal with the fees and surcharges; I want to lock in the lowest rate.”
Despite fees becoming more common, he said, they can still surprise guests. Fees and surcharges are set by individual hoteliers, so they are not consistent within brands or even at the same location from one week to the next. There are times as well that guests miss disclosure of the fees, he said, such as on a hotel’s website, an email confirmation of a reservation, the guest service directory in a room or a tent card on the minibar.
In the past, if a guest complained about a hidden fee or difficult-to-find disclosure, the front desk would typically waive the fee, Hanson. More recently, he said, the practice has been to explain where it was disclosed and why it’s appropriate.
“You have to train your front-office personnel how to respond,” he said.
An exception to the rule
While fee collection continues to grow nationally, there are some markets where they simply aren’t an option.
Vijay Dandapani, president of Apple Core Hotels, a chain of five midtown Manhattan hotels, said his properties, like most other New York City hotels, don’t charge fees. The portfolio in New York is highly scrutinized already, he said.
With all of the local and state fees and taxes, he said, “Before you’re done, you’re looking at some 20% in taxes and fees the hotel doesn’t get a busted nickel out of.”
From an industry standpoint, he said, some hoteliers have seen fees work against them. Many hotels, including luxury properties, didn’t provide free Wi-Fi, he said, but now they are, or they provide it to regular loyalty members instead of only gold members.
“It’s called free market competition,” he said. “There’s no greater free market industry than ours over here, in terms of revenue. You set the price, and it’s under a microscope every single day and hour.”