Jury still out on FTC ‘resort fee’ compliance
Jury still out on FTC ‘resort fee’ compliance
30 NOVEMBER 2012 9:56 AM

Hoteliers were reluctant to say whether they will comply, and the AH&LA’s Joe McInerney passed partial blame to third-party room distributors for not informing guests.

REPORT FROM THE U.S.—The jury is still out on how hoteliers will react to a Federal Trade Commission investigation into resort fees that are not disclosed at the time of booking. After the investigation—which included letters from the FTC to 22 hotel managers—was made public Thursday, sources were reluctant to say whether or not they will comply.

The American Hotel & Lodging Association skirted the issue, saying the organization doesn’t provide legal advice or standards policies. Chairman Joe McInerney told HotelNewsNow.com that each individual hotel will have to determine their strategy moving forward based on what’s best for their particular situation.

Joe McInerney

“I was surprised to hear about it,” McInerney said. “We’re sending out an advisory today, but we don’t have an opinion either way. We suggest if hoteliers have any questions about it, they talk to their counsel to make sure they get the proper advice that fits in their community.”

Fairmont Hotels & Resorts doesn’t have a brand-wide policy as it relates to resort fees, said Director of PR Mike Taylor. “While we do have a few hotels that charge a resort fee, the vast majority do not,” he said.

Patrick Goddard, president and COO of Trust Hospitality—a longtime management company and operator of independent hotels—sides with the FTC, saying many hotels use a resort fee add-on as a tool to maintain lower published rates than competitors and in doing so “not only dupe customers into thinking they are getting better value but give their unsuspecting guests the unexpected surprise of an additional, per-night fee.”

“It’s important there is transparency in all mandatory fees charged by the hotel to a potential guest,” Goddard said. “We welcome regulation that protects the consumer from the unethical application of such surcharges.”

Patrick Goddard
Trust Hospitality

McInerney passed partial blame to third-party room distributors. He said many room suppliers “do a very good job” of transparency with the rates within their own reservation systems.

“If you go to the major brands and look at the resorts, they list a resort fee and if there’s a parking charge,” he said. “One of the problems they do have is when third parties book the reservation, and they forget to tell the guests that the charges are there. That’s where we get a lot of complaints at the hotel level. Third parties want to sell the room and then they’re not there for customer care.”

FTC opinion
Annette Soberats, a staff attorney with the FTC's Bureau of Consumer Protection, said the 22 companies were targeted as a result of consumer complaints filed during the “drip pricing” conference the FTC held 21 May 2012 and an “in-depth analysis” by the FTC.

The FTC will keep anonymous the targets of ongoing investigations, as well as reasons certain operators were targeted rather than others, Soberats said.

There is no current timetable to which the 22 operators must adhere and comply. Since this is the first time the FTC made known that they consider this practice of “drip pricing” deceptive, FTC Spokeswoman Betsy Lordan said the regulating body will allow a bit more leeway. The FTC will keep a close eye on how the hotel operators respond to the letter and will follow up accordingly if no action is taken on their part.

“We wanted to give the hotel operators an opportunity to comply on their own voluntary,” Lordan said.

Guest fees climbing
According to recent research from Bjorn Hanson, divisional dean of the Preston Robert Tisch Center for Hospitality, Tourism, and Sports Management at New York University, the U.S. hotel industry collected approximately $1.55 billion in fees and surcharges during 2009.

During 2012, Hanson projected the amount of fees and surcharges collected by U.S. hotels to increase to $1.95 billion.

The increase reflects a combination of 3.5% more occupied hotel rooms this year compared with 2011, plus higher fees and surcharge amounts at many hotels, especially resorts. Fewer hotels will have newly introduced fees and surcharges.

“The industry is being conservative in adding new fees or substantial increases in the dollar amounts collected for fees and surcharges,” Hanson said in August when his research was published. “I think it’s in part because of research being done by the major chains indicates how unfavorable consumers view the airlines fees and surcharges.”

The “uniquely profitable” revenue source has increased ever since, Hanson said. Fees and surcharges—which cover everything from resorts, amenities, Internet, parking, early departure, reservation cancellations, room-service delivery and mini-bar restocking—tallied approximately $1.7 billion during 2010 and $1.85 billion during 2011.

Silver linings
If enacted, Hanson on Friday told HotelNewsNow.com that compliance with inferred regulations regarding the display of resort fees could create a win-win-win scenario for stakeholders.

The most obvious benefit, he said, is for consumers, who will be better able to discern the true cost of a hotel stay.

But enacted measures could also help employees, Hanson said. “It will be good for employees at hotels because it may reduce the number of times they’ll have to explain what some guests might be surprised by or critical of.”

And potential silver linings exist for hotel operators as well, he added.

“I also think it’s good for the (hotel) industry because now there will be some consistency with the reporting and disclosure of fees. It won’t be so much how can we share the information about resort fees without making it look like we charge them while others don’t.”

Hanson said he doesn’t anticipate regulations would impact how room rates are reported or yielded.

“There are a few reasons for that. One is the occupancy tax that municipalities charge … would be based on this extra cost, whether it’s $12.50 or $60 per night to the number, so that’s more expensive for guests.”

“Also, rates move up and down because of revenue management. That should really be a rate, pricing, yield management issue, which is separate from the resort management fee. So it’s easier for guests that rates go up and down, but when I pay for a service or package of services that’s a separate issue,” he said.

Similar investigations
The FTC investigation mirrors an investigation in the United Kingdom that certain hotel brands allegedly breached regulations by not including value-added tax in initial prices shown for some properties online.

Those charges were first brought to light when U.K.’s Advertising Standards Authority—an independent organization recognized by the government, the courts and other regulators such as the Office of Fair Trading as the body to deal with complaints about advertising—filed adjudication on InterContinental Hotels Group and its Crowne Plaza brand. The ASA argued VAT-exclusive prices on various property websites were misleading and breached ASA code.

The ASA code states that VAT must be displayed if purchasers are required to pay it.

No Comments

  • RobertKCole November 30, 2012 5:20 AM

    The bottom line is that to avoid the FTC's wrath for drip pricing, all mandatory fees will need to be presented to the guest in a manner similar to the way base room rates are now. Patrick Goddard is correct, the reality is that a number of hotel groups, as well as third party travel sellers attempt to provide consumers with a price point that is lower than the competition for comparative shopping purposes. Introducing mandatory fees (like resort fees) later in the shopping process has been a popular method to accomplish this objective. Similarly, hotels have also chosen to bundle products into these fees that either have a very low incremental cost, or exhibit high breakage rates due to limited guest utilization. This winds up producing a resort fee with comparatively lower value to the guest than the room rate itself. The combination of these two factors is what caused the FTC to take a serious look at the practices. Every bit of hotel pricing related research I have seen over 30 years indicates that consumers want to understand the lowest price they are required to stay in the designated hotel/room category. Actually, the travelers all want to see tax-inclusive prices so they understand the total amount they need to pay. If the hotel industry is not careful, it will wind up like the Rental Car Industry where I seem to recall 48 state attorney generals told the industry that they needed to produce a fee & tax inclusive price over a decade ago.

  • Lee Bowden December 3, 2012 6:35 AM

    Interesting that they are not targeting Airlines for fees, ie luggage fees, curbside check in fees, seat preference fees, board early fees, emergency row fees,wifi fees,and now taalk of overhead luggage fees!

  • JayNYC December 3, 2012 6:58 AM

    @Lee Bowden - the difference is that resort fees are mandatory. The government HAS targeted the airlines for mandatory fees and taxes, including fuel surcharges. They MUST prominently display the fare *including* all mandatory fees and taxes in any advertising and during the booking process. The government really should be going after the OTAs with a similar regulation. Though to be fair, I'd expect the hotels themselves would be included; while they're "better" at disclosing the resort fees, it's still not prominent.

  • alex kuenzli December 3, 2012 2:52 PM

    Being a veteran hotelier I probably do not understand anymore this modern business practice of added fees and I may say ridiculous fees at that. Whether the reservation is made directly to the hotel or through a third party it is simply immoral and unethical if fees are levied that guests rightfully expect to be included in the room charge. What the hotels - and I am surprised to note also very reputable chains allowing this to happen - are doing is nothing else than ripping off the unsuspecting guests with unjustified fees. If hotel business has to resort to such practices to balance (or to cook) its books I am glad to be retired now and do not have to justify the unjustifiable to rightfully irate guests.

  • Rich Mathus December 26, 2012 3:11 AM

    The concept of the Resort Fee is despicable and a sign of utter disrespect on the part of its perpetrators for their guests. It is interesting to note that the Westin Maui, one of the "pioneers" of this odious concept, was successfully sued over the issue several years ago. Their response was to almost quadruple what they charged, which, sadly, has now become the norm in Hawaii. They have been allowed to get away with this by ignorant and indifferent guests and lax government oversight. As for the comparison with airline behavior, on the one hand, airline fees are optional - don't check a bag (or ship via FedEx) , for example. On the other hand, is it really in anybody's enlightened self interest to adopt the ethical values of airlines? How sad that so many in this industry have sunk so low that government action is actually required to enforce. . .honesty. . . *SIGH*

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