Hotels Changing Internet Pricing Rules - Business Travel News

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Hotels Changing Internet Pricing Rules

May 21, 2013 - 05:20 PM ET

By Michael B. Baker

InterContinental Hotels Group's recent decision to make basic Internet access across all brands free to loyalty club members is a game-changer that could hasten development of tiered Internet pricing, according to several hotel industry analysts.

IHG in March announced that travelers who sign up for its Priority Club will not have to pay for basic Internet access in rooms or public spaces—even if they are not currently a guest at the hotel—at any IHG property, beginning in 2014. As with most multibrand companies, IHG currently charges for Internet at its upper-tier properties, Crowne Plaza and InterContinental, while generally providing it for free at the other brands.

While most major multibrand hotel companies require guests to be at a certain elite tier in loyalty programs to get free Internet access, other brands have made it free for all program members, including Omni, Kimpton and Fairmont, according to Henry Harteveldt, travel industry analyst and strategist at Hudson Crossing. The move by IHG, the world's largest hotel company by number of rooms, is likely to spur action from similar competitors.

"Giving free Internet is something that's very easily matched by other brands," Harteveldt said. "Ultimately, this is a type of reward or incentive for a zero-sum game. I do foresee some response."

Wyndham Hotel Group president and CEO Eric Danziger said the namesake Wyndham brand—the only one in the company's portfolio currently charging for Internet access—may drop the charge. For now, it's a legacy issue affected by existing deals and contracts, but Danziger said his personal feeling is that it should be free.

"The industry and companies need to evolve," he said. "I don't go anywhere without my iPhone and iPad, and I want to use it in my room. It's offensive when I do stay somewhere and have to do the sign in and pay $24.95 a day. That's nuts, when I can go to Starbucks [for access] for free."

Dubai-based Jumeirah Group also has decided to provide free Wi-Fi across all rooms, even though the move cost a single hotel in London an estimated $400,000 in revenue, said Derek Picot, the company's regional vice president for Europe. Though such a policy currently is rare among luxury brands, Picot said Internet charges across the industry are on the way out.

"It makes me laugh that people still charge for it," he said. "It is an irritant, and our satisfaction scores have increased considerably. People who think they can still charge for that are living in cloud cuckoo land."

Tom Botts, executive vice president and chief customer officer for Denihan Hospitality Group, said savings on the distribution side could offset the revenue that IHG will lose by providing complimentary Internet access.

"It's one more wedge in the fight against the online travel agencies," Botts said. "The hurdle of joining the loyalty program is a pretty low one, and they can shift channel share out of the OTAs and into their own channels by making people more loyal to IHG."

Denihan currently does not charge for Internet in its public spaces—because "we are in the hotel business, which means we are hospitable," Botts said—but does so in rooms at some but not all of the properties in its portfolio.

New York University Tisch Center for Hospitality divisional dean Bjorn Hanson said announcements from other hotel companies similar to IHG are in the works, though IHG's announcement "may have slowed some of the other announcements." However, the key takeaway from IHG's announcement is the ushering in of tiered pricing, Hanson said. While basic access will be free through the loyalty program, travelers who need higher-speed access still might have to pay, he said.

Demand on hotel Internet bandwidth is increasing as guests are turning to their own devices for entertainment. Witness the recent bankruptcy of hotel television provider LodgeNet as evidence, Hanson said. As such, many hotels are making hefty investments to meet that demand.

"It could be tens of thousands of dollars per hotel, for an older building that has to be retrofitted," he said. "Other brands are looking to offer a variation of tiered pricing that will be easy to understand and widely accepted by owners. It's a compromise that really works for both sides."

The Grand Hyatt New York, for example, currently charges $12.95 for its 768-kilobits per second "lite" bandwidth option, and $4 extra for its 2 megabits per second "enhanced" option. Hyatt Gold Passport members get free basic service as part of the program.

"Let's remember: We have to pay to have Internet access in our own homes, and the companies that we work for pay for the Internet access that employees have," Harteveldt said. "A tiered approach makes sense. For a traveler doing just simple email, the basic is fine, but if a family wants to download every episode of 'Downton Abbey' to their device, they should be prepared to pay for that."

Tiered Internet pricing could present some headaches for travel procurement executives, and Harteveldt said hotels would have to figure out whether to charge by room or device as they grapple with bandwidth issues, for example, and determine how to list charges on folios. But it also could present some opportunities. Most travel buyers try to get Internet access included as part of negotiated rates, but with tiered pricing, they might have some value decisions to make. If hotels provide at no charge the basic access that is sufficient for checking email and other simple tasks, is there any need to expend negotiating energy on enhanced bandwidth that may not be needed for work purposes? Would it be any different than reimbursing for a pay-per-view film?

In the meantime, not all hoteliers are eager to embrace tiered Internet pricing. Jumeirah's Picot said the policy for the foreseeable future would be to "provide high-speed everywhere," and Wyndham's Danziger said it eventually could come down to a brand-by-brand decision.

"If the percentage goes to most people streaming movies and they are eating up the Wi-Fi bandwidth that stops people from doing email, we may re-evaluate it, but for today, it's just free," he said. "So long as we can provide the service, and not a compromised service, we're going to continue to do that."

Sidebar: Hotel Internet Fees By Company 

Accor: Last year announced that it was moving to free basic Internet access across properties in the Asia/Pacific region, and also indicated it was taking a tiered pricing approach.

Best Western: Internet access is free in the United States, Canada and the Caribbean, regardless of loyalty program status.

Carlson: Internet is free for all loyalty program members at Carlson Rezidor hotels worldwide.

Choice: Internet is free across all U.S. hotels, with the exception of a few Ascend Collection properties, and most properties in other regions, regardless of loyalty program status.

Hilton: For those with Gold Status, in-room Internet access is complimentary at Waldorf-Astoria, Conrad, Hilton, DoubleTree, Embassy Suites and Hilton Grand Vacations properties.

Hyatt: Complimentary Internet is available to Platinum members. Hyatt notes that access "may be wired or wireless and varies by property," and that "upgrades to premium service may be available for an additional fee."

IHG: Basic Internet access is free for Gold members globally as of July and will be extended to all members as of 2014.

Marriott: At Gold level, Internet is complimentary at "participating" Marriott brand and Ritz-Carlton hotels.

Omni: Complimentary 3mbps Wi-Fi service is available to those at the Gold Level, which is the entry level. This also extends to the Global Hotel Alliance Discovery Program, which includes such brands as Kempinski, Pan Pacific, the Doyle Collection and Leela Palaces Hotels and Resorts.

Starwood: In-room Internet access is complimentary at Platinum level.

Wyndham: Free high-speed Internet access is available at the "welcome level." The Wyndham brand is the only one in the portfolio that charges for Internet.

This report originally appeared in the May 2013 issue of Travel Procurement. 

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